Beware rudderless Taiwan. Thailand looks better

While Asia has gained 15% in 2005, one of its major markets has been struggling all year: Taiwan has hit a six-month low, and is down 7% on the year. The latest retreat by the tech-heavy market was prompted by jitters over global growth and the technology outlook, but over the past few months it has been struggling with slowing export growth and relatively lacklustre domestic demand, which imply growth of just 3% this year. The economy is trailing its regional counterparts.

At the same time, both a recovering property market and tax reform programme have stalled.  As Matthew Sutherland of Yuanta Securities told the FT, the Taiwanese economy resembles a ³rudderless ship². The fact that local investors may step up their selling now that they have easier access to other financial instruments and overseas shares doesn¹t help either.

The prospects for Thailand are better. According to Garry Evans of HSBC, the economy is improving as agriculture and tourism rebound from the tsunami, while an impending five-year spending programme on infrastructure should help underpin growth and offset higher oil prices and recent rate hikes. GDP is expected to rise by 4% this year and 4.6% next. Local analysts see scope for a 10% rise in the market this year. The market¹s low p/e of nine, along with the stimulus from the infrastructure programme and the lowest correlation with Wall Street of all Asian markets over the past 12 months mean that Thailand should prove a relatively defensive market if the US economy and market were to weaken sharply, says Evans. Among his favourite stocks is Siam Cement (SCC TB, THB 200), on a p/e of eight with a yield of 7.7%. It should profit from infrastructure spending.