Taiwanese Stocks Like Taiwan Semiconductor Corporation Provide Strong Returns if Invested in Before and After Recessions
Taiwanese stocks are probably one of the most underrated East Asian equity environments in the developing and alternative market space for quite some time. However, this has not always been the case. In fact, for much of the time since 2001, Taiwanese equities have significantly under-performed their Asian counterparts and competitors including China, South Korea, and Japan. But times are changing and ever since the volatility that rocked Asian markets in mid-2015 and early 2016 Taiwanese-focused ETFs have dominated in returns of East Asian equities:
Truly the main driver of this boom has been Taiwan's semiconductor giants Hon Hai Precision Industry (also known as Foxconn), but what of Taiwan's second largest company in market capitalization Taiwan Semiconductor Corporation? Without a doubt, this is one of the least known and least talked about tech companies that has without a doubt outperformed many of its peers in its semiconductor industry and the tech sector at large.
Moreover, many reasons abound as to why Taiwan Semi is a strong buy. The rising dividends of Taiwan Semi helped give it a buy call with the Motley Fool back in January, its ability to beat out Intel to become the first foundry to manufacture leading-edge 7nm semiconductors reminds us why the industry powerhouse enjoys 50 percent market share of the entire global semiconductor industry. Let that last part sink in for a second; 1 out of every 2 semiconductors in the entire world is sold by Taiwan Semi.
On the downside, the sheer size of Taiwan Semi makes it a bit vulnerable to the global macroeconomic trends. In other words, if there is a recession Taiwan Semi will feel it. But so too will nearly all other equities. The question will be to what degree which begs the question of how the semiconductor industry would fare during a recession. How did it fare during 2008? Actually pretty well. If we use the S&P 500 sectors with information technology as a proxy, the overall tech space was a strong competitor among the top 5 S&P 500 sectors before the 2008 Financial Crisis, and was one of the fastest sectors to rebound in the years after the crisis as well:
Moreover, since the 2008 Financial Crisis, Taiwan Semi has incredibly outperformed many of the heavyweight tech stocks listed in the US including Apple, Amazon, Facebook, Netflix, and Alibaba:
Important to keep in mind also is that during volatile times, this stock is not nearly as strongly hit as most of the famous FANGs. Perhaps other tech stocks are performing slightly better as of the past several months such as Google, Intel, and Microsoft, but Taiwan Semi is tech bubble resistant having been a strong outperformer of the these tech giants if entry occurred before the 2000 Dot.Com tech bubble. In other words, if we are about to see a dramatic increase in volatility, Taiwan Semis is the stock to go to as it has proven in the past to be resistant to major downturns:
And this is the just the fundamentals of the stock. Technical indicators also suggest an upward trend with moving averages and oscillators at the weekly level all pointed from neutral to strong buy. In short, the technical trend position of Taiwan Semi is pointing to upward momentum:
Overall, clearly it makes no sense to pour all of your money into a single stock. But the investor that ignores giving significant attention to Taiwan Semi will likely suffer from dramatic FOMO in the aftermath of a downturn. The company is a giant in the industry with huge market share, maintains its competitive edge with innovative technologies, competes with and in many cases outperforms the big names in tech, and can weather a storm when volatility kicks up. Without a doubt, adding Taiwan Semis to your portfolio is a smart move before a recession and after.
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