China Macro Investment Strategy: Understanding the upcoming Taiwan Presidential Elections to inform our longer-term positioning
Investing and Trading China ADRs and U.S. Names with high China dependence will require an understanding of Taiwan.
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With that said, welcome back to another Strategy update by me. This is one of my most important China Macro notes for China Investors and Traders, so I am calling for China market participants to join our Investment Community to navigate 2H 2023.
China’s Internet Sector has disappointed most passive participants. But China’s trading landscape has been a boon for me and our members, and I continue to look forward to providing tremendous & timely guidance on China.
This note serves as my July Investment Strategy note for Members.
Members,
I trust that you are looking forward to the investment landscape in 2H 2023 as much as I am.
As a Trader/Investor in both U.S. and China themes, one of the developments that I’ll be following closely is the upcoming Taiwan Election set to take place in January 2024 - only half a year away.
In addition, the 2024 Taiwan Election was an important talking point between Secretary of State Antony Blinken and the Chinese Leaders during Blinken’s recent visit.
It goes without saying the increasing importance of Taiwan in macro affairs between the U.S. and China is an area worth closely observing. Some examples to highlight the importance of U.S. - China relations being paramount to investors are the following:
Apple (largest S&P 500 Component) is very dependent on Foxconn for their manufacturing of their products. Foxconn is a Taiwanese company, with major operations in China.
Tesla attributes about 20-23% of their global revenues from China
Many names within the Semiconductor Industry derive at least 30% of their revenue from Greater China
Many names from Global Retail within Europe (LVMH, Hermes) and U.S. (Nike and others) rely on the China market for at least 20% of their revenue contribution
The China Internet Stocks - Alibaba, Tencent, Baidu - derive roughly 90% of their sales from the Mainland, yet are hoping to expand internationally to diversify their geographic exposure. But will the U.S. welcome their presence, as demonstrated by the recent trade scrutiny of Temu (popular marketplace created by Pinduoduo)?
And so forth.
In this note, I’m going to provide education on how to understand Taiwan’s political landscape from a high-level, and then discuss investment implications based on dynamic changing polls on which Party is likely to secure political leadership.
Naturally, this note touches upon politics. I’m not looking to have a discussion on politics in terms of which Party is better/worse, but rather solely provide my Investment view on the matter as objectively as possible.
Taiwan’s election outcomes will influence everything from the Equity Risk Premium that Wall Street assigns the China Internet Stocks to the EBITDA forecasts that China-dependent U.S. firms make in the coming years.
Ready? Me too. If you have any exposure to China at all, the following information below will greatly inform your approach.