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Home Editorials Diaxde Volunteers Sell Your Taiwanese Stocks!

Sell Your Taiwanese Stocks!

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Upon seeing Crystal Hsu’s business reporting on Taipei Times yesterday (July 2nd, 2009), something alerted me greatly.

I have been following stock markets since my days as an undergrad.  That’s more than 15 years ago.  And I don’t remember seeing the Taiwan’s broad stock market index averaging a p/e (price to earnings) ratio over 40 times.  According to Hsu’s report, Kevin Hsiao, the head of UBS Wealth Management Research Taiwan, had pointed out that that p/e ratio is the highest among all four “small dragons” of Southeast Asia.  Another observation on Hsaio’s data is that Taiwan’s p/e ratio is more than twice as large comparing against all the other three small dragons (Hong Kong 18.2x, South Korea 14.7x, Singapore 15.5x) and China (14.3x) and India (16.6).  Amazing.

Digging deeper into the valuation issue of Taiwanese stocks, the following table is a comparison of major stock markets around the world (courtesy of Dow Jones Indexes):

 

Country

P/E (Incl. Negative)

P/E (Excl. Negative)

P/Book Value

Div. Yield

P/Sales

P/Cash Flow

Trailing

Projected

Trailing

Projected

Australia

11.66

14.48

12.26

14.56

1.85

5.56

1.27

7.21

Austria

NMF

14.21

7.17

11.43

0.89

2.70

0.49

2.74

Belgium

23.01

11.48

12.58

11.48

1.29

2.44

0.41

5.06

Brazil

12.45

11.04

10.19

11.04

1.93

1.13

1.15

4.41

Bulgaria

0.25

NMF

0.25

NMF

NMF

0.77

NMF

NMF

Canada

13.17

13.71

12.29

13.90

1.75

2.82

1.17

5.61

Chile

17.04

17.98

17.04

17.98

1.86

2.74

1.09

6.89

Cyprus

5.63

8.84

5.13

8.84

NMF

6.73

NMF

NMF

Czech Republic

8.65

9.23

8.65

9.23

1.68

6.00

1.15

6.30

Denmark

13.44

14.94

13.85

15.25

1.63

0.92

0.65

6.94

Estonia

2.67

9.00

7.31

8.35

0.48

6.44

0.36

3.66

Finland

10.01

13.03

10.04

13.19

1.71

3.37

0.58

6.59

France

9.41

9.91

9.41

9.91

1.16

3.22

0.49

3.93

Germany

13.98

10.43

11.90

10.45

1.29

3.09

0.43

4.04

Greece

7.25

9.40

7.30

9.40

1.21

2.65

0.68

3.93

Hong Kong

15.09

15.52

15.74

15.64

1.62

2.85

2.02

9.38

Hungary

6.38

7.94

3.67

7.94

0.97

1.70

0.50

2.20

Indonesia

11.87

11.84

12.42

11.84

2.73

3.13

1.58

14.81

Ireland

7.45

NMF

6.66

11.50

0.83

1.72

0.38

1.62

Italy

7.74

10.30

7.74

10.39

0.87

3.39

0.48

2.72

Japan

NMF

27.62

19.82

21.25

1.21

1.77

0.48

8.13

Latvia

1.51

NMF

1.51

NMF

NMF

0

NMF

NMF

Lithuania

3.09

NMF

3.67

NMF

0.31

7.51

0.26

1.20

Malaysia

14.10

14.26

14.08

14.29

1.59

3.91

1.30

7.75

Malta

16.44

NMF

14.01

NMF

NMF

3.97

NMF

NMF

Mexico

7.11

12.23

7.20

12.23

1.87

2.09

1.23

6.09

Netherlands

19.83

9.62

13.00

10.31

1.25

4.23

0.38

1.98

New Zealand

10.69

13.96

10.69

13.96

1.33

7.38

0.92

5.57

Norway

8.63

9.76

7.64

9.76

1.33

2.05

0.64

4.83

Philippines

13.87

11.79

13.87

11.79

1.59

4.05

1.39

7.75

Poland

10.60

12.18

9.95

12.18

1.28

3.23

0.59

6.05

Portugal

11.47

12.06

11.47

12.06

1.41

3.71

0.75

4.80

Romania

0.01

8.85

0.01

6.97

NMF

3.10

NMF

NMF

Singapore

12.55

13.93

13.09

14.12

1.38

4.15

1.04

8.16

Slovakia

NMF

NMF

NMF

NMF

NMF

5.33

NMF

NMF

Slovenia

14.99

13.74

13.88

13.74

1.05

1.67

0.56

7.42

South Africa

10.34

9.93

9.93

9.93

1.95

3.99

0.94

5.83

South Korea

14.52

11.66

13.02

11.87

1.31

1.30

0.41

4.04

Spain

8.66

9.59

8.66

9.59

1.57

4.98

0.87

4.61

Sweden

12.93

14.46

10.37

14.88

1.31

2.41

0.76

7.73

Switzerland

24.17

11.94

12.78

11.94

2.08

1.87

1.07

NMF

Taiwan

36.92

17.90

17.36

16.59

1.61

2.97

0.74

6.32

Thailand

0.82

10.73

11.57

10.85

1.47

4.62

0.59

4.93

UK

8.04

10.64

8.21

10.73

1.50

4.67

0.74

4.77

US

11.90

13.02

12.45

13.39

1.98

2.20

0.84

6.28

 

 

I have bolded and enlarged three entries on the row for Taiwan.  Notice that the trailing p/e, inclusive of companies with negative profits (i.e. companies making a net loss), Taiwan has the highest ratio for all 45 major markets of the world.  The second observation on the table above is that, counting only firms with positive earnings, Taiwan still has the second highest ratio in the world; with Japan claiming to top spot.  This tells me that either lots of companies in Taiwan are in the red or a few companies are losing a lot of money.  I am inclined to believe the former, as shops after shops in Taiwan’s streets are being closed down.  Either way, the all-inclusive p/e ratio is being “averaged up” by the loss-making firms.

Furthermore, if investors, both domestic and foreign, are willing to reward Taiwan’s stock market with the world’s highest p/e ratio, then they either believe that Taiwan’s economy is so good that it will outperform every country on the face of the earth (?!), or the current Ma administration is so good at its illusion-creation and chicaneries that it has succeeded in producing the biggest euphoria of all time and both Taiwanese and foreign investors are going to wake up feeling very sorry after about 12 to 18 months from now…

I am inclined to believe the latter.

P.S.  This opinion piece is written on Friday, July 3rd, 2009 when TAIEX closed the day at 6665.4.

DISCLOSURE: The information contained in this article should not be misconstrued as an offer to buy or sell securities.  Always consult a professional advisor before making an investment.  The author holds no positions in Taiwanese stocks.



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Newsflash

The odds of President Ma Ying-jeou (馬英九) being re-elected in 2012 yesterday fell below 50 percent for the first time since May, according to a university prediction market.

Prediction markets are speculative exchanges, with the value of an asset meant to reflect the likelihood of a future event.

On a scale from NT$0 to NT$100, the probability of Ma winning a re-election bid was, according to bidders, NT$48.40, the Center for Prediction Market at National Chengchi University said.

The center has market predictions on topics including politics, the economy, international affairs, sports and entertainment. Members can tender virtual bids on the events, with the bidding price meant to reflect probability.

The re-election market had attracted 860,000 trading entries as of yesterday. It was launched in April.

The center said the figure slipped 2.3 percentage points yesterday from a day earlier, when Ma conceded that his party did not fare as well as hoped in the “three-in-one” elections.

The Chinese Nationalist Party (KMT) won 12 of Saturday’s 17 mayor and commissioner elections, but its total percentage of votes fell 2 percentage points from 2005 to 47.88 percent of votes nationwide.

The Democratic Progressive Party (DPP) won just four of the races, but received 45.32 percent of the ballots, or a 7.2 percentage-point increase from 2005.

Since the center opened the trading on Ma’s re-election chances on April 11, prices have largely hovered around NT$60, but jumped to NT$70 in mid-June. The figure then fell to NT$51.80 in August after Typhoon Morakot lashed Taiwan, killing hundreds.

After then-premier Liu Chao-shiuan (劉兆玄) resigned in September, the price returned to NT$63.2 and remained at around NT$60 for the following two months, the center said.

Since Ma took over as KMT chairman, the center said the number had steadily declined from NT$58 on Nov. 18 to NT$50.80 on Dec. 5. After Saturday’s elections, the figure fell below NT$50.

The center said the outcome yesterday would likely affect next year’s elections for the five special municipalities, as well as the next presidential election.

It also said the probability of Taipei Mayor Hau Lung-bin (郝龍斌) winning re-election was 72 percent, while the chances of Taipei County Commissioner Chou Hsi-wei (周錫瑋) winning again were 20 percent.

Source: Taipei Times 2009/12/07