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Taiwan ETFs are big beneficiaries of the AI boom and the semiconductor rally.
Taiwanese stocks have come back into favor, rising strongly YTD. While the AI tailwind is significant, the geopolitical and cyclical risks are hard to ignore. Having already re-rated this year, the iShares MSCI Taiwan ETF offers limited value from here.
iShares MSCI Taiwan ETF offers investors exposure to Taiwanese equities, with a heavy focus on Taiwan Semiconductor Manufacturing Co Ltd. Despite political headwinds, EWT provides good value with a net IRR estimate of over 10% per annum for the next five years. However, investors should be cautious of the unpredictable risk of increased tensions between China and Taiwan, as seen with the Russo-Ukrainian War and its impact on the Russian equity market.
Taiwan's Economic Outlook: A Challenging Year As Global Semiconductor Sales Slump.
EWT owns a portfolio of Taiwanese stocks. The fund has a high exposure to technology stocks and hence may be more volatile than the S&P 500 index.
Taiwan's export-driven economy has been hit by slumping exports, resulting in GDP contracting by 0.9% year-on-year in the fourth quarter of 2022. Strong exports had been a key driver of Taiwan's rapid economic growth during 2021 and the first half of 2022.
The policy update doesn't contradict the broader goals for Common Prosperity; the priorities have been reset and focuses rebalanced to tilt toward managing risk while reviving growth. I do not foresee major changes in monetary policy, which has been moderately accommodative for the past two years.
The outlook for semiconductors is tepid in 2023, driven by a slowdown in economic activity. With its major exposure to the largest semiconductor industry in the world, the EWT ETF is bound to feel the pressure.
Berkshire Hathaway bought $4B of Taiwan Semi in 3Q.
EWT is dictated primarily by the situation in the semiconductor industry, which has gone from undersupply to a potential oversupply. Moreover, political and strategic concerns over semiconductors are getting in the way of an already unfavourable free market.