Taiwan: Attractive proposition
To invest successfully in Taiwan equities using investment funds, first choose the right type of fund.
The closed end Taiwanese domestic funds have out- performed both the MSCI country index and the local open ended stock funds since 1989 - until very recently.
A characteristic of these closed end funds is that many traded in this period at substantial discount to their net asset value (NAV). So it is not surprising that many have tried recently to eliminate the discount by having specific times for redemption at NAV -earning them the epithet lo-cally of 'half open and half closed'.
But the picture has become more complicated, as from mid-1996, the local open ended funds have performed better than closed. In this period, they have also beaten the foreign offshore fund managers investing in Taiwan equities, which is a reversal of fortune for domestic managers. From 1989, offshore fund managers had substantially outperformed the open local managers by nearly 100%, though they were well outperformed themselves by the domestic closed end funds in the same period, in fact by an incredible 50% on average.
If you rank the domestic and offshore fund managers at different points of time in the last two years, the offshore funds languish largely in the bottom half of the performance tables.
For those looking at Taiwan - and, generally, international investment managers are seriously underweight there - the market has ample liquidity and good underlying economic fundamentals.
The domestic fund industry, on average, manages money invested locally better than foreign managers, especially over the past two years. The recent improvement and strengthening of regulations and supervision makes Taiwan an attractive investment proposition.
Christopher Poll is chairman of Micropal in London