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$13.62 -0.13 (-0.95%)
7/8/2008 4:00 PM

iShares MSCI Taiwan Index (ETF) (EWT)

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Exchange Traded Funds

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Avatar NetscribeETF (98.67) Submitted: 3/12/07 6:00 AM : Underperform Start Price: $14.00 EWT Score: -6.70

It is only natural to overlook a market, which has a population of less than twenty five million and relatively little or no natural resources. Taiwan is better known as world’s nineteenth largest economy and the U.S’s eighth largest trading partner. Famed for its hi-tech industry: semiconductors, integrated circuits and hi precision instruments, Taiwan recently received the 2006 intelligent community award.


iShares MSCI Taiwan Index (EWT) fund consisting of 107 Taiwanese publicly listed stocks, with 54% asset exposure to this fledging hi tech industry returned 19% for the year 2006. The economy of Taiwan is tied to its trading partners and also to the fortunes of semiconductor industry which make up most of its exports. Of late, China has emerged as its major trading partner, with exports to China touching 40% in 2006 pushing the U.S to second spot. Majority of the goods exported to China consists of hi-tech instruments and EWT fund had investments in most of the companies that are exporting these goods.


The relationship between China and Taiwan has been very volatile with China claiming Taiwan as its province and Taiwan trying to assert its independence. It is largely by the effort of the U.S. and U.N that relations have not turned sour. 2007 will see a political shift in Taiwan and the signals in the air are not looking good for the political relations.


The companies in Taiwan have started to remove any reference their name might carry to China. Also ahead of 2008 Olympics which China hosts, it does not want any negative publicity. This presents, as a window of opportunity for Taiwan’s to assert its complete independence. Such a volatile situation will badly affect the companies in Taiwan as most of them depend upon Chinese markets for exports. This will also affect the domestic industry, as the political tension will give rise to economic instability. The fund with its wide exposure to hi tech industry, in market at such a volatile period is not expected to do well in the short term.

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Avatar none0such (94.87) Submitted: 5/10/07 3:51 AM

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The assertion for complete independence by Taiwan will not materialize before, during or immediately after the 2008 Beijing summer Olympics for several reasons: political power will most likely return to the KMT party in 2008 which historically favors dialog and reunification with the mainland; in 8 years the ruling DPP party has failed to persuade the people of Taiwan for the need to dramatically change the status quo that has existed between the mainland and the island of Taiwan since the end of hostilities associated with the Chinese Civil War (technically still on going); Taiwanese political complacency abound - Chinese Anti-secession Law directed at Taiwan - WHO isolation exacerbates SARS epidemic in Taiwan - DPP initiative to change the official name of the Republic of China to Taiwan as well as constitutional changes fail in referendum vote. In short, business will continue to dictate foreign policy in Taiwan.
Additionally, if China's economy comes to a screeching halt, this would spell trouble for all of Asia (Japan and Korea in particular because their recent growth is hinged on exports to China not the US) as well as Taiwan. However, during the last Asian Financial Crisis, Taiwan was surprisingly unscathed and came out of it in a healthy position precisely because of its isolation (China makes sure to exclude the sovereign nation of Taiwan from the privilege of borrowing money internationally). This might be better seen as a benefit imposed on Taiwan since it is a form of fiscal stewardship applied in a reluctant and draconian way. So Taiwan's economic volatility is not so bad and in fact is perhaps a step removed from Asia - much like the US is and locked into China's economic fortunes in a similar way as the US.

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