I was interested to see two different reports on the Taiwan Technology Index. The first is from Reuters about the new HSBC Taiwan fund. The fund manager, Leilani Lamm argues investors should avoid tech stocks and look at other investment opportunities in traditional industries. The article says:
Investors in Taiwan should be underweight its high profile technology sector because it is unclear how badly a faltering global economy will curb demand in its main export markets, an HSBC fund manager said.
They should instead favour shares of the self-ruled island's telecom, industrial and material stocks, which best stand to benefit from policy changes following the election of President Ma Ying-jeou, added Leilani Lam, manager of the bank's newly launched Taiwan fund.
Leilani Lam is quoted as saying:
"The new administration does make a difference, because for the first time in eight years, this government, they are really focusing on growth and putting Taiwan back on to the map."
A second article on Forbes argues:
A month ago Taiwan hosted two big technology exhibitions, Computex and SemiTech Taipei. Computex attracted 35,000 visitors and 1,700 exhibitors from 25 countries. They already knew Taiwan as a technology powerhouse, but the 2008 inauguration of President Ma Ying-jeou on a platform of increased business ties to China promises to recharge the economy. The Council for Economic Planning & Development, a Taiwan government agency, forecasts 4.3% real growth in gross domestic product in 2008. That's not big by Asian standards, but it's more than triple what will come out of the U.S.
However, one portfolio manager is, unlike the HSBC fund manager, starting to look at the tech stocks. According to Forbes:
These developments have yet to be matched with bullishness in Taiwanese technology stocks. "It has been a bad market for seven years, since the bubble burst in 2001. However, we're starting to look at this market," says Khiem Do, portfolio manager of the closed-end Asia Pacific Fund
Firstly, there is a lot of optimism surrounding the election of Ma Ying Jeou and what he can do for Taiwan and Taiwan’s economy. While the so-called “improved” trade links with China may stimulate Taiwan’s economy, this is not definite. Most tech companies make most of their revenues through exports and are therefore dependent on the global economy. The downturn in the States and increasing economic pressures in other parts of the world mean the companies are exposed to forces beyond the control of the Taiwan government.
The Economist (hat tip The View From Taiwan) argues in a similar way in an article about the recent Chinese Mainland tourists in Taiwan. (Emphasis added):
Since taking office in May, President Ma Ying-jeou has faced pressure to reinvigorate the economy. Annual growth remains above the 4% mark and inflation below it, but share prices have been tumbling and concerns are growing over widening inequality and looming economic stagnation. Soaring fuel prices and a global slowdown limit Mr Ma’s room for manoeuvre.
I believe fund managers and others should temper their optimism with the new Taiwan government. There is not much they can do.
So what about buying stocks on the tech index? I polled a broker and a personal wealth fund manager on the weekend and they were both saying don’t buy yet. One of them believes there is stagflation in Taiwan and there are more rocky times ahead. The other believes the bottom of the Taiex is below 6800 points (yesterday it traded at 7200 points). One of them even recommended looking at other emerging markets. I am starting to look at some companies now. A properly diversified portfolio may pay real dividends in the next two or three years, but I think short term gains will be hard to come by.
Reuters: HSBC wary on Taiwan tech firms
Forbes: Tech in Taipei
Economist: First, we take the department stores…
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