Unlocking Opportunities: A Deep Dive into Taiwan’s Investment Potential March 6, 2024
Introduction
Taiwan’s stock market offers a compelling investment opportunity, fueled by a resilient technology-driven economy. Remarkably in 2023, Machinery and Electrical Equipment made up 69% of the nation’s total exports. Noteworthy global players such as TSMC (2330.TW) and Foxconn (2317.TW) underscore the market’s strength with factors such as political stability, investor-friendly regulations, and a robust legal framework that enhances Taiwan’s appeal to global investors. The commendable historical market performance of its stock market, combined with Taiwan’s pivotal role in international trade, further elevates its status as an attractive investment destination. Positioned for growth and diversification, investors can leverage the vibrant stock market and capitalise on Taiwan’s technological prowess and stable economic backdrop.
Macroeconomic Overview
Taiwan’s recent economic narrative is one of resurgence and growth. In 2023, the nation witnessed a GDP increase of 1.4% year-on-year, a notable rebound from the 2.45% growth in 2022. Despite a continuous battle with inflation rates exceeding 3%, higher than pre-pandemic levels, Taiwan has managed to record the lowest unemployment rate seen over the last decade.
Notably, Taiwan has achieved the lowest unemployment rate in the past decade, reflecting a resilient labour market. The Purchasing Managers’ Index (PMI) for Manufacturing in Taiwan indicates a positive trajectory towards recovery, reaching 48.80 in January 2024, signaling an improvement compared to the corresponding period last year.
Examining the constituents of the Taiwan Stock Exchange Weighted Index (TAIEX), more than 64% of its constituents belong to the Electronics sector, with the Financial and Insurance sector making up another 11.3%. The remaining constituents are distributed among traditional sectors such as Industrials and Consumer Discretionary products. Over the past decade, the TAIEX has demonstrated stability, yielding an average dividend of 3.7%, positioning itself as a lucrative option for investors.
Overall, these economic indicators suggest a robust and evolving market environment in Taiwan.
Investment merits for Taiwan Market
Tech Dominance in Semiconductor and AI Industries
The Taiwan Stock Market is a magnet for investors, with its pivotal role in the global semiconductor and AI manufacturing sectors. At the forefront, industry giants such as TSMC, lead the way with pioneering technology, alongside Foxconn, the world’s largest iPhone manufacturer globally. As global demand for advanced technology grows, Taiwan’s leadership in technology positions its stock market as an enticing investment destination for those seeking exposure to the semiconductor and AI industries.
According to an ITRI report, Taiwan’s semiconductor output value will reach NT$4.9 trillion (approximately US$146.1 billion) in 2024, up 14.1% YoY. The semiconductor sector is anticipated to gradually recover momentum and achieve a record-high production value next year due to the strong demand for AI and high-performance computing applications.
Stable consumer and labour market
In December 2023, Taiwan’s headline Consumer Price Index (CPI) experienced a 2.71% increase, slightly higher than the average inflation rate in major Asia markets of 2.5%, yet remaining below the US’s 3.4% and UK’s 4.0%. Furthermore, Taiwan’s unemployment rate in December 2023 was 3.4%, showcasing lower figures compared to the average across major Asian countries as well as the US, UK and Australia. The combination of a stable consumer and labour market, alongside moderate interest rate hikes have provided foreign investors a great opportunity to invest in Taiwan.
Source: Trading Economics
Taiwan Consumer Price Index (CPI)
Source: Trading Economics
Investment Risks for Taiwan Market
Geopolitical Risk
A significant geopolitical risk impacting investment in the Taiwan Stock Market is the long-standing tension between Taiwan and mainland China. Any escalation in cross-strait tensions could have significant implications for the stability of the region and potentially impact the Taiwanese economy and stock market. Investors should closely monitor geopolitical developments, such as shifts in military posture, political statements, or changes in diplomatic ties, as they may influence market sentiment and introduce a degree of uncertainty. A sudden shift in the geopolitical landscape could lead to increased volatility and affect the performance of the Taiwan Stock Market. Understanding and staying informed about these geopolitical dynamics is crucial for making well-informed investment decisions in the region.
Supply Chain Disruption and Destocking Risk
Taiwan’s trade in goods and services, when compared to its nominal GDP, exceeds 100%. Disruptions in global supply chains, such as those caused by trade tensions, natural disasters, or transportation disruptions, can result in shortages of raw materials or components. Companies may reduce their inventory levels in response to supply chain disruptions, leading to production delays or decreased sales.
Destocking risk in the Taiwan Stock Market pertains to potential adverse effects on companies due to reduced inventory levels. This risk is influenced by various factors, including economic downturns, supply chain disruptions, seasonal variations, technological changes, and financial constraints. Companies affected by destocking may experience decreased revenues, profitability, and market sentiment. It is important for investors to evaluate the ability of companies to withstand such risks, taking into account their vulnerability to economic fluctuations, the strength of their supply chains, and their overall financial stability.
Notable Taiwan Companies
TSMC 2330.TW
Taiwan Semiconductor Manufacturing Company, commonly known as TSMC, is the world’s largest independent semiconductor foundry, commanding a 56.4% market share in 2Q23, according to Statista. Founded in 1987, TSMC plays a pivotal role in the global semiconductor industry by providing advanced manufacturing processes for a diverse range of companies. Specialising in the production of integrated circuits, TSMC’s technological leadership, foundry model, and commitment to innovation make it a cornerstone of the global electronics supply chain. TSMC’s major customers are Apple, MediaTek, Qualcomm, AMD, Broadcom and Nvidia.
Hon Hai 2317.TW
Hon Hai Precision Industry Co., commonly known as Foxconn, is a major Taiwanese multinational electronics contract manufacturer. Founded in 1974, Foxconn is a key player in global manufacturing, producing electronic components and assembling products for prominent technology companies, including Apple . Renowned for its massive scale and operational efficiency, Foxconn serves as a critical element of the global supply chain, contributing significantly to the production of smartphones, computers, and other consumer electronics. Its importance lies in its role as a major assembler, enabling the mass production of devices and influencing the global landscape of manufacturing.
MediaTek 2454.TW
MediaTek Inc. is a Taiwanese semiconductor company founded in 1997, specialising in the design and manufacture of semiconductors for various electronic devices. It is a key player in Taiwan’s technology sector, contributing to the nation’s innovation and economic growth. MediaTek is a major global provider of system-on-chip solutions for smartphones, smart TVs, and other consumer electronics. Its efficient and cost-effective chipsets have fueled the expansion of affordable technology, influencing the global electronics industry. MediaTek’s impact extends to emerging markets, fostering connectivity and technological accessibility on a worldwide scale.
United Microelectronics 2303.TW
United Microelectronics Corporation (UMC) stands as a leading Taiwanese semiconductor foundry. Founded in 1980, UMC specialises in the manufacturing of integrated circuits and offers a comprehensive range of semiconductor manufacturing services. It plays a significant role in global manufacturing by providing advanced technology solutions for various industries. As a key player in the semiconductor ecosystem, UMC contributes to the production of electronic devices, supporting the global supply chain. Its importance lies in enhancing the accessibility of semiconductor manufacturing services, fostering innovation, and meeting the demand for cutting-edge technologies, thereby influencing the broader landscape of global manufacturing and technological advancement.
Fubon Financial Holding 2881.TW
Fubon Financial Holding Co., Ltd. is a distinguished Taiwanese financial services conglomerate. Founded in 2001, Fubon Financial plays a vital role in Taiwan’s banking sector, providing a wide range of financial services including Insurance Business (67.7%), Banking (25.5%), and Securities Business (4.5%). Its importance lies in providing comprehensive financial services, contributing to the nation’s economic stability and growth. While primarily focused on Taiwan, Fubon has expanded its global presence, enhancing Taiwan’s connectivity to the international financial landscape. As a diversified financial institution, Fubon plays a crucial role in shaping Taiwan’s financial industry and fostering economic development while contributing to global financial services.
Taiwan Exchange-Traded-Funds (ETF)
Yuanta/P-shares Taiwan Top 50 ETF (0050.TW)
The Yuanta/P-shares Taiwan Top 50 ETF is an ETF established in Taiwan to track with the TSEC Taiwan 50 Index. It invests in stocks listed on both the TSEC and OTC, offering investors the chance to invest in a collection of Taiwan’s blue-chip stocks, including TSMC, Hon Hai, MediaTek, among others.
Cathay MSCI Taiwan ESG Sustainability High Dividend Yield ETF (00878.TW)
The Cathay Taiwan Select ESG Sustainability High Yield ETF seeks to track the performance of the MSCI Taiwan Select ESG Sustainability High Yield Top 30 Index. With a 12 Month Dividend Yield of approximately 5.68%, it surpasses the TAIEX’s 10-year average dividend yield of 3.7%.
Yuanta/P-shares Taiwan Dividend Plus ETF (0056.TW)
The Yuanta/P-shares Taiwan Dividend Plus ETF focuses on diversifying risk while closely tracking the performance of the Taiwan Dividend and Index. Its 12 Month Dividend Yield stands at 5.21%.
How to trade in the Taiwan Stock Market
Trading Hours: The regular trading session runs from 9:00 am to 1:30 pm (SGT), with order entries beginning at 8:30 am
Trading Lot: The standard trading lot size is 1,000 shares.
Daily price fluctuation limit: ±10% of the market opening auction reference price
For more information about TWSE trading rules and regulations, please click here.
Clients must sign a Letter of Undertaking before investing in the Taiwan Stock Market. Once the Letter of Undertaking is signed, clients may commence trading in through a designated Trading Representative. For more information, click here.
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About the author
Global Markets Desk Asia Market
Phillip Securities Pte Ltd
The Global Markets Desk Asia Market Dealing team specializes in managing Asia Markets, covering key regions like Greater China, Malaysia, Japan, Thailand, and others. In addition to executing client orders, they also provide educational content through market journals and webinars, offering insights into macroeconomics, stock picks, and technical analyses for the Asia market landscape.
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