Steve's note: Contributing today's essay is math and computer expert Ian Davis. Ian has spent several years turning our "cheap, hated, and in an uptrend" strategy into a computerized system for finding trades that return hundreds of percent. Read on for one of his best ideas now...
When to Buy My Favorite Asian
Stock Market
By Ian Davis, editor, Quant Trader
May 10, 2008
In April 2007, the stock market of the tiny island nation of Taiwan had just about everything going for it...
It was cheap. The world's cheapest stock market at the time.
It was hated. Investors were worried the country would be invaded by China.
It was in an uptrend. Taiwan's stock market had just broken out to a new multiyear high.
We love to see all of these conditions for a trade in DailyWealth. When an asset is extraordinarily cheap and hated (or ignored), there's little risk you'll lose money. And by waiting for an uptrend before buying, you avoid tying your money up in a dead market for years.
In my Quant Trader service, we bought shares in the Taiwan Fund (TWN) to capitalize on the Taiwan opportunity. The trade worked out wonderfully for a few months... but we stopped out of the position this February as markets around the world plunged. It's a shame... because this trade has huge potential.
So what do we need to see before jumping back into Taiwan?
The governments of Taiwan and China have been arguing over the jurisdiction of Taiwan for over 50 years. China has vowed to bring Taiwan back under its rule by force if necessary. This political risk is the reason why Taiwan was, and still is, so cheap.
---------- Advertisement ----------
Canada's Untapped Oil Sands Province
About 99% of the money that's been made in Canadian oil sands, so far, has come from just one Province: Alberta.
But what almost no one realizes is that there's a region of Canada that geologists believe holds even richer oil deposits than Alberta.
The Regina Leader-Post writes, "Although the Alberta oil sands tend to get most of the publicity, the oil sands in [this secret region] contain 'significant world class deposits' that are of 'top quality.'"
Even better, a tiny penny stock has been chosen to lead the way.
Click here for the full story.
--------------------------------------
However, nowadays relations are improving...
The recent election of Ma Ying-jeou brings hope that the two governments will forge new diplomatic and economic ties over the next few years. This is a huge plus for Taiwan. It's one of the most advanced countries in Asia and home to giant semiconductor and electronics manufacturing industries... so a friendly China will make for a good trading partner.
Another sign I like to see when investing in an Asian market: Legendary investor Jim Rogers has named Taiwan as one of his top spots for new money right now. He believes China and Taiwan will merge their economies and currencies together. This would likely create a huge stock market boom in Taiwan. And boy do these stocks have room to run...
Taiwan: A Cheap Play On Asian Growth |
|
As you can see, Taiwan is still extremely cheap and the long-term uptrend that began in 2003 is still in place. However, the short-term trend is down. The Taiwan Fund is down about 11% over the last month.
The U.S. and China are Taiwan's two largest trading partners. So, Taiwanese stocks tend to fall alongside China and the U.S.
Again... that's the short-term picture. Taiwan is a great place to hunt for long-term investments in the Asian economic boom.
The trouble with big stories like Asia is there's usually too much hype surrounding them to get a great deal on assets. That's not the case with Taiwan. It's still cheap, and most folks are ignoring the opportunities. All we need is the uptrend before we stand to make huge returns here.
Good investing,
Ian Davis
