This year’s unexpected 20 percent rally in Taiwanese stocks is poised to close a final chapter in the history of its financial markets.
The TAIEX is within 7 percent of its all-time high from 1990, a milestone that analysts have said is likely to be topped next year. Analysts have said that a humming economy should keep adding momentum to the nation’s financial markets, and next month’s presidential and legislative elections should not get in the way.
The TAIEX has risen 50 percent since Tsai Ing-wen (蔡英文) was elected president, despite the nation’s relations with China worsening after she refused to endorse Beijing’s bottom line that both sides belong to “one China” — and Tsai is widely expected to win re-election.
For export-dependent Taiwan, things ultimately circle back to trade. Increased US orders and some Taiwanese companies moving manufacturing back to the nation from China amid government incentives have helped make the nation a surprise trade-dispute winner.
“The relations of the US, China and Taiwan are like a triangle,” Shin Kong Investment Trust Co (新光投信) chairman Quincy Liu (劉坤錫) said. “Many Taiwanese industries and companies are in fact benefiting from the US-China trade war, so it reduces the impact of worsening cross-strait relations.”
Investor focus this year has been on technology, which makes up the bulk of the nation’s stock market. Some thanks go to Apple Inc, whose iPhone sales have improved and powered its shares to record highs, as many component suppliers are based in Taiwan.
“There has been a strong inflow into the technology sector, driven by optimism” about the iPhone, UBS Securities Pte Ltd Taipei branch analyst William Dong (董成康) said.
The just-starting wireless transition to 5G has also been attracting investors to Taiwanese stocks, with the liquidity likely to continue supporting the market next year, he added.
The nation’s stocks — which, according to the Financial Supervisory Commission, are 40 percent-owned by foreign investors, up from 30 percent a decade ago — are in a much different place than 30 years ago.
The TAIEX doubled in both 1987 and 1988, nearly did so in 1989 and jumped 30 percent in the opening six weeks of 1990, a several-year surge that occurred as the New Taiwan dollar strengthened on foreign inflows after dropping its peg to the US currency. After the TAIEX’s bubble burst, the index plunged 80 percent in eight months.
“There were only retail investors back then,” Capital Investment Management Corp (群益投顧) chairman Andrew Tsai (蔡明彥) said.
The factor attracting foreign capital to the nation has been the steady economic growth during Tsai’s term. The government also recently raised economic forecasts for this year and next, and growth has been quickest of the so-called Asian Tigers, which include recession-hit Hong Kong. The outperformance has helped reverse last year’s net equities selling by foreigners.
Taiwanese stocks have also historically been income producers, with TAIEX components having about a 4 percent dividend yield over the past few years. That is among the world’s highest and an increasingly attractive metric for foreign investors, as trillions of dollars of government debt sports negative yields. That is not expected to change, as this year’s policy easing by central banks is poised to continue next year.
“If global interest rates are still low next year, the TAIEX with a 4 percent dividend yield is key to investors,” JPMorgan Asset Management Taiwan Ltd (摩根資產管理) global market strategist Agnes Lin (林雅慧) said, but added that her concern is that Taiwanese stocks are not cheap, despite projections of double-digit percentage earnings growth next year.
The TAIEX — which yesterday ended down 0.28 percent after its latest 29-year closing high a day earlier — has traded of late at the highest price-to-earnings levels in five years versus both the Shanghai Composite Index and the MSCI Asia Pacific Index.
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