Three main reasons why Taiwanese stocks will continue to be a good bet this year.Reason #1 - An increase in mainland Chinese investmentWhile China would still like to see Taiwan become part of the country, Beijing's leaders figured out that it is easier to buy Taiwanese assets than to fight for them. So, last year, state-owned wireless giant China Mobile (CHL) announced a deal to invest in a major Taiwanese telecom company, spearheading a new trend of direct investments from Chinese state-owned enterprises (SOEs).
And this year, qualified mainland Chinese institutional investors and mutual funds will be allowed to invest in Taiwanese stocks. Chinese institutional investors control one of the largest pools of liquidity in the world today, and if Chinese government sends a mandate to buy Taiwanese assets, tens of billions of dollars in investments will enter Taiwan quickly.
Reason #2 - A reduction in the estate taxIn the past, to avoid the island's confiscatory estate tax, many wealthy Taiwanese parked significant assets offshore. As a result, Taiwanese invested more than $200 billion in mainland China during the past 30 years.
To lure offshore funds back to Taiwan, Taiwan's maximum estate tax rate was lowered
from 50% to 10% last year. Tens of billions of dollars flooded back to Taiwan in the past year, a large chunk of which was parked in Taiwanese stocks and Taipei real estate.
Reason #3 - Strong earnings growthAlthough Taiwan's economic growth rate is
projected at 4.4% in 2010, the island's largest companies are expected to grow their earnings by an eye-popping 56% as the global recovery, Chinese monetary stimulus and influx of capital will all help Taiwanese companies thrive.
These strong positive fundamentals will support another strong year for Taiwanese stocks. The best way to profit from Taiwan's continuing economic recovery and the strength of its stock market is to invest in iShares MSCI Taiwan Index (EWT).
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