Where Are the Opportunities in Emerging Markets Today? (Part2)

In the first part of the article, we looked at one of the best-performing markets this year, India. In Part 2 of the article, we will take a closer look at Taiwan market.

Patricia Oey 28.11.2014
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Taiwan is the world's largest supplier of contract computer-chip manufacturing services and is a major producer of LCD panels, DRAM computer memory, networking equipment, and consumer electronics. These technology companies account for a significant portion of Taiwan’s economic output, and Taiwan-focused funds tend to have an average 50% weighting in the tech sector. The outlook for these tech companies is healthy. Gartner, in its latest worldwide devices forecast, said that it expects personal computers to grow at a low-single-digit rate over the next few years, driven by a refresh cycle. This is a reversal from the declines seen in recent years as PCs lost market share to tablets and mobile phones. Tablet unit sales are expected to continue rising, albeit slower than the 11% growth rate in 2014, and demand for mobile phones is expected to grow about 5% in 2015. We also note that some of Taiwan’s largest tech companies, such as Taiwan Semiconductor (TSM) and Hon Hai, are key players in Apple’s (AAPL) supply chain. In its fourth-quarter results, Apple said it is still seeing significant backlog for its new iPhones and expects strong sales in China. On the domestic front, the macroeconomic environment in Taiwan is stable. Manufacturing data remains positive, unemployment is falling, and Moody’s said in August that the outlook for Taiwan’s banking system remains stable.

Examples of Taiwan Equity funds available for sale in Singapore

Source: Morningstar Direct

As a smaller market, Malaysia is often overlooked, but it is home to many well-run firms exposed to positive growth trends. The country’s leaders have stated that their goal is for the economy is to reach "developed status" by the end of the decade. To achieve this, Prime Minister Najib Razak is dismantling subsidies, boosting education standards, and increasing his focus on attracting foreign investment. Malaysia already ranks favorably in the eyes of foreign investors--according to the World Bank’s Ease of Doing Business Survey, Malaysia ranked number 6, the highest among emerging-markets countries and higher than many developed countries.

Banks in Malaysia in general have healthy balance sheets and many are now regional operators following acquisitions of smaller players in neighboring countries. In the medium term, these banks should benefit from the government's initiatives to turn Kuala Lumpur into a major financial center, particularly in the area of Islamic banking. Another important area of the Malaysian economy is the palm oil sector, as Malaysia is the world's largest exporter of palm oil. Palm oil plantations are owned primarily by conglomerates, which in this fund may be classified as industrial, consumer discretionary, or consumer staples firms, depending on their mix of business. Demand from China, weather, and global demand are key drivers for palm oil prices. Although this sector is very volatile, the stock prices of the publicly listed conglomerates that own palm oil plantations are less so thanks to their diverse mix of businesses.

Examples of Malaysia Equity funds available for sale in Singapore

Source: Morningstar Direct


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Patricia Oey  Patricia Oey is an ETF analyst at Morningstar.

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