Should you buy India’s first Taiwan Equity Fund by Nippon India?

The benchmark index of Nippon India Taiwan Equity Fund is Taiwan Capitalization Weighted Stock Index (TAIEX) and will be managed by Kinjal Desai.

The fund will be advised by Cathay Site, Taiwan’s largest asset manager with $42.8 billion in assets under management.

The scheme will follow a multi-cap investment strategy that will include growth and value stocks in the portfolio. The fund’s focus will be on new technology trends and will have less than 10% exposure to a single stock.

According to the plan’s product note, Taiwan has a nominal GDP of $669 billion by 2020, and is the country’s second-highest weighting in the MSCI Emerging Markets Index after China. Furthermore, Taiwan’s economy and market are largely based on the semiconductor and electronics industries, which in turn have very wide and diverse uses.

The East Asian nation is a major player in the global semiconductor market and a major beneficiary of the uptick in global demand.

According to Nippon India, one should invest in their Taiwan Equity Fund, as it offers a global play on the semiconductor and electronics industry, and investors can benefit from diversification due to the weak correlation between the Indian and Taiwanese market.

However, experts caution against a country-specific approach to investment diversification.

Amol Joshi, Founder, Plan Rupee Investment Services said, “You cannot have 30-50 or many schemes. A typical investor should have four-eight or six-eight schemes in a well-run portfolio. Within that, You will hardly have room for an international offering, and if so, that one international offering, at the very least, I recommend a US-based, broad market diversified fund such as the S&P 500.

Furthermore, experts suggest that a fund based in Greater China (China, Hong Kong and Taiwan) would be a better bet and safer than a Taiwan-focused scheme.

According to Rishabh Desai, founder of Rupee with Rushabh Investment Services, valuations in the Greater China region are reasonable.

“If you look at the P/E ratio of the TAI EX Index, it is trading below its 10-year historical average. So its 10-year historical average is around 15, and is trading at around 13. From a valuation perspective, it’s very attractive, and corporate profits have grown tremendously as well. I see great long-term potential in the Taiwan market, but I would still bet on the Greater China region, it gives a better diversification rather than just a concentration risk,” he said.

Additionally, investors should keep in mind that any non-globalization or geopolitical developments could affect Taiwan’s markets.

“If many companies decide to re-shore their manufacturing, that we can see going forward, as everyone focused primarily on China for their manufacturing, and this pandemic has taken a huge toll on the supply chain. Gave a halt Global players are definitely going to see this in terms of diversification. So, these are some of the risks that emerging markets will face – globalization and reshoring of manufacturing units. So, in a way, Taiwan, Hong Kong and China will be intertwined somewhere.”