Market Overview

Taiwan Growth Exceeds 12%: Ways To Play It (EWT)

Taiwan's GDP grew at 12.53% last quarter, sharply higher than the 10.5% analysts expected, according to a report in the Wall Street Journal. This is down from the first quarter's 13.7% growth, but it still shows that the Asian economy is expanding at a strong rate.

There are a few different ways to play this, either by buying shares of Taiwan Semiconductor (NYSE: TSM) or the small cap ETF IQ Taiwan Small Cap ETF (NYSE: TWON).

Investors can also look at Taiwan Greater China Fund (NYSE: TFC) or The Taiwan Fund (NYSE: TWN), both of which are closed-end funds.

Normally, investors might want to look at the small cap ETF as it should provide stronger growth, but it is thinly traded and does not offer enough liquidity should the need to sell shares arise. With recent market volatility, should something unforeseen happen, investors would be wise not to put money in illiquid assets.

Therefore, I am advocating another way to play the strong Taiwanese growth: buying the iShares MSCI Taiwan Index ETF (NYSE: EWT).

It has 99.28% of its assets in stocks, with holdings such as Taiwan Semiconductor, HTC Corp., MediaTek Inc. Hon Hai Precision and a few others making up the top 10 holdings. Taiwan Semiconductor trades as an ADR under the symbol (NYSE: TSM).

Money has been flowing into the Taiwan ETF since early June. Shares of the ETF have risen from a June 7 close of $10.88 to $12.52, where it closed at yesterday.

That's good for a gain of 15% in a little over two months, a very strong performance for a country ETF. In contrast, the much heralded iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI) is only up about 5% in the same time period.

Taiwan doesn't get the publicity of emerging market economies like a Brazil, China, or India, and that's what makes this still attractive to investors.

In addition to the share price appreciation, this exchange traded fund has a yield of 1.68%. While this yield is not as high as some of the other emerging market ETF's, it provides a nice cushion should Taiwan's growth rate come down sharper than expected.

Disclosure: no positions in any ETF's or companies mentioned.

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