Strengthening Ties: 05-21-09

Robert Hsu, May 21, 2009

Dear Fellow Investor,

It's growing more and more apparent that the ties between China and Taiwan are strengthening. Over the past year, we've seen evidence of the positive developments in this ever-evolving relationship.

In fact, Tuesday marked the one-year anniversary of Taiwan's President Ma Ying-jeoh taking office and promising to boost cross-strait relations. Unlike Taiwan's former president, Chen Shui-bian, Ma welcomes building a relationship with China -- he understands that stronger ties with the Mainland can boost the island's economy.

So immediately after taking office in May 2008, Ma has taken great strides to improve Taiwan's ties with China. A move that has definitely paid off.

Mark Your Calendars!

Last week, I told you about the exciting changes coming to your Inside China Dispatch --a new title, easy to navigate layout, additional articles about what's happening in Asia, my insights into the global economy, how we can profit from the trends I'm seeing, and so much more.

Well, mark your calendars -- the new and improved Inside China Dispatch will be hitting your inboxes next week on Tuesday, May 26. Please note that going forward all of your e-letter issues will be posted on Tuesdays after the market close.

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Just seven months later in November 2008, Chen Yunlin -- at that time, the chairman of the Association for Relations Across the Taiwan Straits (ARATS) -- traveled from Mainland China to Taiwan to discuss more ways the two nations could work together.

After a productive five-day visit, Chen and his counterpart in Taiwan, Straits Exchange Foundation (SEF) chairman Chiang Pin-kung signed four agreements to increase direct air transportation and postal links:

108 direct flights to the Mainland each week
Daily direct flights
Tax-free cargo shipments between 11 Taiwan ports and 63 Chinese ports
60 direct cargo flights between the two nations each month

Overall, these plans have made traveling between China and Taiwan much easier -- cutting travel time between Taipei and Shanghai in half -- as well as boosted bilateral exchanges and trade.

And this is just the beginning.

Chinese Investment in Taiwan

Sure, cross-strait direct flights were the first big step in improved relations between China and Taiwan, as it boosted business travel and tourism. But at the end of April, another historic move was taken -- Taiwan finally warmed up to the idea of China investing directly in the island's economy.

Taiwan is a relatively export-driven economy. So after watching its export sector be badly damaged in the global financial crisis, Taiwan's leaders understood the importance of finding other ways to boost economic growth. And they turned to China.

Of course, Chinese companies have jumped on this opportunity. In fact, our China Strategy wireless service provider is already in talks for a groundbreaking deal to buy a 12% stake in one of Taiwan's leading wireless carriers.

While there's no guarantee that this deal will go through, there will likely be many more large-scale investments by China in Taiwan, bringing in tens of billions of dollars in capital to the island. This creates a win-win situation for both China and Taiwan.

And just this week, we saw another example of how an improved relationship has boded well for Taiwan's economy. A Taiwanese delegation of 15 health officials attended a World Health Assembly (WHA), host by the World Health Organization (WHO) this week.

With China's help in the application process, Taiwan was able to attend WHA session for the first time. And it couldn't have come at a better time, as the organization plans to discuss how to control and prevent the spreading of the H1N1 (commonly known as the swine flu).

How Do We Profit?

As you can see, there are incredible changes happening in Taiwan today, as a result of its improved relationship with Mainland China. I think these stronger ties will only benefit Taiwan's economy this year and in the years to come.

And I'm not alone in this thinking. Recently, the China Times polled about 1,000 Taiwanese to learn their take on the improving relations between the Mainland and the island. What's great is that nearly 57% of those polled stated that they felt that China was friendly toward Taiwan -- a stark contrast to the anti-China sentiment from just a couple years ago.

Because of the improving sentiment towards China and steps already taken between the two nations, we're seeing signs of recovery occurring in Taiwan today. In fact, Taiwan's main stock exchange, the Taiex index, has only climbed higher since the beginning of 2009. It's up a whopping 46% year to date!

The best way to take advantage of Taiwan's rebounding economy and stock exchange is to invest in an exchange-traded fund (ETF) directly tracking Taiwan's stock market. The fund is already up 40% year to date. But there's still time to get on board -- this fund's shares will only trek higher as China and Taiwan continue to work closely together.

Learn how you can take advantage of the strengthening ties between China and Taiwan -- join China Strategy today!

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Sincerely,

Robert Hsu