SHARE THIS

Taiwan has recently witnessed a surge in ETF (Exchange Traded Fund) investment. Reports even show that “monastics” have rushed to subscribe to high-dividend Taiwan stock ETFs, ultimately raising a record NT$175.2 billion (around HK$ 42.5 billion). This year, Taiwan has launched a series of popular ETFs tracking semiconductors, US bonds, and high-dividend momentum strategies. Statistics show that Taiwan’s ETF market has grown at a compound annual rate of nearly 40% over the past five years, ranking first globally. The total size has reached NT$3.9 trillion, second only to Japan and China in Asia, and is approximately a NT$1.5 trillion increase from the NT$2.3365 trillion at the end of 2022.

A Long-term Investment Tool

ETFs are composed of a basket of stocks, with lower management fees than traditional funds, and are convenient for trading in the secondary market. They have become hugely popular in the US, who accounts for nearly 70% of the global ETF market. Warren Buffett’s “10-year bet” in 2005 further bolstered investors’ confidence in ETFs. He betted US$1 million against a group of hedge fund managers, investing in an S&P 500 index fund, while the Protégé Partners co-founder Ted Seides chose to invest in five hedge funds. After the 2007 global financial crisis, the S&P 500 index staged a strong rebound, ultimately delivering an 8.5% average annual return, far outpacing Seides’ 2.96% growth. This has undoubtedly cemented ETFs as a formidable long-term investment tool.

Taiwan’s Ample Savings

Asians tend to favor saving over spending. While Taiwanese’s wages are not high, the local consumption and entertainment channels are limited, resulting in a relatively lower standard of living. The Directorate-General of Budget, Accounting and Statistics forecasts Taiwan’s excess savings rate (as a percentage of GDP) to rise to 14.46% in 2024, amounting to NT$3.55 trillion - far exceeding the single-digit excess savings rates of South Korea, Japan, and China. According to the Global Wealth Report 2023, Taiwan ranked 5th globally in per capita financial assets in 2022, only behind Singapore. Previously, Taiwanese investors favored offshore funds, fixed deposits, or investment-linked insurance policies. However, the emergence of high-dividend ETFs, touting stable income, has successfully captured the public’s attention. As they become more familiar with ETFs, a variety of passive ETF products have successfully attracted conservative investors.

The influx of ETF investments has driven Taiwan’s stock market to new highs, nearing 20,200 points, creating a virtuous cycle where investors benefit from both capital gains and dividends. This is especially so as US interest rates are expected to decline, making high-dividend products even more attractive. The local financial regulator is also actively exploring the feasibility to open the active ETFs within the year, and thus we anticipate that the “pie will grow bigger.”