Taiwan stocks offer hefty yields, but investors still selling

Taipei

THE cash reward for owning Taiwan stocks is larger than almost anywhere else in Asia. Still, global investors are ditching them anyway.

Even with the benchmark Taiex gauge near a record high, managers have pulled about US$680 million from Taiwan stock funds this month. The withdrawals come even as corporate dividends top US yields and just as a record amount of debt globally yields less than zero.

Investors who leapt into Taiwan stocks earlier this year aren't eager to do it again: the economy's firms are so entwined with the global technology supply chain that they've been particularly vulnerable to the trade war and a slowdown in the smartphone market.

"High dividend yields make Taiwan stocks attractive to global investors in a low interest rate environment, but it's only one of the elements to consider," said Agnes Lin, a global market strategist at JPMorgan Asset Management Taiwan. The island's weak economic fundamentals, partly the result of the US-China trade clash, are also turning investors off the equities, she said.

The Taiex measure rose 0.7 per cent on Monday in Taipei to the highest close in two months.

Some US$13 trillion of bonds globally trade with negative yields, which is destroying potential returns. That has investors looking elsewhere.

While US stocks have surged to record levels, Taiwan hasn't provided the answer - at least for now as it struggles to reclaim last year's highs.

The main problem has been the trade friction between the world's two largest economies. Taiwan's export orders have dropped for the seven months through May. Tech stocks, which account for nearly half of the Taiex gauge, have been whipsawed as the US banned companies from supplying China's Huawei Technologies.

Still, Taiwan's listed companies plan to hand out NT$1.5 trillion (S$65 billion) of cash dividends this year, 5 per cent more than in 2018, according to exchange data compiled by Bloomberg.

The yield for stocks on the Taiex gauge is 4.13 per cent, according to Bloomberg-compiled data, more than double the S&P 500 Index's 1.9 per cent. To be sure, some of Europe's stock gauges top Taiwan's, with the FTSE 100 Index figure of 4.8 per cent.

Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, said one of the reasons dividend yields in Taiwan are relatively high is it has "mature companies that have excess cash flow beyond their investment needs."

That description fits Taiwan Semiconductor Manufacturing, which is expected to pay a total of NT$10 a share in 2019, in line for a record. On top of that, on Thursday it projected third-quarter revenue that topped estimates. Chief executive officer C C Wei said the world's largest contract chipmaker sees "very, very strong demand" in the second half of the year.

That could be a signal the worst has passed for Taiwan's technology companies, spurring foreign investors to return to its equities - and those dividend yields.

"There is a global search for yield presently with the rally we have seen in bond markets year-to-date," said Mr Bhayani.

"Taiwan has had relatively higher downward earnings revisions over the past three months, relative to the most other markets in Asia. We look for pull backs in selected companies as an opportunity."

TSMC was up 1.9 per cent at the close on Monday. BLOOMBERG