Markets | Taiwan’s surprisingly strong year will continue in 2020

Taiwan stocks are on a tear, the local dollar is near the strongest since mid-2018 and government bonds keep fetching record-low yields at auction.

A surprisingly strong year for Taiwan is showing no signs of slowing.

Foreign inflows into Taiwan have made the economy and asset prices there among Asia’s best performers despite worries coming into 2019 about the U.S.-China trade war. The Taiex stock gauge is up 19%, set for its best year in a decade, and needs to advance not quite 8% to finally top 1990’s record high. The benchmark closed down 0.4% yesterday after four days of gains.

Taiwan saw unexpected stock weakness in 2018 as the U.S launched its broadside against Chinese trade practices, putting a cloud over asset prices globally. Many market watchers anticipated export-reliant Taiwan would feel an outsized hit from the trade fight, with many its wares produced in China for export to the U.S.

But Taiwan’s economy looks to have instead been a net beneficiary, the biggest one according to a new paper out of the United Nations Conference on Trade and Development. Almost $4.2 billion of additional exports from Taiwan went to the U.S. in the first half of 2019 because of tariffs against Chinese goods, the paper’s author estimates, based on U.S. government data.

Taiwan’s economic growth has been topping expectations this year and may rise about 2.5% for 2019 while outpacing peers. The advance could be slightly faster next year, the government said in initial predictions.

After badly underestimating this year’s performance, analysts are lifting forecasts – economic and market alike – for next year as signals mount the upbeat surprises aren’t a one-year wonder.

Shelly Lee, chairman of Mega International Investment Services Corp., said her firm is “bullish on Taiwan markets next year” amid the potential for a U.S.-China trade deal. She added central banks around the world easing monetary policy has helped send foreign investment capital to Taiwan.

Foreign investors have bought $8 billion of Taiwan equities this year, the most among Asian markets tracked by Bloomberg after India. They have especially favored local giant Taiwan Semiconductor Manufacturing Co.

Cash is also reaching Taiwan’s economy. “Foreign investment has increased in focus areas where Taiwan is crucial in the supply chain, namely 5G and semiconductors,” said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management.

Analysts are predicting Taiex companies will post double-digit profit growth in 2020 and 2021. This year is projected to see a decline caused by weakness from the trade dispute and falling smartphone demand hurting tech firms early in the year.

Goldman Sachs said in a recent note that the only Asia Pacific market excluding Japan that it expects analysts to raise per-share earnings forecasts for in the near term in is Taiwan. That optimism comes amid a solid batch of third-quarter reports and recent signs of manufacturing improvement from a year ago.

Stocks-wise, “we think Taiwan is doing very well,” Amundi Asset Management said in a recent note, “mainly driven by the excellent performance of the technology sector” and relocations of operations previously in China. Cindy Wang, Bloomberg