After a rocky start to 2010, Taiwan ETFs may soon start to feel better. For one, the country’s Taiwan’s economic outlook has been upgraded by Citibank as a result of the country’s strong export performance.
Citibank recently upgraded Taiwan’s economic growth forecast for 2010 from 5% to 7%, according to Focus Taiwan. Cheng Cheng Mount, chief economist at Citibank Taiwan, attributed the higher GDP projection to a recovery in domestic investments, greater government spending and global demand picking up. The government revised upward its 2010 GDP growth forecast from 4.72% to 6.14% after posting a 13.3% economic growth for the first quarter.
Last month, Taiwan posted a record-high export figure of $25.54 billion, or a 57.9% surge year-over-year. For the first five months of the year, exports tallied $109.26 billion, or up 52.7% year-over-year.
Fixed investments for 2010 are expected to jump 13.6% year-over-year. Local consumption is estimated to increase 2.2% from 2009. The 2010 unemployment rate is calculated to fall to 5.4% as manufacturing companies increase their workforce.
Investors may access the growth in Taiwan through iShares MSCI Taiwan Index (EWT) and the recently launched IQ Taiwan Small Cap ETF (TWON). The iShares EWT fund allocates 60% to technology, and the new small-cap IndexIQ ETF allocates 30% to tech, 27% to industrials and 18% to materials, with other sectors including smaller weightings, writes Roger Nusbaum for TheStreet. However, the small-cap ETF only allocates 11% to consumers, which leaves out a large segment of the market. TWON has 99 holdings, the largest of which have weightings of 1.8%.
Two risks that come with exposure to Taiwan include: Vulnerability to a worldwide economic slowdown – drop in demand for tech products would badly hurt the country. A volatile relationship with China – the two countries are still fighting over Taiwan’s state of independence.
Max Chen contributed to this article.