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Warming Relations with
China are Heating Up Taiwan's Market
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Published:
August 25, 2008
Much
has been written about the tremendous long-term potential of
Chinese stocks, which are being driven by the sustained economic
boom of the world's most populous country. Despite predictions
by some that China's economy is seriously threatened by
inflation and a crimped supply of some essential raw materials,
the country keeps rolling. Its economy expanded at an annual
rate of +10.1% in the
second quarter -- slightly lower than the average forecast of
economists, but still a pace that's akin to the record-breaking
sprinters from the Beijing Olympics.
One of the surest beneficiaries of China's growth is the
Republic of China, the island nation off the coast of mainland
China
better known as Taiwan. One of the wealthiest and most developed
economies in Asia, Taiwan has a robust technology industry that
is a natural complement to China's low cost and efficient
industrial base.
The fact that China's economic growth is doing tremendous good
for Taiwan is ironic, as the two countries have engaged in a
decades-long family feud over sovereignty that remains
contentious. But in pragmatic fashion, they're increasingly
setting aside their differences to work together economically.
That process was sped up when Ma Ying-jeou became Taiwan's
president in May. The leader of the Nationalist Party (also
called the KMT Party), Ma was elected on a platform of stronger
economic growth and closer ties with mainland China. Ma's
presidency follows eight years of control by the Democratic
Progressive Party (DPP), which took a harder line against
mainland China.
Taiwan already is a major investor in China's economy, and a
million Taiwanese citizens live and work on the mainland. Ma
hopes to formalize economic ties with a regulatory agreement:
allow Taiwanese companies to increase their ownership stakes in
mainland Chinese companies, boost commercial flights and
visitors between the countries, and tone down the risk of a
military skirmish.
He has already started implementing his agenda: the first
regular, direct commercial flights between the two countries in
60 years commenced on July 4th. Direct flights are crucial
because they shorten the travel time between Taipei and some key
mainland cities to 1-2 hours, rather than 8 hours or more using
indirect routes.
And just last month, the Taiwanese cabinet approved new
rules allowing Taiwanese companies to invest up to 60% of their
net worth in mainland China, versus 40% currently.
Ma's policy of engagement will only strengthen the economic
bonds between the countries, and it could even lead to a formal
peace agreement that acknowledges, if not officially recognizes,
both countries' sovereignty. In practical terms, that has
already occurred. But by reassuring the world that armed
conflict is not going to happen, China and Taiwan could increase
confidence in each others' economies and financial arrangements
-- that will help the stocks of companies in both countries.
In addition to seeking a thaw in Taiwan's relationship with
mainland China, Ma wants to strengthen trade relationships with
other countries and establish Taiwan as one of the more flexible
and progressive trade partners in the world. He publicly cited
Ireland as an example of a country that reinvigorated its
economy through trade.
After having sold off along with other international bourses in
recent weeks, Taiwan's stock market now is very attractively
valued, at less than 11 times expected 2009 earnings -- versus a
P/E of about 13 for Hong Kong's market and 12 for the United
States. What's especially attractive about Taiwan is that its
average stock yields 5%, giving income investors plenty of
opportunities to participate in the island's economic future.
With these points in mind,
High-Yield International editor
Nick Lanyi and his staff profile one
of Taiwan's most
promising companies in a recent
issue. Not only does this company
yield an above average 9.2%, it has
considerable potential for capital
appreciation with expected
long-term earnings growth of +20%.
To learn the name of this
security and many of the world's top yielding
companies -- we invite you
to try a no-risk subscription
of
High-Yield International. To
learn more, please
visit this link. |
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