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Miracle that defies missiles

In his series on investment opportunities world-wide,
The Taiwanese stock market began the year with a bang, surging by more than 20 per cent in the first two months, but recently took a tumble following rumours that China (which considers Taiwan a renegade province) would resume its pastime of lobbing missiles into Taiwanese waters, as a protest against a visit to Taiwan by the Dalai Lama. It will take more than a few token threats from Beijing, however, to put a damper on the manufacturing miracle.

Taiwan is the world's biggest producer of televisions, watches, personal computers and track shoes; its population is highly educated. inflation is below 3 per cent and the current account surplus rose by 34 per cent in 1996 to more than $18bn (pounds 11bn). Unemployment and external debt are minimal.

The 370 companies listed on the Taiwan Stock Exchange are dominated by banks and insurance companies such as Cathay Life. Individual investors account for more than 90 per cent of turnover in listed shares, a result of laws that forbid many local institutions from investing in the stock market in order that the country's wealth is more evenly distributed throughout the 21 million population.

Only six companies have been successfully privatised, including China Steel Engineering, Yang Ming Marine and China Petrochemical Development. The government, however, has recently earmarked a further 34 for flotation, including Taiwan Power, Chinese Petroleum and Chung Hwa Telecom.

The market has risen by almost 50 per cent in sterling terms over the past year, although fears that valuations had been overstretched have given the market pause for thought. A recent government ruling allowing foreign investors to own 20, rather than 15, per cent of total equity market capitalisation should help to steady nerves.


The Turkish stock market has been one of the world's best performing, rising 44 per cent during the first three months of this year. "Two key factors have contributed," explains Radhika Ajmera, director of Abtrust's Turkey Trust. "Interest rates have recently hit a four-year low - important in a market which is dominated by local investors who are very sensitive to the returns they can get on their savings. There is also increased optimism among foreign investors as a result of the government's decision to privatise Turk Telekom, the jewel in the state's crown."

Apart from the Turk Telekom issue, which aims to raise $3.5bn, Petrol Ofisi, the oil distributor, and Turkish Airlines will also be floated. Overseas investment in the market is strongly encouraged and foreign institutional investors now hold more than a quarter of the value of the 200 or so companies listed on the Istanbul Stock Exchange.

The success of the stock market, however, is in stark contrast to an economy bedevilled by astronomic inflation (around 80 per cent), high unemployment and a rocketing budget deficit, caused in part, by the cost of civil war with the Kurds. Indeed, about 45 per cent of the government's budget is spent financing the expanding public debt. The country is also riven by political instability.

Turkey's 62 million population ensures that domestically oriented companies such as Migros and Tansas, the supermarket chains, are among Abtrust's favoured stocks. Aside from owning the Coca Cola franchises in Central Asia, Erciyas Biraclik, the monopoly beer producer, is expected to benefit from a rapidly growing tourist industry. Alarko Holdings, the construction and contracting business, should do well on the back of the economies of Central Asia and Russia, with which it already does considerable businessn

Taiwan-specific funds include Thornton's Taiwan Equity Growth unit trust and Barings runs the Taiwan investment trust. Abtrust and Morgan Stanley both run Turkey-specific investment trusts.

Performance statistics: Datastream