Amid market volatility in a COVID-19 world, investors in Taiwan, like the rest of the world, were quick to shift their focus inwards – to domestic bond and equity products. To gain a better understanding of Taiwan’s investment landscape, I recently held a fireside chat with Julian Liu, Chairman, Yuanta SITC at DTCC’s recent North Asia Virtual Forum, where he shared his insights on how the country is navigating this changing environment.
Thanks to strong economic performance in 2020, Taiwan minimized the need for nationwide fiscal incentives and tax concession. According to Fitch Ratings, economic growth in Taiwan is stronger than expected and it has affirmed Taiwan’s ratings at AA- in September 2020, with outlook categorized as stable.
Against this backdrop, Liu shared, “We have seen a rise in Exchange Traded Funds (ETFs), which can be traded on stock exchanges, just like a regular stock. The rising interest could be due to investors turning their attention from mutual funds to ETFs where lower fees are being charged. This scenario is also happening elsewhere, including the U.S. In the case of the U.S., there are also other reasons to explain the quick switch to ETFs, such as tax benefits that investors can enjoy over mutual funds. We are also optimistic about our forecast for equities – due to excellent results in the high-tech sector and our stock market performances in 2020.”
Exploring Investor Profile and Interest
While it will take time for the Taiwanese economy to fully recover despite the current optimistic outlook, Liu noted that interest in environmental, social and governance (ESG) is no longer restricted to only wealthy clients. A broader group of investors including the millennial generation are adding ESG products in their investment portfolio – also aligning with the changing global market investment landscape.
"Studies have shown that today’s savvy investors are putting their money in investment funds that contribute to the good of the society."
COVID-19 has also contributed to greater interest in sustainable investing here in Taiwan as well as elsewhere."
Elaborating on the investor-mix, Liu added, “The investor demographic in Taiwan is also expanding to include Generation Z in addition to the millennials. Of the more than 1 million of new investment accounts opened in 2020, Generation Z made up approximately 70%. Going forward, we will need to tailor our investment options and solutions according to the risk appetite, investment focus and return on investment criteria of our broad group of investor-mix. It is also noteworthy to highlight that there has also been a strong focus on Smart-Beta strategies to improve diversification and mitigate investment risks.”
Growing Wealth through Diversification
To minimize risk exposure, investors are increasingly seeking to adopt a multi-asset strategy, which may be viewed as a double-edged sword Liu cautioned. He revealed, “Risk adverse investors prefer outcomes that provide a steady and predictable return on investments, particularly in the face of adverse market conditions and unpredictable market cycles. This strategy has proven to be successful here as firms have been generating alpha returns in core and satellite assets in the past year. While long term growth in a “play-it-safe” environment can usually be achieved via diversification, the interconnectedness of today’s financial markets may impact the performance of more than one asset class at any one time. Taking an agile approach to investing to react rapidly to changing market conditions is key to investment success.”
While industries like high-tech, medical and fund management and brokerage houses continue to perform well throughout the crisis, the rest of the industries in Taiwan are not spared by the global slowdown in economy activity. Firms in weak performing sectors will need to re-invent to stay relevant and hence survive.
Looking ahead, Liu observed, “As we move towards a demand-led world, more customized solutions are being developed as opposed to off-the-shelf products – to cater to specific market needs. ETF funds is a good example where we can meet the investment needs of a wide spectrum of investors with a mixture of equities and bond products for domestic and cross-border requirements.”
He added, “While we have always been a forerunner of digital transformation – given our strength in the high-tech sector, going digital is now a must have for us to continue to compete and cooperate effectively within Asia Pacific and globally.”