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[HONG KONG] Taiwan is proving a surprising investment winner under Donald Trump.
The island is home to the only currency in Asia to climb against the resurgent greenback since the US election. Against a backdrop of the new president starting to make good on protectionist trade pledges and signalling a readiness to risk damaging Taiwan's fragile relationship with China, analysts are still optimistic the territory will see equity inflows in 2017.
Foreign investors have pumped US$1.5 billion into local shares this month, helping drive the Taiex to a 1-1/2-year high and Taiwan's dollar to the strongest since October.
The disconnect amounts to a big bet on Apple Inc. It's up to the tech giant to deliver the iPhone orders that underpin forecasts for a 20 per cent increase in earnings per share on the Taiex in the next 12 months. Taiwan also has Asia's highest dividend yield of 3.9 per cent after Australia.
"As long as there's still hot money around and earnings growth is positive, funds will still come to Taiwan," said Ben Lin, a money manager at Uni-President Asset Management Corp in Taipei.
"Based on feedback from the supply chain, this year's new iPhone will have a more obvious upgrade."
Taiwan bulls have history on their side. The local dollar and equity benchmark have been Asia's top performers over the past 12 months, even with US monetary tightening and slower growth in China - the island's largest single export market. Taiwan's currency rose to NT$31.382 against the greenback on Tuesday, while the Taiex closed at 9,447.95, extending its 12-month gain to 30 per cent in US dollar terms.
The island's strength has taken most analysts by surprise. A year ago, the median forecast in a Bloomberg survey of currency strategists projected a 3.9 per cent decline for the exchange rate in 2016; instead, it gained 2.4 per cent.
One reason was Apple. The iPhone 7's release last year - though greeted with less fanfare than previous models - was a fillip to Taiwan's exports.
Shipments finally snapped a 17-month run of declines in July and climbed at the fastest pace since 2013 in December, while industrial production has also been on a steady uptrend in the past year.
As for this year, there's speculation Apple will release the iPhone 8 on the 10th anniversary of its flagship product, while Taiwan's economic growth is projected to reach a three-year high in 2017.
Taiwan's two biggest firms by market capitalisation - Taiwan Semiconductor Manufacturing Co and Hon Hai Precision Industry Co - are both Apple suppliers.
While the global smartphone market has been slowing, TSMC still posted better-than-projected earnings last quarter as the company enlarged its share of the iPhone business and took advantage of growing demand from Chinese phone makers.
The local currency also had some unexpected sources of support last year. While slower Chinese growth is a drag on Taiwan's economy, stricter tax rules, lower interest rates and currency weakness in its neighbour have prompted some Taiwanese firms to take their money back to the island, said Woods Chen, chief economist at Yuanta Securities in Taipei.
The central bank has also pared back moves to weaken the currency after the US Treasury Department highlighted its intervention practices in a report.
"We expect the greenback to strengthen, which will bring some depreciation pressure to the Taiwan dollar," said Ma Tieying, an economist at DBS Group Holdings Ltd in Singapore.
"But it will still outperform among Asian currencies because of economic and trade factors, its current-account surplus, and don't forget: Taiwan is on the US 's currency watch list."
Other analysts are less sanguine. The median forecast in Bloomberg's survey is for the Taiwan dollar to drop 5.2 per cent against the greenback by the end of the year, the biggest projected loss in Asia.
Part of that pessimism stems from a Trump presidency, which poses a unique risk to the island. Not only is its export-dependent economy especially vulnerable to US protectionism, Mr Trump's hints of a deviation from America's longstanding One-China policy also raises the risk of a cross-strait conflict.
Yet, like a lot of things with Mr Trump, investors are still in a wait-and-see mode. After breaking Washington protocol by speaking to Taiwan President Tsai Ing-Wen by phone after his election win, Mr Trump suggested commitment to the One-China policy could be dependent on China's concessions on trade and currency issues.
"If Trump is just using Taiwan as a bargaining chip, his interest in Taiwan could be over in a New York minute," said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Hong Kong.
"I think he's really mainly concerned about the bilateral trade balance between the US and China."