Taiwan is a semiconductor country. The chips are used worldwide and are accordingly scarce. New technologies such as assistance systems in vehicles or the Internet of Things are driving demand. Taiwan’s economy is largely dependent on the chip industry. This can be a risk, for example in phases of oversupply or price pressure, but it can also become an opportunity. And especially when the market is booming – as is currently the case. About 60 percent of Taiwan’s stock market is made up of IT companies. This gives investors the opportunity, instead of ordering individual chip manufacturers on a foreign exchange, to acquire the entire market using an ETF.
Taiwan combines the megatrends of digitization and Asia
On the Taiwanese On the market there is a large number of ETFs from different issuers – in synthetic, physical, distributing or accumulating variants. In these cases, investors benefit from low order fees and the diversified structure of the instruments. The most popular MSCI Taiwan index alone comprises more than 90 stocks. With a share of 30.4 percent, Taiwan Semiconductor Manufacturing plays the largest role in the index. The next two largest positions in the index are also chip values in the broadest sense with Hon Hai Precision Industry (6 percent) and Mediatek (5.9 percent). Set up in this way, Taiwan ETFs have grown by almost twelve percent since the beginning of the year.
Numbers are underpinned by a solid trend. In January alone, exports of semiconductors and other electronic components from Taiwan increased by almost 48 percent. The industry is also booming during the pandemic, which is mainly due to the fact that countries like Taiwan, but also Asia in general, have so far come through the crisis very well and global supply chains and world trade are now running at full capacity again. This is evidenced, for example, by high freight quotas. For example, the shipping company Hapag-Lloyd is currently seeing a demand for freight capacities like never before.
If vaccination rates also increase in Europe and the global economy picks up speed again from the second half of 2021, the chip industry should also benefit. The digitization trend, intensified by the pandemic, should continue and ensure that semiconductor products from Taiwan are in demand. The industry giants Intel and AMD are also attractive and can play a solid role within a diversified portfolio; But a Taiwan ETF is a suitable alternative because, in addition to the digitization trend, it also benefits from the growing popularity of investors in Asia.
Taiwan is also convincing long-term
That the Taiwanese stock market can also offer long-term opportunities A look at the MSCI Taiwan index shows: Over a five-year period, it achieved an average return of almost 20 percent. Taiwan only had a weak year in 2018, causing investors a loss of around five percent – all other years since 2016 have been extremely good for investors. Despite the convincing long-term development, investors should pay attention to a balanced asset allocation, especially in the current uncertain market phase. Sub-markets such as Taiwan, despite their promising prospects, should only play a small role in a global portfolio. Organized in this way, long-term asset growth is achieved beyond crises.
Please note the disclaimer.
Dr. Marcus C. Zschaber is the founder of VMZ Vermögensverwaltungsgesellschaft. For t3n, the multi-award-winning portfolio manager analyzes the stock market prospects for the technology and digitization industry as well as other megatrends of the 21st century.
