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Taiwan ETFs
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About Taiwan ETFs |
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Taiwan ETFs Overview and forecast
It would be reasonable to expect that the Taiwanese ETF market would be overshadowed by the huge surrounding markets of China, Japan, and Korea. The reality is quite the opposite. This market has one of the most hyperactive ETFs in the world.
iShares MSCI Taiwan Index Fund (AMEX:EWT) trades in volumes measured at a baseline volume indicator of 20 million units. This volume has been increasing since about 2007, and big moves in the prices don't seem to have affected volumes significantly. Few if any ETFs trade in these volumes. For a domestic ETF, it's an extraordinary performance. The price margins show the reason for the strong trader interest in EWN. This ETF does deliver profit to traders. The Rate of Change (ROC) show a series of price moves which would be good business for the local market.
Taiwan has many advantages as an investment market. Chinese and Japanese interest is extremely strong. Taiwan itself is a well capitalized market, and overseas Chinese investment is also quite strong. Hence the huge volumes and high intensity trading. Asian equity markets are frenetic, doing huge volumes of trade, and this is an example of an investment which is clearly popular.
Short term (6 months)
The Taiwan market itself is getting interest from outside. Deutsche Bank has moved into Taiwan with its own ETF. Deutsche Bank has been highly selective about how it approaches ETFs, and the Taiwan ETF, (DBX1MT: Deutsche Boerse) has $118 million in assets under management. EWT is no small fish itself, with nearly $3 billion in assets.
The short term outlook for the Taiwan ETFs, therefore, is particularly strong. The Deutsche Bank ETF, according to the bank's estimate of Net Asset Value, is currently actually undervalued, in mid 2009. The recession has taken a bite out of the market, but the upside is obvious. EWT is also under its median bandwidth in trading prices. Traders can approach this market with some real interest, but the ROC is a good indicator of how the Taiwan market behaves.
Medium term (2 years)
Taiwan's real business investment situation is more economic than political. Its natural affinity with China, in terms of business and investment, has been progressing despite the political issues. Taiwan has evolved from an individual market to being a productive satellite of China, and that's been good business for all concerned. That trend, barring any political neuroses, will continue in the medium term.
The chronological outlooks for Taiwan get progressively stronger with time. In the medium term, if the recession continues through the period, it looks like it will put some brakes on ETF prices, but this is a unique market, and the upside is definitely positive, unless some major issue emerges.
Long term (5 years)
In 5 years the recession should be out of the picture, even if the memory will linger for a long time. Taiwan's markets will return to top gear, given a chance. The positive elements are many, because China's high liquidity situation is generating a demand for investment options.
That could lead to a risk of overheating the markets. There are two sides to this situation. Because traders are a major driver of market movements, there is a sort of pricing premium created by trader margins which is actually pretty normal in Asia. Traders call the shots to a very large extent. The other side of the problem is that the overheating causes severe turbulence in the prices when there's a sharp downward move.
Qualifiers to projections
The Taiwanese ETFs have some good assets. They're inherently solid business. It's the nature of the capital investment markets that gives cause for concern. The very strong volumes indicate that an ETF is considered a standard trading interest, but the ROC also indicates that the market is highly fluid, and capable of very sharp movements. That's not everyone's idea of the perfect investment environment. Taiwan's market does have a different dynamic. EWT may not be the only show in town, but as a popular trader, it's a good indicator of how the market moves.
The other big issue in Taiwan, because of its strong foreign capital presence in its markets, is that the foreign money can move out as fast as it moves in. This is a second line market in Asia, and positioning in the major markets takes precedence over it. This pattern of movements can take people who aren't familiar with the Asian markets by surprise, and it's advisable for both investors and traders to study the Taiwanese market before making commitments.
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Last Updated on: 2010-01-14 02:03:40 |
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