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Which Credit Card Rewards Does the IRS Care About?"Taiwan - the so-called 'other China' - is an overlooked gem," says Martin Hutchinson, contributing editor to the top-notch Money Morning.
"With a per capita income of nearly $30,000, and a productivity growth rate of 4% -- more than double the rates enjoyed by Europe and the United States -- Taiwan is one of the world's best bargains." Here, the advisor looks at ways to invest in Taiwan.
"There's no question that the Taiwanese economy is highly dependent on China. Indeed, fully 38% of Taiwan's exports go to China - including Hong Kong - while 16% of Taiwan's imports originate on the mainland."
"Taiwan's inflation rate is a paltry 3%, government spending accounts for a mere 21% of the country's economic activity and the country runs a hefty balance-of-payments surplus. Unlike China, there are no signs of major problems in Taiwan's banking system.
"Thus, even though Taiwan's growth rate is lower than China's 'official' growth rate, the greater stability of Taiwan's economy ought to make the shares of Taiwan-based companies trade at a premium to those based in China. But that's not the case. Instead, Taipei trades at less than half the earnings multiple of Shanghai.
"If the relations between China and Taiwan improve enough under the newly elected Kuomintang government to cause the economic dealings between the two countries to accelerate, Taiwan could see a nice run-up in its stock prices - even if the other Asian markets are rather dull this year.
"One highly effective way to play the Taiwan market is with the iShares MSCI Taiwan Index (ASE: EWT), an exchange-traded fund that's currently trading at only 13 times earnings and yielding a worthwhile 2.6%.
"Taiwan Semiconductor (NYSE: TSM), trading at 15 times earnings and yielding 4%, is the top Taiwan blue-chip stock. It's the world's largest semiconductor fabricator, producing approximately 7.15 million wafers in 2006, distributing its products in the United States, Europe, Japan, China, Korea and India, among others.
"You might also look at Siliconware Precision Industries (SPIL), which yields a substantive 4.8%, and is trading on only 8.4 times projected 2008 earnings. These valuations are well below those available in slow-growing Western markets, let alone in China.
"Finally, Hon Hai (OTC: HNHAF) has a diverse customer base and a great business model. It is the manufacturer of the Mac mini, the iPhone and the iPod for Apple Inc. (NASDAQ: AAPL), cell phones for Nokia Corp. (NYSE: NOK), and motherboards for Intel Corp. (NASDAQ: INTC).
"The fact that its also got a contract with Microsoft Corp. (NASDAQ: MSFT), Nintendo Co. Ltd. (OTC: NTDOY) and Sony Corp. (NYSE: SNE) to manufacture all three of the major gaming-system consoles now dominating world markets underscores the market power that Hon Hai possesses as the biggest electronics manufacturer on the planet."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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