Asian markets haven’t been spared from the Credit Crunch correction of 2007-08 – in fact several markets in the region have already declined over 20% from last year’s highs – triggering the technical definition of a bear market.
China, Hong Kong, Japan, and even Taiwan have all succumbed to the sell-off in Asia. This is setting up some interesting bargain buying opportunities going forward – particularly in Taiwan. The “other China” had a strong run-up early in 2007 only to collapse since August. Still, Taiwan is also one of the best global value plays (almost as good as Japan) on the planet right now.
Elections Could Provide Key Upside Catalyst
In addition, there’s a great election-year catalyst set to play out in Taiwan that could easily send this market sky-rocketing in 2008.
Just last week, Taiwan held its parliamentary elections, which resulted in a land-slide victory for Kuomintang (KMT) – or Chinese Nationalist party. The party and its chief Presidential candidate are running on a platform of cultivating closer ties with mainland China.
Ironically, it was the Kuomintang, led by General Chiang Kai-Shek that retreated to Taiwan in 1949 after losing China's civil war to the communists.
This event is what established Taiwan as a breakaway province in the first place. Fast forward fifty-nine years – and now it’s the KMT that wants peace with China.
Taiwan’s old government had for decades placed restrictions on Taiwanese investment in mainland China. Direct shipping, air and postal links with the mainland were also strictly limited.
Expect Closer Ties Between the “Two Chinas”
Taiwanese businessmen going to the mainland are forced to travel via other ports such as Hong Kong or Macau. And yet, even with all these roadblocks, Taiwan’s exports to China are booming (see chart above). That's because you just can’t “restrict” the Taiwanese entrepreneurial spirit!
Now, the KMT has pledged to re-open direct transportation links with the mainland and wants to allow greater direct investment and trade with the China.
Obviously this is great news for both countries, but more so for Taiwan. For decades sabers have been periodically rattled about a “forced” military reconciliation of the “two-China’s”. This election paves the way for much closer business ties, which should lead to peaceful political reconciliation down the road.
News of the KMT party’s parliamentary victory sent Taiwan stocks soaring last week. The benchmark Taiex index surged 5% higher in just two-days; the biggest rally in 3 ½ years!
This combination of fundamental value in Taiwan, and a key election-year catalyst that should bring closer investment ties with China, convinces me that Taiwan remains on your short-list of strong BUY candidates in spite of global volatility.
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