Not all tech stocks are created equal. Emerging market investors know this well, since until recently their exposure was mostly limited to the supply chain, not shoot for the stars names like Alibaba. Internet groups make for more eye catching valuations than the makers of the camera and the chips that are needed to upload the endless food pictures to Instagram. But a recent market dip in Taiwan, home to those chip and camera makers, is prompting fresh interest.
The global tech rally has already lifted Taiwan's Taiex index, which, this year, reached its highest level since the dot com boom. Yet in spite of this, the premium valuation commanded by NASDAQ at 23 times forecast profits has reached a decade high relative to Taipei at just 15.
Last week, Credit Suisse analysts added Taiwan to the list of Asia's cheapest four markets. A bout of profit taking in July has now left the Taiex standing 11.4% higher for the year, down about three percentage points from its peak.
Optimism, from here, rests on brushing past a series of soft second quarter updates from the tech sector, which is responsible for half of the index by capitalisation. Following those reports, Citigroup's team hold bi-views on just 15 of the 38 tech names it covers. But the bank is still confident in its year end target of an 11% gain for the index, as the effects of Apple's upcoming iPhone launches feed through to supply chain stocks.
Yet that supply chain role is also investor's biggest risk. Should nuclear tensions rise once more between North Korea and its neighbours, then Taiwan can be hurt by its use of South Korean tech imports. Should trade tensions between China and the US increase, Taiwan will suffer heavily, since the top eight exporters from China to the US are not in fact Chinese, but ultimately Taiwanese owned.
Foreign interests in Taiwan typically starts the year upbeat, wanes in the second quarter, before picking up again as Apple start shipping its new products. Data on Monday, however, showed exports for July rose 10.5% short of the expected 12.3%, although well ahead of forecasts earlier in the year. That leaves a lot resting on Apple and its upcoming launches, if the pattern has to repeat itself.