Wednesday, July 18, 2007

Investing in Taiwan Stocks from the USA

Taiwan lies 120 km off the southeast coast of mainland China. Taiwan is part of the "Four Asian Tigers", which includes the economies of Hong Kong, Singapore, South Korea, and Taiwan. These four countries pursue an export-driven model of economic development and these countries focus on developing goods for export to highly industrialized nations. "Real growth in GDP has averaged about 8% over the past three decades. Exports have grown even faster and have provided the primary impetus for industrialization. Inflation and unemployment are low; the trade surplus is substantial; and foreign reserves are the world's third largest." (Wikipedia)

The most diverse way to invest directly in Taiwan is to invest in the Taiwan ETF (EWT). This Exchange Traded Fund invests in Taiwanese companies that many people in the US have difficulty purchasing through a US brokerage.

Alternatively, an investor in the United States can purchase stock in certain individual Taiwanese companies through American Depository Receipts (ADR). Many of the Taiwanese ADRs are Semiconductor Companies. Exemptions include Chunghwa Telecom (CHT), a Telecom Company, and AU Optronics (AUO). AU Optronics engages in the "design, development, manufacture, assembly, and marketing of thin film transistor liquid crystal display (TFT-LCD) panels and other flat panel displays."

By the Numbers

Data taken from Yahoo Finance on Wednesday, July 18, 2007:

SymbolStock NameMarket CapMyPEGFwd PE5 yr growthYield
ASXAdvanced Semi Engineering6.42 B0.24 10.3138.17%0%
SIMOSilicon Motion Tech817 M0.38 15.6335.00%0%
TSMTaiwan Semiconductor58.66 B0.46 14.5624.93%3.1%
HIMXHimax Technologies1.03 B0.50 9.9117.50%0%
AUOAU Optronics12.88 B0.53 11.4220.00%0.4%
UMCUnited MicroElectronics12.56 B0.65 18.5820.00%0%
SPILSiliconware Precision Industries6.29 B0.6812.7117.50%0%
MXICMacronix International14.72 BN/AN/AN/A0%
CHTChunghwa Telecom18.46 BN/AN/AN/A5.4%

In order to understand the chart, we have to understand the different elements.


MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link. MyPEG incorporates the yield and cash per share.

Forward PE

Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.

5 Yr Growth

5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market).


The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.

Video Blog

Here's a WallStrip Video Blog on Semiconductors featuring SPIL and ASX:
WallStrip Semiconductor Video.

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