The bull run in Taiwanese stocks
Taiwanese stocks have been on a roll for quite some time. The MSCI Taiwan Index has returned an annualized 8.2% in the five year period until May 26, 2017. In the past three years, the Index is up 32.9% while in YTD 2017, it has contributed to the overall surge in emerging market equities, having risen 18%.
There is only one ETF listed on US exchanges investing exclusively in Taiwanese stocks: the iShares MSCI Taiwan Capped ETF (EWT). The ETF has returned 8% annualized over the past five years.
Given the dominance of Taiwan in the field of information technology, it is not surprising that the sector has contributed the most to the returns of EWT over this period. In fact, information technology is responsible for 70% of the cumulative returns of EWT in the past five years.
Tech major Taiwan Semiconductor Manufacturing (TSM) has led the sector and the fund through this time with Hon Hai Precision Industry Co., Ltd. (HNHPF), better known as Foxconn, emerging as a distant second.
Investor interest in Taiwanese equities
The $3.5 billion EWT has evinced investor interest from the US. The fund has attracted inflows amounting to $302 million this year and worth $546 million in the past one year.
Meanwhile, according to data made available by the Taiwan Stock Exchange, foreign investors (including Mainland investors) have net bought Taiwanese equities amounting to NT$253 billion ($8.5 billion) in YTD 2017 until May 26.
An interesting trend comes out of flows to an ETF traded on the domestic stock exchange. The $72 billion Yuanta Daily Taiwan 50 Bear -1X ETF (00632R) is an inverse ETF which corresponds to the inverse of the daily returns of the Taiwan Top 50 Index. This means that is the Index goes up, the Yuanta Daily Taiwan 50 Bear goes down by the same percentage, and vice-versa, before being adjusted for fees.
According to Bloomberg data, the ETF has attracted inflows amounting to $2.5 billion in the past three years. In YTD 2017, it occupies the second spot behind the EWT in terms of net investor flows to funds investing in Taiwanese equities traded on any exchange. A little over $110 million have flowed into the fund this year.
This reflects the bearish view on stocks from the country. However, the view is mostly short-term as such inverse and leveraged ETFs are designed exclusively for this purpose.
In the next article, let’s look at the view on Taiwan’s stocks.