iShares MSCI Taiwan Index (ETF) (EWT)

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.