Emerging Markets in Asia saw a standout performance in 2017, with the Emerging Markets Asia Index soaring 40%
OREANDA-NEWS. January 29, 2018. Emerging Markets in Asia saw a standout performance in 2017, with the Emerging Markets Asia Index soaring 40%, surpassing the 20% surge in the MSCI World Index, according to MSCI. As the third-largest country in the Emerging Markets Asia Index with 15% weight by market capitalisation, Taiwan too enjoyed a good year, with the MSCI Taiwan Index registering gains of 14%, boosted by strong growth in the technology sector in the third quarter of 2017.
Although the last two months of 2017 saw net outflows by foreign institutional investors, the overall stance for the year was a net buy of NT$155.2 billion (US$5.0 billion). As of 12 January 2018, Taiwan has managed a rebound of fund flows in the new year, with a net buy in excess of NT$20.2 billion (US$682 million) for the month.
Promising foundations for Taiwan in the New Year
The Nikkei Taiwan Manufacturing PMI® registered a record of 56.6 in December 2017, representing an 80-month high and adding to a significant rise of 2.7 points in November. The PMI figure seeks to reflect the pulse of local manufacturers, and hence serves as a critical barometer for Taiwan’s export-oriented economy. Values above 50 suggest expansion, while those below 50 below indicate contraction. December’s expansion signals further improvement in the health of Taiwan’s manufacturing sector on the back of strong support from major handset makers. According to a report from Taiwan’s Ministry of Finance, December exports increase 14.8% year-on-year to a record high of $29.51 billion1 due to strong demand from mobile devices and consumer electronics.
Looking ahead, 2018 will feature a significant transition for the Taiwan economy, with the introduction of a new central banker expected after February 25, when current central banker Perng Fai-nan steps down after 20 years in the position. Although the successor has yet to be named, whoever takes over will need to calibrate between the strong Taiwan dollar and export-driven growth, while being mindful of US sensitivities around currency intervention. The Taiwan dollar is among Asia's top performers, having strengthened 8% against the US dollar since the beginning of 2017.
Further, the introduction of US tax reforms, which is slated to cut corporate tax rate from 35% to 20%, will likely be a boost for Taiwan. According to data by U.S. Taiwan Connect, an information portal operated by Taiwan’s Ministry of Economic Affairs, total foreign direct investment in the US by Taiwanese-owned companies reached US$10.8 billion in 2016, with more than 600 Taiwanese companies having a physical presence in the US. Of which, many of them are clustered around Silicon Valley, North Carolina’s Research Triangle, and the Mid-Atlantic research and development hubs.
The relevance of SGX MSCI Taiwan Index Derivatives
The SGX MSCI Taiwan Index futures and options contracts provides gain access to the Emerging Markets equities space. With 90 constituents, the MSCI TW IndexSM is a free-float adjusted market capitalisation weighted index designed to track the equity market performance of Taiwanese securities listed on the Taiwan Stock Exchange and GreTaiSecurities Market.
Just three days into 2018 and the SGX MSCI Taiwan Index futures has surpassed 400 points, representing a 23-day high. With more than 50% market share in open interest, SGX MSCI Taiwan Index Futures continue to be the dominant offshore Taiwan contract used by investors to hedge and gain exposure in Taiwan. Aside from growing more than 10% year-on-year in 2017, open interest rose to 238,964 contracts, or approximately US$10 billion in notional value as of 12 January 2018.