Nippon India Taiwan Equity Fund: Exposure to high growth tech manufacturing hub

About Taiwan

Taiwan is one of the fastest growing emerging markets in the world (source: Bloomberg, 2021 GDP forecast). With a population of just around 23 million, Taiwan’s nominal GDP stood at USD 669 billion (2020). Taiwan’s per capita GDP is USD 28,371 (source: World Bank, 2020) which is nearly thrice of China’s per capita GDP of USD 10,500 (source: World Bank, 2020). Taiwan has a very well developed financial market. Though Taiwan’s nominal GDP is only about a quarter of India’s GDP (in US dollar terms), the market capitalization of Taiwan Stock Exchange is nearly half of that of Bombay Stock Exchange. Taiwan is the second largest country after China in terms of weight in MSCI Emerging Market Index (see the chart below). Though small in terms of the geographical area, Taiwan is an economic powerhouse in Asia.

Source: MSCI September 2021. The MSCI Emerging Markets Index captures large and mid cap representation across 27 emerging markets (EM) countries or regions with 1,418 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

Semiconductor industry powering Taiwan’s economy

Semiconductor industry is one of the most important manufacturing industries globally. Semiconductors are the driving force behind modern electronics and information technology. Semiconductors find downstream in a very wide variety of industries like computers, wireless communication, consumer electronics, power, defence, automobiles, aviation, medical equipment etc. It will not be exaggeration to say that, modern life and industries would be unimaginable without semiconductors. The global market size for semiconductors is around USD 466 billion growing at double digits over the last few years (except 2019).

Taiwan is manufacturing hub of semiconductors and integrated circuits. Taiwan accounts for more than 50% of semiconductor contract manufacturing market share. Much of Taiwan’s dominance can be attributed to Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest foundry. TSMC counts among its clients, world’s leading technology companies like Apple (smartphones, computers, etc.), AMD (microprocessors for PCs and other uses), Broadcom (wireless and broadband), NVidia (gaming) etc.

Source: KGI, Trend Force, Goldman Sachs, Gartner, SEMI, EMDS, compiled by Cathay SITE, as of September 2021. Disclaimer: Past performance may or may not be sustained in the future.

Taiwan continues to benefit from booming global demand for semiconductors. The future outlook is very bright given the advances in technologies like 5G, Internet of Things, Artificial Intelligence, Cloud Computing, Streaming etc. The semiconductor industry in Taiwan is likely to see multiple growth years ahead.

Source: ITRI, compiled by Cathay SITE, AS of 2021/09

Taiwan’s Equity Market – Earnings Growth

Taiwan’s corporate earnings have been strong in 2021. Taiwan’s corporate profits grew by 92.5% in Q2 of 2021 primarily driven by strong exports. The forward EPS of TAIEX (which tracks the performance of all listed common shares traded on the Taiwan Stock Exchange) has exceeded typical business cycles historically and continues to remain strong (see the chart below).

Source: Bloomberg, compiled by Cathay SITE, as of 2021/09. Disclaimer: Past performance may or may not be sustained in the future.

Valuations are attractive

Taiwan's stock prices have progressed in line with an improved earnings outlook. The 12-month forward price/earnings ratio for the Taiwan exchange was 13, lower than the historical average over the past decade. Current valuations are attractive from a historical perspective.

Source: Bloomberg, compiled by Cathay SITE, as of 2021/09. Disclaimer: Past performance may or may not be sustained in the future.

Performance of TAIEX (INR)

The chart below shows the relative performance of TAIEX (in INR) versus S&P BSE 500 index. You can see that the two indices outperformed / underperformed each other in different market conditions. TAIEX can provide risk diversification to your portfolio from an asset allocation standpoint.

Source: Bloomberg, as of 2021/09. Disclaimer: Past performance may or may not be sustained in the future.

The chart below shows the growth of Rs 10,000 in TAIEX versus S&P BSE 500 over the last 10 years. You can see that TAIEX outperformed BSE 500 over the last 10 years or so. Appreciating Bias of New Taiwan Dollar (NTD) contributed to the outperformance of TAIEX relative to BSE 500. However, we must mention here that investors should not make investment decisions solely based on currency movements; equity risks are far more important investment considerations.

Source: Bloomberg, as of 2021/09. Disclaimer: Past performance may or may not be sustained in the future.

About Nippon India Taiwan Equity Fund

Nippon India mutual fund is launching a new fund offer, Nippon India Taiwan Equity Fund. The NFO opens on 22^nd November 2021 and closes on 6^th December 2021.

It will be an actively managed scheme which will invest in Taiwanese stocks which are industry leaders or have the potential from a long term time horizon. The fund will have a focused approach and invest in a maximum of 40 high conviction stocks. The fund will maintain flexible cash positions to minimize drawdowns. The fund will aim to integrate ESG principles in stock selection. The salient features of investment strategy of the fund will be as follows:-

• Stock selection will be based on 3 Ms viz. dominant market share, market size based on mass demand and sustainable high margins


• The fund will follow multi-cap strategy


• The portfolio will be a mix of growth and value stocks


• Focus will be on new technology trends


• Less than 10% investment in a single stock


• Cathay SITE, one of the largest asset management companies in Taiwan will be the investment consultant for this fund.

Why invest in Nippon India Taiwan Equity Fund?

• Exposure to global semiconductor industry and its main manufacturing hub, Taiwan.


• Exposure to modern technology mega trends (5G, AI, cloud computing, gaming, online streaming, Internet of Things, electric cars etc.) one of the highest growth potential investment themes in the world; these themes are not currently present in the listed space in India.


• Risk diversification (from asset allocation standpoint) and wealth creation potential in the long term.


• Leverage local industry knowledge and expertise of Cathay SITE, one of the largest asset management companies in Taiwan.


• The NFO opens on 22^nd November 2021 and closes on 6^th December 2021.

Investors should consult with their financial advisors if Nippon India Taiwan Equity Fund is suitable for their investment needs.