Taiwan has faced challenges in the past 60 years.  After the Chinese Civil War ended in 1949, the losing Kuomintang/Nationalist (KMT) government retreated to a newly re-acquired Taiwan.  Japan lost rights to Taiwan after World War II and ceded it back to the Chinese.  The island became the new home of the Republic of China (ROC).  Taiwan has been independent from China ever since.  But there was one problem.  Mainland China has laid claim to Taiwan ever since Chairman Mao's Revolution. 

 

Despite U.S. support, Taiwan always grew in the shadow of a much larger China.  The historic animosity between the two countries has caused strain for decades.  Then something happened.  Last month, on March 22, Taiwan elected KMT candidate, Ma Ying-jeou, to the presidency.  Amid promises for a renewed relationship with China, the new KMT government is looking ahead to brighter markets.  Although Ma won't be boarding a government charter flight to Beijing any time soon, his presidency promises to stand in marked contrast to previous administrations. 

 

This political development stabilizes the region.  At least for the near term, Taiwan will be enjoying fewer threats from across the Taiwan Strait and increased security against a more formidable foe.  This bodes well for economic development.  It should translate into a healthier export market and rejuvenation in the slumping sectors.  Taiwan's industries are positioned for the stability.

 

In the past, Taiwan dominated the financial headlines way before China was the rage on the international scene.  A close relationship with the U.S. helped boost Taiwan's economic standing.  Historic relationships opened markets to Taiwan industry that would have gone to Japan.  Consequently, exports exploded for the island nation.  In 2006 alone, Taiwan shipped $88.6 billion worth of IT hardware.  This year, LCD shipments should be up 30% compared to 2007.  This doesn't even include the growing software industry, accounting for $5.34 billion and the semiconductor business estimated at $37 billion in 2006.

 

These developments have caught the attention of investors.  Jim Rogers, commodities guru, recently bought into Taiwan for the first time in his life.  Others think Taiwan is still underpriced.  Standard & Poor's upgraded Taiwan's sovereign rating outlook from "negative" to "stable".  This year, the Taiwan stock market is up +6.6%.  Compare this to China's slump of -17.3%.  With Taiwan's stock market yielding 4% in dividends, other investors have been moving money to the island nation.  These are good reasons to consider 'the other China'.

 

There are three Taiwan funds U.S. investors can buy: the Taiwan Fund Inc (TWN), the Taiwan Greater China Fund (TFC) and iShares MSCI Taiwan (EWT).  Because the first two are closed-end funds instead of exchange-traded funds (ETFs), lower liquidity and higher fees make associated with such funds make them less desirable than Barclay's iShares ETF offering.  Right now, it is the only Taiwan ETF available. 

 

EWT is a broad-based fund with heavy allocation in tech (55%), financials (16%), and materials (15%).  Its specific exposure to Taiwan's economy make it unique among other Asian ETFs.  EWT's chart shows consolidation after Ma's election.  We think Taiwan is a good place for international allocation, before he takes office in May.  Those challenges from the Mainland may not be over, but the future looks brighter for Taiwan.  To play Taiwan's reemergence on the global stage, go with EWT.

 

All the best.