Many export-driven economies from East Asia have been adversely
affected by the global slowdown stemming from the euro zone crisis.
The Taiwanese economy (
EWT
,
quote
) is no exception. However, investors have started to ask if
there's more to the slumping Taiwanese economy than external
concerns.
[caption id="attachment_63788" align="alignright" width="300"
caption="Are storm clouds forming over the Taiwanese economy?"]
[/caption]
While other East Asian economies, such as China (
FXI
,
quote
) and Thailand (
THD
,
quote
) have been able to turn to increased public spending in order to
fill the void left by dissipating European demand, Taiwan has had
no such luck. In fact, domestic demand appears to be hindering the
economy, not bolstering it.
A study released this week indicates that Taiwanese consumer
confidence is
at a two-year low
. Such low consumer confidence indicates that residents of the
island see the Taiwanese economy experiencing further downside.
Export output continues to be revised lower. While European
concerns obviously weigh on the Taiwanese economy, the ripple
effect felt in other important Taiwanese trade partners like the
U.S. and Mainland China has seen demand wither.
As a result, growth forecasts for the Taiwanese economy have
ratcheted down over the past few months. The Taiwanese Research
Institute
released a report this week
indicating that growth in the Taiwanese economy could slow to 2.52%
for 2012.
In spite of these macroeconomic headwinds, most of these issues
appear to be temporary. Assuming Europe is able to avoid calamity,
(a big assumption for sure) Taiwanese export growth should return
to normalized levels.
The Taiwanese economy has large exposure to
the fast-growing smartphone market
. Although smartphone manufacturer HTC is struggling, the
medium-term prospects for the Taiwanese economy still appear
bright.
Investors looking for exposure to the Taiwanese economy should
consider the iShares MSCI Taiwan Index ETF. It's still a little
early to get into the name right now; investors should wait for
signs of stability in Europe before going long EWT.
