|17 May 2017|
|The Apple of Taiwan’s Eyes|
Taiwan stocks have been in great shape lately, as the ongoing global rally in the Information Technology (IT) sector has positively impacted the technology export-oriented economy.
For the first time in 17 years, the benchmark Taiex index closed above 10,000 points, a level not seen since the peak of the dot-com bubble in 2000. Taiwan is the third-largest constituent of MSCI’s benchmark emerging markets index, with a capitalisation of US$1.1 trillion.
Closely correlated to the Taiex Index, the MSCI TW IndexSM, a free-float adjusted market capitalisation weighted index designed to measure the performance of the large- and mid-cap segments of the Taiwan market, soared by 9% from the start of the year to close at 376.59 points, the highest since 2007.
MSCI Taiwan Index and Taiex Index
Taiwan - “Pocket of Value” in Emerging Markets
The appeal of Taiwanese technology companies seems to be driving the upswing. Seven of 10 contributors to the MSCI Taiwan Index’s year-to-date index gains are key suppliers of the iPhone. Taiwanese contract electronics manufacturers dominate the supply chain of Apple Inc, the world’s most valuable company. According to Bloomberg, 80% of Apple’s total cost of goods sold originate from Taiwan.
Contribution to MSCI Taiwan Index YTD Gain (%)
*Apple suppliers. Source: Bloomberg
Three of Taiwan’s largest companies have crucial links to Apple’s supply chain. (1) Taiwan Semiconductor Manufacturing Co. (“TSMC”), the world’s biggest chipmaker, (2) Hon Hai Precision (i.e. Foxconn) and (3) Largan Precision have chalked up year-to-date gains of 12%, 23% and 29% respectively. “Taiwanese semiconductor firms do look like better companies – they seem to be well-run but for some reason completely ignored or unloved, which makes it interesting,” said James Montier of GMO, the asset manager, who described them as a “pocket of value” in emerging markets.
Taiwan Dollar Outperforms
Global investor interest in Taiwan equities has not abated so far. Foreign funds channeled US$8 billion into Taiwanese equities on a year-to-date basis; further, global investors pulled US$345 million from Indian shares in April 2017 after the world-beating rally sent valuations to the highest level since 2010. The withdrawal helped Taiwan surpass India as Asia’s top destination for overseas money so far this year. This has, in part, resulted in the surge of the Taiwanese dollar, which has strengthened by 9% over the past year.
Performance of Regional Currencies against the Greenback over the past year
SGX MSCI Taiwan Index Futures
Given the recent rally in the Taiwanese market, investors could consider participating in this space through the MSCI Taiwan IndexSM. With 88 constituents, the MSCI Taiwan IndexSM covers approximately 85% of the free float-adjusted market capitalisation in Taiwan.
Month-end open interest in SGX MSCI Taiwan Index Futures has increased by 30% year-on-year as participants continue to use our contracts for active risk management. As of 25 April 2017, open interest reached 264,168 contracts, or approximately US$10 billion in notional value. Average daily turnover surged to circa 90,000 contracts, the most in two years.
The T+1 session, which has been extended to 4:45am since November 2016, allows market participants to trade price movements during European and US hours. The average bid-ask spread during the T+1 session stands at an average of 1-2 ticks, allowing participants to take advantage of or hedge against price movements during the European and US hours.
In addition, our SGX MSCI Taiwan Index Futures/Options remain available for trading on all onshore holidays, with the exception of New Year’s Day (1 January). Margin discounts on spreads formed with other SGX derivatives allow for greater capital efficiency for investors with views on multiple Asian markets/asset classes.
SGX MSCI Taiwan Index Futures Average Daily Volume and Open Interest
Cross-Product Margin Offsets (As of 16 May 2017)
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