Global COVID-19 news coverage gave many their initial introduction to Taiwan—an island of 23.5 million that has so far managed to keep its infection rates startlingly low, especially when compared to neighboring countries. Widely praised for its highly effective coronavirus response, Taiwan has also managed to push its economy into overdrive during the pandemic, a testament to its resilience and agility in the face of looming threats, both biological and geopolitical.
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This ability to innovate and prosper in the midst of hardship has enabled Taiwan to become both a leader in the semiconductor industry and the world’s fourth-largest gadget producer. Along with high-tech, the island is also an innovator in the pharmaceutical and the shipping, and maritime industries, to name a few.
Taiwan and Its Economy
The island’s economic prosperity translates to a GDP of $715.6 billion in 2020, expected to reach around $813.87 billion by 2022. In terms of GDP per capita, it has one of the world’s highest at $32,000, and its residents also top global marks for median net worth at $142,000 per citizen. To put this into perspective, the same figures for neighboring Japan were $40,246.88 and $121,000 in 2019, respectively. Japan is also physically 10 times larger, with 101.9 million more people. Clearly, Taiwan’s thriving economy—the 22nd largest in the world by purchasing power parity—didn’t arrive through an abundance of natural resources or cheap labor.
Many of the island’s successes came about through the careful planning of its forward-thinking leaders. For example, Taiwan has long emphasized a strong focus on science, technology, engineering, and mathematics (STEM) for its students at the college or university levels. Investments in training for information technology and high-tech manufacturing vocations have given rise to firms that retain intellectual property locally while transferring heavy manufacturing overseas. As it stands, over 60% of the country’s GDP is dominated by the services sector, followed by manufacturing at 31%.
Benefits and Risks of Investing in Taiwan
Every region has inherent risks when it comes to doing business and investing, and Taiwan is no different. However, what makes the island remarkable is its consistency in producing founders who achieve global success: Yahoo! founder Jerry Yang, FoxConn’s Terry Guo, Trend Micro’s founder and CEO Eva Chen, and more. This can be attributed to its high education levels and skilled workforce, reflected in a labor market efficiency ranking of 15 out of 140 economies.
Reliable infrastructure and a responsive government have created an ideal environment for international business and trade. E-government resources are among the best in the world, and public adoption of digital technologies makes for a streamlined experience, especially for foreign commercial enterprises. And with an abundance of private capital, steady exchange rates, and relatively low cost of financing, firms looking to raise funding have a wealth of options available to them.
That said, some analysts see Taiwan’s specialization and focus on semiconductors and chip fabrication as a drawback—specifically, a lack of diversification in exports. Also, the complicated political interplay with neighboring China adds some degree of risk to any foreign investment in Taiwan. Since the People’s Republic of China (PRC) claims sovereignty over the island, any firms with interests in both locations may find themselves in a compromising position. These political contentions have a tendency to minimize Taiwan’s stature in the global arena, in spite of how far the island has progressed in the past few decades.
Is Taiwan a Good Destination for Investment?
Long considered one of the four so-called “Asian Tigers” alongside South Korea, Hong Kong, and Singapore, Taiwan and its high-growth economy offers foreign investors a developed market and secure investment opportunities. Many of the island’s industries are critical to the world economy.
For example, its industrial base manufactures 94% of the world’s motherboards. Perhaps most well-known is Taiwan Semiconductor Manufacturing Company (TSMC)—the semiconductor giant that supplies most of the chips used by the world’s leading technology firms including Nvidia, Qualcomm, Apple, AMD, and a myriad of others. These enterprises help to position Taiwan prominently on the global stage with innovations in use by customers globally.
Large enterprises aren’t the only players stoking the fire of innovation on the island. Taiwan’s startup ecosystem is also one of the liveliest in Asia, with digital unicorns like Gogoro and Appier already setting the stage for a new generation of locally grown tech innovators.
Investing in Taiwan with ETFs
There are two Taiwan-specific exchange-traded funds (ETF): the MSCI Taiwan Index Fund and the newly trading First Trust Taiwan AlphaDEX Fund. Firms in the semiconductor, finance, computer, communications, and insurance industries make up 69.5% of the stock market. Additionally, the trading systems are fully automated and the most active or open in the Asia-Pacific region, putting them ahead of Tokyo, Hong Kong, and London in terms of turnover volume.
Alternatively, investors can also purchase US-traded securities in foreign companies known as American depository receipts (ADRs). Some leading ADRs include TSMC (NYSE: TSM) and popular computer manufacturer ASUSTek Computer Inc. (PINK: AKCPF). US tech investors may also be interested in which firms are keeping a pulse on local Taiwanese innovation. For example, Fortinet maintains a local presence in Taiwan, as do leading cybersecurity firms ForeScout and Trend Micro.
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In short, Taiwan’s highly advanced industrial clusters have enabled it to become an irreplaceable player in the world’s computer and electronic device supply chain. As a major producer of semiconductors, the island’s manufacturing output continues to increase in global demand year on year. Its vibrant economy, highly educated society, and forward-thinking government further enable investments to be made with optimistic expectations for a profitable return.
