Eight years into Chen Shui-ban’s Taiwanese tenure, the benchmark index barely moved, even as Hong Kong’s market rallied 75%, and as Shanghai’s nearly doubled.
But things are about to change, in a big way as we get close to May 20, 2008.
That’s the day Ma Ying-jeou takes office and when, according to China "hints" talks between Taiwan and China could begin. Chinese president Hu Jintao and Taiwan vice president-elect are already in agreement to "start talks as soon as possible."
And if all goes according to plan, not only will Taiwan see an increase in airline connections and tourism, it’ll see stronger investment opportunities – a move that’ll easily boost EWT and related Taiwanese stocks, including GigaMedia (GIGM:NASDAQ). We could even see direct shipping and flights between the countries, which would benefit retailers, hotels and restaurants.
But what makes the situation even more exciting is a change of opinion from a former Taiwan Solidarity Union lawmaker that once advocated Taiwan independence.
Taiwan’s incoming China policy coordinator Lai Shin-yuan is stepped back from her pro-Taiwan independence stance, pledging to promote harmony under the new government.
This is big news. Nowadays, she’s all for improving ties with China, promising to honor the 1992 Beijing-Taipei agreement, where both sides agree there is only "one China" open to different interpretations.
It’s a move that takes Taiwan’s economy one step closer to economic health and the iShares MSCI Taiwan ETF (EWT) from rocketing higher.
If you haven’t bought this emerging market ETF yet, do so now. You have 15 days.
Already, in anticipation of newfound cash flow from China, Taiwan real estate is heating up.
Home prices are reportedly up 30% since the election, and could be up another 60% by the end of 2008. High end apartment prices are up more than 50%. And it’s only expected to improve on Ma’s pledge to open the Taiwan property market to Chinese investors.
Even office space is expected to be under heavy demand on he heels of Taiwanese business expansion. Vacancies have already dropped to five year lows of 4% in some areas. Don’t be shocked when office rentals can’t keep up with demand. Forecasts peg high end office rates at US$3.60 a square foot – a record rate that has never been seen in Taiwan.
Again, if you haven’t bought the EWT ETF, do so now.
iShares MSCI Brazil Index (EWZ) – The Other Emerging Market ETF "Must Own"
Rallying 8% on an unexpected investment grade upgrade, the Brazilian rally has only just begun.
Standard & Poor’s surprised the market when it lifted the country’s long-term sovereign credit rating to investment grade, thanks to faster Latin American growth and a decline in international debt.
Plus, Brazil’s GDP is forecast to grow 4.8% this year after a 2007 expansion of 5.4%, and isn’t expected to be impacted much by the U.S. slowdown ripple effect. That’s because its exports to the U.S. makes up only 2.5% of Brazil’s GDP.
Most of tour expected "boom" growth in Brazil is likely to come from domestic consumption and improved government spending on infrastructure.
And if you need further reason to get bullish on Brazil and the ETF, Citigroup believes the Brazilian Bovespa will end the year 10% higher at 74,000. "The main benefit of Brazil’s elevation to investment grade is yet further increases over time in capital inflows into Brazil, which should have the effect of raising the valuations attached to Brazilian financial asset prices,” said the bank.
"The upgrade ‘is a strong long-term positive for the country’s financial markets’ and probably will reduce the cost of capital by 40 basis points to 5.7 percent."
But if the ETF is a bit too costly for you, consider Brazilian stocks like Vivo Participacoes S.A. (VIV), a $7 wireless communications company riding the rally coattails.
Ian L. Cooper