iShares Taiwan ETF has a 16% dividend yield: Is EWT a safe buy?
Taiwan is going through headwinds in 2023 as concerns about geopolitics and semiconductor demand. Its economy contracted by 3.02% YoY in the first quarter after falling by 0.4% in Q4 of last year. By contracting in two straight quarters, it means that Taiwan has moved into a recession. Despite this, the iShares Taiwan ETF (EWT) has jumped by ~18% this year.
Investing in Taiwan stocksCopy link to section
Taiwan’s economy is going through major headwinds as tensions between the US and China continued. As a result, many countries are investing heavily to change their supply chains. For example, the US passed the CHIPs Act that aims to bring semiconductor investments in the country.
Europe as well is investing billions of dollars in the semiconductor industry. The goal is to ensure that supply chains of these countries are strong enough to withstand global shocks. The biggest shock is a potential invasion of Taiwan by China.
Still, Taiwan will maintain an edge in the semiconductor industry because of the advanced stage of its plants. Also, it is worth noting that many Taiwanese companies are investing in Western countries. For example, Taiwan Semiconductor is investing $40 billion in a plant in Arizona.
Therefore, many investors avoid the iShares Taiwan ETF because of the geopolitical risks and the fear that the country will lose its edge in the semi industry. While an invasion is likely, Taiwan will likely continue growing in the coming years.
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EWT ETF is also an artificial intelligence play since the biggest constituents are in the tech industry. Technology stocks make about 60% of the fund. They include companies like Taiwan Semi, Foxconn, MediaTek, and United Microelectronics.
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Is the iShares Taiwan ETF a good buy?Copy link to section
Therefore, I believe that the iShares Taiwan ETF is a good investment for three reasons. First, geopolitical fears has created discounts in the fund. I believe that companies like TSMC and Foxconn are hard to replace even as de-risking continues.
Second, the fund has a huge dividend yield that is too hard to ignore. It has a TTM yield of 15.8% and a forward yield of 16%. In the past 3 and 5 years, its dividend yield had a CAGR of 94% and 45%, respectively.
Finally, technicals are supportive of the fund. The daily chart shows that the EWT ETF has been in a strong bullish trend in the past few months. It has managed to cross the 50% Fibonacci Retracement level. The fund is also being supported by the 25-day and 50-day moving averages.
Therefore, there is a likelihood that the iShares MSCI Taiwan ETF will continue rising as buyers target the next key resistance level at $53.22, the 78.6% retracement point.