3 Takeaways for Investors From Taiwan-China Tension

2: A Profitable Tech Play  

“People do not really invest in Taiwan with the idea of long term growth potential: They invest there more as a tech play, because Taiwan’s forte is its technology sector,” Smithie said. “Taiwan has a very mature technology sector comprising some of the world’s foremost tech companies, such as Taiwan Semiconductor and Mediatek. So investors like to play the tech cycle through Taiwanese technology companies and that has been a good strategy this year, since tech earnings have risen and the Taiwanese market has been a good performer because of that.” Taiwanese tech companies produce both intermediate well as final products, all of a very high caliber, Kohli said.

Otherwise, the Taiwanese market consists of banks, insurance companies and other finance companies, which tend to be slow growers and not particularly profitable, “but they do produce good dividends, so investors go for that as well as the tech cycle,” Smithie said.

3: Politics as Usual?

Smithie believes there is reason to be concerned about the current Hong Kong/China, Taiwain/China tensions. After all, the relationship between Taiwan and China has ebbed and flowed for the past 65 years, he said, veering between periods of détente and moments of tension.

“This time, too, there’s no reason to believe that things would move in any different way,” Smithie said. “It would be a real global faux pas on China’s part to interfere with Taiwan, so there is no reason for the markets to panic about Taiwan. As it were, there are many links between Taiwan and China – tourism, notably, Smithie said, and manufacturing a large number for Taiwanese companies actually takes place in Mainland China.

Jeopardizing these ties by rattling the status quo wouldn’t benefit either China or Taiwan, “which is why I don’t see any major change occurring now, even though China is looking to extend its influence throughout Asia, and has clashed with The Philippines, Vietnam and Japan as it has claimed more territory in the South China Sea.,” he said.

That being said, though, it should be noted that some South Korean companies that had always chosen Taiwan as a manufacturing base are now opting to build their factories in Vietnam instead, Kohli said. While that could be a function of Vietnam’s labor costs as opposed to the current political tensions, this dynamic could impact Taiwan should it intensify.