By Martin Hutchinson
Contributing Editor
Money Morning
As you scour the globe for potential post-financial-crisis profit plays, don’t overlook Taiwan.
Stock markets around the world have already started to rebound with joy as investors begin to believe that that the unpleasant global recession is finally nearing its bottom. Unfortunately, there’s one sobering conclusion many investors have so far failed to reach: With grossly over-stimulative monetary and fiscal policies at play, most countries will find it very difficult to recover.
Fortunately, a few well-run countries avoided the fallout from the U.S. housing debacle - as well as the fiscal-and-monetary-stimulus mess that followed. And although they have been badly stung by the slump in world trade, these countries are poised to recover with a satisfying bounce.
One such country is Taiwan, and global markets may be just starting to realize this.
A Backgrounder on a Potential Winner
Because its banks were not active in the United States, Taiwan didn’t suffer directly from the collapse in the U.S. housing market. Taiwan also has not suffered from the typical money-tightening consequence of the financial crisis in the world’s emerging markets; it has no need of foreign bank credit, since it consistently runs a payments surplus and has $300 billion in currency reserves.
However, like all the East Asian countries involved in the supply chain to U.S. consumers, Taiwan did suffer a huge decline in exports in the first three months of 2009; its exports dropped more than 35% in the first quarter - less severe than Japan’s drop, but more than those in Korea and China.
I wrote on this some weeks ago, guessing that the export problem was not fundamental, but simply due to United States de-stocking and the difficulties of obtaining trade finance.
The first-quarter U.S. gross domestic product (GDP) figures published April 29 show that this supposition was correct. U.S. inventories dropped a huge $109 billion; the drop in inventories was by itself responsible for 46% of the 6.1% annual rate of decline in U.S. GDP.
Taiwan’s trade figures for March were already improving somewhat, suggesting that this problem might be alleviating. Recent statements by the major Taiwanese semiconductor companies - firms that are intimately involved in the East Asia/U.S. supply chain - confirm that this transformation is, indeed, taking place.
