VIC — Temple Honor on Taiwan

Two plays on Chinese Smartphone growth from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 17, 2013

Carl Chen presented about Taiwan and China, presenting a Taiwanese stock and a Chinese stock.

They think that China is still on the ascendancy, and that it has become too fashionable to talk about the failure of China, which has the longest existing human culture on the planet.

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Taiwan is a great place to look for growth at a reasonable price. Key Taiwanese companies produce bicycles under dozens of brands, Foxconn, and the electric motors behind the Tesla. It is too small to support heavy industry, but is the wealthiest country in per capita reserves.

He also says the political risk is overstated — nowhere near the risk of South Korea or Israel, but it does have a 100 mile shared water border with China. There has been a tacit settlement for “economics first, politics later”, with China motivated really to buy Taiwan, not to go to war with them?

It is an open society, with a strong democracy and an inviting and pro-business environment, with low taxes. Only Switzerland, Singapore and Saudi Arabia have more foreign reserves per capita. It also has the least popular democratically elected president in the world.

Taiwan has no mega-powerful conglomerates or companies that dominate the market. They buy more semiconductor equipment than any other country, 44% of the economy is in IT, and they have a lot of small market cap companies — so they have a relatively high PE ratio, and the average stock yields about 3.5%.

But Taiwan has underperformed its East Asian peers — most foreign investors fly over Taiwan to Hong Kong and Singapore. But Taiwan is perfectly situated for any merchants — close to all of Asia.

The point of investing in an emerging market there are broader macro themes that rise the tide to make things grow faster.

China Smartphone Landscape. China is not a transparent market, but the government has pointed out the general direction. They will probably have a larger e-commerce market than in the US, and switch to mobile from PCs is

China Wireless (2369 in HK, CHWTF pink sheets, HK$3.12) is a mainland company enabled by Taiwanese companies. This is the seventh largest smartphone brand, the Coollpad, carried by all three major carriers. Number portability is not available in China, and the Coolpad has dual SIM slots. Retail style appears similar to Apple.

It ...

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