The pro-democracy Umbrella Movement in Hong Kong that calls for the universal suffrage right has sounded alarm bells in Taiwan, a flourishing democracy and an attractive investment destination for numerous emerging market investors.
Taiwan, which takes up a significant portion of emerging markets indices, and China have shared a tense and uneasy relationship over the past 65 years. China has never recognized Taiwan as an independent nation and Taiwan has always refused China’s proposal that it be governed by the Mainland as part of the “one country, two systems” regime that exists for Hong Kong.
In the current context, some investors fear China could become more aggressive than it has been toward Taiwan, thereby threatening its sovereignty.
“We’re in a wait and see mode with respect to Taiwan but what’s happening there and in Hong Kong is making investors nervous,” said Peter Kohli, CEO of DMS Funds. “While the possibility of Chinese aggression has always been an underlying theme when it comes to Taiwan, there is a genuine concern that China is reneging on its democratic agreements with Hong Kong, and this has impacted investments in the region, so the entire picture is not very pleasant.”
How do investors view Taiwan and its relationship with China?
1: A Strong and Solid Economy
Taiwan has always been a default investment destination of sorts and though it does represent a large part of the emerging markets index, “we regard it more as a developed than an emerging market, because it is a stable economy with a stable currency, a high savings rate and high per capita GDP,” said Nick Smithie, chief investment strategist at Emerging Global Advisors.
That means that the rationale for investing in Taiwan is different than it is for other emerging markets with lower per capita GDP rates that investors believe will rise over time, and that are in the early stages of the market economy cycle, he said. Taiwan represents all the best elements of democracy and capitalism, said Kohli, “and it’s a good, safe play for investors. Taiwan’s export-based economy has also enabled the nation to amass the world’s fourth-largest stash of foreign exchange reserves.