Signup for our free newsletter:

Investing In Taiwan

Written By Brian Hicks

Posted April 18, 2008

Editor’s Note:

Three days into our Capital One (COF) put option position, SC Trading Pit readers were advised to bank half for gains. And we’re continuing to hold the second half.

Let the market run up the stock today. We’ll just buy more put options, I just told them. I’m surprised by the continued stupidity on Wall Street. Delinquencies are rising and will continue to rise, and investors want to own a credit card company that issues credit? That makes no sense. The company expects further deterioration in credit, which led them to increase loan loss allowances by $310 million. And they’re not planning to use the $2 billion buyback authorization until late 2008.

Friedman Billings seems to agree, cutting their COF target to $38 from $40, reflecting COF’s "significantly" reduced EPS estimates, as well as negative outlooks for consumer credit trends in 2008. An earnings miss, a big increase in net charge-offs, and word that the economic downturn will be longer and deeper was the reason for that move.

Keefe Bruyette downgraded COF, too, to Underperform from Market Perform, lowering targets to $40 from $45. Even Piper Jaffray downgraded them from Buy to Neutral.

If you want to lose money, go long Capital One. If you want to make money, continue holding the put options, along with the American Express (AXP) puts that we also sold half of. As I said earlier, Wall Street stupidity never ceases to amaze me.

Today’s Wealth Daily: Investing In Taiwan

It was March 22, 2008 when the editors of SC Trading Pit brought your attention to the Taiwan election and its potential impact on the iShares MSCI Taiwan Index (EWT).


EWT chart 042008

But there’s still time to buy it on the cheap… That is if you buy it before May 20, 2008.

Following the tech bubble implosion early in the decade, Taiwan significantly lagged Asia and most emerging market runs. Though, you can thank Chen Shui-bian’s leadership for that.

You see, China has refused to work with Taiwan as long as Chen Shui-ban is in office, whom it accuses of pushing Taiwan formal independence. Chen took a position that Taiwan was an independent nation, once saying:

"Taiwan is one country and the other side is another country and neither side exercises jurisdiction over the other, and I think this important consensus has been reached during this election and it represents and signifies that the 23 million people of Taiwan, irrespective of their political affiliations or whether they are in the opposition parties or the governing party – they all refuse the one country two systems formula."

But that was March 2004.

These days, newly elected president Ma Ying-jeou takes the position that Taiwan and China are one country governed under two systems. He was quoted in 2006 as saying, "We would not pursue de jure independence," but would follow a "one China, different interpretations" model."

Nowadays, after eight confrontational years with China, Taiwan’s economy is finally getting the shot in the arm it so desperately needs.

Not only has Ma Ying-jeou promised 6% growth, and a 3% reduction in unemployment, he’s sticking to his promise of better economic relations between Taiwan and China, opening the door to greater movement of investments, goods, and people.

Yep, this could have quite a bullish impact on the lagging Taiwan economy. It’s no wonder that its stock market has managed to shrug off the global meltdown to add nearly 10% this year alone.

We’ll have to wait until May 20, 2008, though, before talks can begin…

That’s when Ma reportedly takes office, and when, according to China "hints" that talks 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.

If you must own one ETF this year, make sure it’s the Taiwan ETF.

If all goes according to plan, Taiwan won’t be lagging the Asia and emerging market growth it’s missed out on for much longer.

Take care,

Ian L. Cooper