DailyWealth’s Tom Dyson reckons he’s found a great buying opportunity in Taiwan. Its economy and stock markets are in a ditch because the government controls the flow of money in and out of the country. This prevents China from taking over Taiwan’s economy.

It means Taiwanese companies have plenty of cash on their books… And according to Tom, it makes them “excellent dividend payers.”

As Tom explains:

While they keep Chinese businesses from infiltrating Taiwan’s economy, these [money inflow and outflow] regulations make it very hard for Taiwanese companies to send their capital out of Taiwan… or to borrow money in currencies besides Taiwan dollars. Taiwan companies can’t get credit overseas, because the government won’t let them use their Taiwan assets as collateral. And any Taiwan companies that do have operations overseas will do anything in their power to avoid bringing the capital they generate back to Taiwan… because they know it’ll get stuck once it gets here.

These rules mean Taiwan companies are loaded with cash. I studied the balance sheets of Taiwan’s 10 largest companies. These companies have total cash balances of $40 billion and only $9 billion in total long-term debt.

Taiwan companies make excellent dividend payers. For one thing, the government hates seeing cash sitting around on balance sheets out of its reach. So it levies a special 10% tax rate on companies who pile up cash for no reason. This tax makes sure companies either use their cash to grow Taiwan’s economy or pay it out to shareholders, where it generates income tax revenue for the government.

There’s another reason Taiwan’s companies dish out cash to shareholders. Cash-rich companies make attractive takeover targets. The predator can grab the cash and get the business for much less than it’s worth. Taiwan’s companies distribute their cash to dissuade predators…

Taiwan is a mature economy. There just aren’t many opportunities for these companies to make big investments in Taiwan. So I know dividend payments are going to increase in the future… unless Taiwan’s government deregulates and allows Taiwanese companies to use their cash on overseas investments. If this happens, Taiwan’s stock prices will jump anyway. Either way, shareholders win.

Source: Why We Can’t Lose Buying These Cash-Rich Divided Payers

Environmental damage costs China more than $200 billion a year, or roughly 10 percent of its GDP. The country recently pledged to spend up to $125 billion on a massive cleanup, including the construction of over 10,000 wastewater treatment plants.

This makes Singapore’s water treatment companies well worth a look, according International Strategist editor Tom Dyson in DailyWealth.

The Singapore water industry is my favorite way to profit from China’s drive to clean up its water. Singapore’s water companies all derive the bulk of their revenues and profits from China.

Take Hyflux (SIN:600) for example.

Hyflux is the biggest name in the Singapore water industry. It makes water treatment systems that turn sewage and seawater into drinking water. Hyflux has built Asia’s largest desalination plant. It has won billions of dollars worth of contracts to build wastewater treatment systems in China, Southeast Asia, the Middle East, and Africa. And it makes consumer products like home water filters.

Hyflux derives 81% of its revenues from China.

Hyflux stock recently got a boost after Hyflux Water Trust Management (SIN:D7TU) – a recent Hyflux spin-off – posted better-than-expected 2Q results due to lower expenses.

Last Wednesday, Hyflux stock surged to a high of S$2.54 with over one million shares changing hands.

Moreover, Credit Suisse recently upgraded Hyflux, which currently trades at S$2.62, to “outperform” and raised its target price to S$3.60.

Apart from Hyflux, Tom says there are half a dozen other Singapore water companies worth a look. Most of them are fairly cheap due to the fall of Asian stock markets this year. 

Source: How You Can Profit From China’s Water Cleanup

The bottom line is they are both over leveraged. Waaay over leveraged. They bought $1.7 trillion in assets using only $70 billion of investors’ money. To wipe out investors, mortgage values only have to decline by 1.4 percent. And this has already happened. 

Tom says the best way to protect your portfolio from the fallout of a failing Fannie and Freddie is to invest in high-dividend stocks…

High dividend stocks are by nature defensive stocks. The dividend acts like an anchor and prevents the stock price from falling too far.

But the stocks in the portfolio of my newsletter – The 12% Letter – do more than pay big dividends. These stocks are the safest collection of high dividend payers you will find in this market. The key to this safety? They own valuable real assets and sell things for the lowest possible price.

We’ve made investments in energy. Over the last two years, we made 15 investments in pipelines, natural gas, oil, oil services, electricity, coal, wind farms, and energy finance. We’re showing a profit on 15 out of 15 of these stocks.

We also own fast food, convenience stores, and warehouse retailers. These are our “price leader” stocks like Wal-Mart (WMT) and McDonalds (MCD). These stocks do well when consumers choose price over quality. They are excellent defensive stocks to own in the current crisis.

And we own timber, hydroelectric dams, and rural telecom assets. These stocks – when mixed together – will generate the safest 9% dividend we can find anywhere in the market. (The average dividend yield of the stocks in my portfolio is 9%.)

The government will bail out Fannie and Freddie and assume their debts. This is inflation. It will meet Fannie and Freddie’s trillion-dollar debts by issuing more debt of its own. U.S. government debt will lose its value, and the dollar will keep falling.

The high-yield companies in my portfolio are the perfect stocks to protect your money from the U.S. government’s inflation. These companies own productive assets. Factories are assets. So are trees. So are rural telephone networks.

Denominated in U.S. dollars, the value of these real assets will rise. So your money is safe… much safer than if you left it in the bank or a money-market account.

But the real bonus comes when foreigners lose confidence in U.S. debt. The only way they’ll be able to get any value for their dollars will be if they buy cheap American assets… like farmland, timberland, real estate… and American stocks loaded with real assets. There will be a panic into U.S. real asset and manufacturing stocks at some point in the next 12-18 months.

In sum, there’s more pain to come in financial stocks. But if you buy stocks with big dividends and lots of cheap American assets, your money will be safe and you may even make a profit.

P.S. Tom recommended an interesting company in the most recent issue of The 12% Letter. This company yields 14%. It’s been in business for 84 years, dominates every market it trades in, carries some of the world’s strongest brand names… and it’s only cut its dividend once since it went public in 1956. Click here for more on how these kinds of stocks can pay for your retirement.

Source: Read This for Your Fannie Mae and Freddie Mac Survival Plan

As a rough guide, peak power is three times more expensive than off-peak power… but it varies a lot depending on the region. As things currently stand, power companies figure out the average cost of power each day and charge every customer the same price, regardless of the time of day they consumed the power.

The power company would like to charge you more for using power at peak times… like the toll bridge or the phone company. By charging more for peak usage and less for off-peak usage, consumers would alter their habits. Peak demand would decline and base demand would rise. Power companies could avoid building expensive peak load power plants. Consumers could cut their bills in half. And it would create spare generation capacity for the future…

In Lee County, Florida, you’ll get a 50% discount on the toll bridge if you travel outside daily rush hours. Economists call this variable pricing. When there’s more demand for your service, you charge a higher price. The railroads use it. The airlines use it. Even telephone companies charge separately for peak and off-peak calling.

But there’s one industry that really wants to use variable pricing: the power industry.

Demand for power in the United States peaks daily at 6 p.m. That’s when people get back from work, heat their ovens, run the laundry, and turn on the air conditioning. Power demand bottoms at 4 a.m., when the whole country is asleep.

Because they have no way to store electricity, power plants must always have spare generating capacity to meet peaks in demand. If power demand spikes and the power company can’t keep up, you get a blackout.

To make sure there’s always enough power, power companies run two types of power plants: base load plants and peak load plants.

Base load plants meet the minimum power demand. Nuclear, coal, and hydro power plants are examples. You can’t switch off a reactor, cool a furnace, or stop a river, so base plants run all day and night. These plants produce the cheapest electricity.

As power demand starts rising at 6 a.m., power companies bring on their peak load plants. Peak plants generally run on natural gas so they can be turned on and off easily. These plants are much more expensive to run, so the power companies use them like pinch hitters: They bring them on line only when they need them.

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As a rough guide, peak power is three times more expensive than off-peak power… but it varies a lot depending on the region. As things currently stand, power companies figure out the average cost of power each day and charge every customer the same price, regardless of the time of day they consumed the power.

The power company would like to charge you more for using power at peak times… like the toll bridge or the phone company. By charging more for peak usage and less for off-peak usage, consumers would alter their habits. Peak demand would decline and base demand would rise. Power companies could avoid building expensive peak load power plants. Consumers could cut their bills in half. And it would create spare generation capacity for the future…

According to the North American Reliability Corporation, United States demand for peak electricity will increase by 135 gigawatts over the next decade… But supply will only rise by 77 gigawatts. If these projections are correct, there will be a major shortage of electricity within the next 10 years.

Variable pricing would save everyone money and ease the coming electricity shortage. But how will the power industry implement variable pricing? Smart meters. A smart meter records how much power you use and when you use it.

The world’s largest smart-meter deployment is in Italy, by the power company Enel SpA (ENEL). Enel says the project cost 2.1 billion euros but saves 500 million euros per year… a four-year payback.

Pacific Power and Gas, the California utility, wants to install smart meters with millions of customers in northern California. And a utility in Texas, Oncor, recently signed a $690 million contract to install smart meters in 7 million households.

Echelon (ELON) and Itron (ITRI) are the two smart-meter market leaders… Variable pricing will revolutionize the electricity industry. I’m going to keep a close eye on the companies that make smart meters… and I recommend you do the same.

Source: This Gadget Will Revolutionize Our Power Supply

This is good news for Brazil.

Brazil is the world’s largest exporter of soybeans. It is also fast becoming the world’s agriculture superpower, says Tom Dyson in DailyWealth. But Brazil’s soy business is heavily reliant on fertilizer – and this opens up a huge profit play…

The Brazilian soybean machine is incredible. In America, there’s only one soybean harvest per year. In Brazil, some farmers can get three harvests per year.

The world’s largest agricultural firms all have operations in Brazil’s soybean complex. I saw operations owned by Archer Daniels Midland, Bunge, Monsanto, Syngenta, John Deere, and many others. Parades of soybean trucks clog up the towns and destroy the highways.

It’s no exaggeration to say Brazil is becoming the world’s agriculture superpower. The soybean is just one of Brazil’s crops. Brazil is also the world’s largest exporter of sugar cane, coffee, tropical fruits, and frozen concentrated orange juice. And it has the world’s largest commercial cattle herd. It’s also one of the world’s top producers of corn, cotton, cocoa, tobacco, and forest products.

Here’s the thing: Brazil’s soybean region has terrible soil. If you planted corn in one of the soybean fields around Lucas do Rio Verde, it would rise about six inches and then stop growing.

Brazilians call the land where they grow soybeans “cerrado.” Cerrado means “closed” or “inaccessible” in English. It’s like savannah… Or the desert.

Rain is the reason. There’s so much rain, farmers pray for dry weather at harvest time. Rain turns the roads into mud, and they can’t move the combines around. And for thousands of years, the rain has leached all the nutrients from the soil.

How does Brazil grow soybeans in such poor soil? First, farmers use a special strain of soybeans. Second, they dump piles of fertilizer on their fields.

So nothing grows without huge applications of fertilizer and chemicals. This is why the soybeans I ate tasted so bitter.

(As an aside, this is a major benefit of the genetically modified crops we grow in the U.S. Farmers use much less pesticide and chemicals to grow them.)

There’s a major investment opportunity here. Brazil has more unused arable land than all the cropland in the U.S. As the farmers clear the cerrado and plant more soybeans, fertilizer companies will make huge profits.

One opportunity to consider is Bunge (BG). This American company is the largest fertilizer manufacturer in Brazil. Brazilian oil giant Petrobras (PBR) also has a fertilizer division. And Fosfertil (FFTL4 on the Sao Paulo stock exchange) is the largest Brazilian fertilizer producer.

P.S. My favorite Brazilian fertilizer play is in Africa. I recently recommended this company to readers of International Strategist. It owns a huge potash deposit just across the Atlantic Ocean from Sao Paulo.

With potash prices close to $1,000 per ton and increasing shipping rates, this company stands to make a fortune… To learn more about International Strategist, click here.

Source: A Visit to the World’s Next Agricultural Superpower

If prices causes ethanol plants in the Midwest to close, it could flood the market with unused corn, says Tom Dyson. Expect to see a big fall in corn prices in the near future…

Even without ethanol plants closing corn prices are already starting to fall…

A friend of mine owns a farm in Iowa. He first invited me to visit in November 2006. At the time, I was interested in grains. Corn was trading at $3.30 a bushel… and soybeans were at $6.50 per bushel. I knew they had to rise.My friend grew corn and soybeans on his farm. He explained to me how corn and soybean prices hadn’t gone anywhere for 10 years… And many of his neighbors and the locals in the town had long since given up on making any money growing crops.

He took me to see an ethanol plant a few miles from his farm. We stood and watched a bulldozer raking a huge pile of corn. Every few minutes, another semi would pull up and deliver another trailer load of corn.

This ethanol plant had just popped up. The year before, the government had banned MTBE – a poisonous chemical – from gasoline. Refiners had used MTBE in gasoline to prevent engine knocking. Ethanol also prevents engine knocking. So oil refiners started adding ethanol to gasoline instead.

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Then George Bush signed the Energy Policy Act of 2005. This new law required refiners to mix 4 billion gallons of ethanol into the gasoline supply in 2006… and 7.5 billion gallons by 2012. Energy security was the reason. Oil prices spiked in 2005 when Hurricane Katrina struck New Orleans. President Bush wanted to develop a new source of energy to protect America from future supply disruptions. He chose corn ethanol.

But the U.S. didn’t have enough ethanol. So in the first months of 2006, the ethanol price jumped, and dozens of new ethanol plants materialized to profit from the increase.

When I saw how much corn this ethanol plant was consuming and how many ethanol plants were under construction, I knew a major bull market was about to kick off in the grain markets.

Today, corn is at $7.20, and soybeans are at $16.20.

The sudden high grain prices are causing major shifts in the commodity markets. I wrote about hogs in my last column. Hog farmers can’t afford to feed their pigs. They’re selling their pigs for whatever money they can get for them. Piglets go on the farm dump.

Hog farmers aren’t the only ones hurt by these high grain prices. Expensive corn kills ethanol plants, too. I heard from my friend in Iowa recently. He told me there’s a rumor moving around the Midwest farming communities: 16 ethanol plants are about to go bankrupt. He says it will release 500 million bushels of corn onto the market.

The corn story is all over the media. There’s no one left to buy. And my friend says the corn on his farm is so green and healthy, it makes his “eyes hurt.” If all this corn floods the market at one time, the price of corn will plummet.

I’m not going to make any short bets on corn. The corn market is rising in a parabola, and there’s no telling how high it could go. But I am going to switch my attention to other sectors of the agriculture market. Like meat. Agriculture will be in a bull market for many years to come. There’s going to be a shortage of meat. Hogs and cattle are my favorite plays right now.

Good investing,

Tom

P.S. In the latest issue of International Strategist, I show readers the best way to invest in hogs… and profit from the fall in corn. I think we’ll double our money in the next 18 months. Click here to learn more.

Source: Why Corn Prices Are About to Fall… And How to Profit

Corn is the problem. The June floods in Iowa wiped out 2% of the U.S. corn crop, and corn prices spiked to more than $8 a bushel – four times the average corn price of the last 30 years. With corn at $8, it costs $150 to fatten a hog. But the meatpackers only pay $100 per hog. So the finishing farms lose $50 on every pig they raise.

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Right now, finishing farms are liquidating their herds and going out of business.

So farmers are getting stuck with piglets. When I went to Iowa a few weeks ago, I heard of farmers throwing piglets in the trash… or using them as compost. For the first time in his life, the farmer doesn’t have enough money to make his interest payments.

So the farmer contacted his lender and explained the situation. The loan officer advised him to sell all his land, liquidate the sows, and look for a job.

But Tom says this is a short-term trend. Once a shortage of hogs begins, the price of pork will follow corn to record highs. And this is when investors stand to make a big profit…

When corn goes to record highs, pork must also go to record highs. That’s because pork is corn refined. You could say a pig is just a sack of corn with four legs.

But there’s a lag. Right now, everyone’s selling hogs. The finishing operations are selling their herds, and the farrowing operations are dumping their sows. It is pushing down live hog prices.

But in nine months – when the market has worked through the excess – hogs will be in short supply. And that’s when hog prices will start setting records. This shortage will last for two years, because that’s how long it takes to bring a commercial hog operation from scratch to production.

In 1998, the last time the hog business washed out like this, live hog futures jumped from 10¢ to 70¢ in two years. I expect we’ll see something similar this time around…

The hog ETF is the easiest way to invest in hogs. It trades in London. The symbol in Yahoo Finance is HOGS.L. Experienced traders should look at the futures market. A lean hog contract trades in Chicago on the CME.

Three Stocks to Double Your Money in the Next Asian Market Bubble

Tom Dyson

Flights between China and Taiwan start this weekend. The first plane will fly from Taiwan to China on Saturday morning and then return one hour later. China Airlines, the largest Taiwanese carrier, will operate the flight.

Saturday’s flight will mark the first direct scheduled flight between China and Taiwan in 59 years.

In 1949, Taiwan banned direct flights with China. Taiwan used to be part of China. But in the 1940s, China had a communist revolution. The losers of the war – the business and intellectual elite – fled to Taiwan and broke ties with mainland China. Officially, China and Taiwan are still at war.

In March, a new president won power in Taiwan. This new president wants to mend Taiwan’s relationship with China… and eventually unify the two countries. This was the basis of his election platform. Restoring transport links between the two countries was his first step.

Starting on Saturday, 36 flights will connect Taiwan and China every weekend. Several airlines – from both Taiwan and China – will fly between different Chinese and Taiwanese airports.

Here’s the thing: When the losers of the revolution in China came to Taiwan in 1949, they took over Taiwan by force, imposed martial law, banned all political parties except their own, restricted the press, and put large tariffs on foreign imports and luxury goods. Then they built an aggressive export economy like Japan’s.

The aim of these policies was to make Taiwan rich. And they worked. By 1987, Taiwan had the fourth-largest stash of foreign exchange reserves in the world, after the U.S., France, and Japan. Taiwan had almost as much foreign reserves as Japan… even though Japan’s population was six times larger. In 1987, the typical citizen of Taiwan saved 31.2% of disposable income (vs. 16.6% in Japan and 3.2% in the U.S.).

In 1987, a new president won power in Taiwan… the first native Taiwanese to head the government. The new president started loosening regulations. He encouraged citizens to buy luxury American goods. He freed the press. He allowed opposition political parties to compete for power. He let Taiwanese citizens send money abroad. And he let Taiwanese citizens travel to China to visit relatives… for the first time since the revolution.

The Taiwanese stock market loved these new policies. Between 1987 and 1990, Taiwan had one of the greatest stock market bubbles in history. Taiwan’s market rose from 1,100 to 12,054… a gain of 991%… and the Taiwanese currency rose another 40%. Foreign investors would have made 14 times their money in just three years by investing in Taiwan.

Now I think we’re about to see another huge rally in Taiwanese stocks. Since 1990, Taiwan’s stock market has been the worst-performing major stock market in the world, except for Japan. Today the index is at 7,523. That’s a fall of 38% from 1990 levels.

The new president is freeing up regulations between Taiwan and China. Transport comes first. Capital regulations will come next. Taiwan’s new president has said he wants to help Taiwan’s financial industry go to the mainland. Hong Kong’s stock market rose 55% in 10 weeks last year after Hong Kong opened its markets to Chinese investors in August 2007.

I don’t think the Taiwanese stock market will rise 990% again… but I do think it’ll double over the next couple of years. The Taiwan ETF (NYSE: EWT) is the easiest way to invest in Taiwan. It pays a 2.75% dividend.

There are also two Taiwan closed-end funds: The Taiwan Fund (NYSE: TWN) trades at an 8% discount and pays a 2.75% dividend. The Taiwan Greater China Fund (NYSE: TFC) trades at a 10% discount and pays a 0.16% dividend.

Good investing,

Tom

P.S. I recommended a Taiwanese stock in the most recent issue of my investment advisory, The 12% Letter. It’s the largest technology hedge fund in Taiwan and pays a 6.3% dividend.

Source: Three Stocks to Double Your Money in the Next Asian Market Bubble

The same goes for Wal-Mart (NYSE:WMT) – there’s nowhere cheaper to shop. As long as you live within walking distance, that is…

The Two Best Stocks to Own in a Recession

Tom Dyson

Detroit’s auto industry was one of the spectacular investment stories of the 20th century. The auto industry became America’s largest industry by 1929. Detroit’s population rose 500% during this time. Detroit’s auto industry bloomed again after the second world war…

But by the late 1970s, everything had fallen apart…

Cheap competition and wage inflation forced Detroit’s automakers to move their plants to Mexico. Two different oil crises gifted large chunks of Detroit’s market share to the Japanese and their small cars. Riots broke out, workers got fired, and major manufacturing towns like Detroit, Saginaw, and Flint fell apart.

But none of this bothered Ken.

I met Ken in Detroit last year on a business trip. He made hundreds of millions of dollars supplying auto parts during the collapse of Detroit’s auto industry. He went into business just as the decline began. And the worse the conditions got for Detroit’s automakers, the more money Ken’s businesses made…

Here’s his secret to making money in a depression…

In 1971, Ken graduated from college and went to work at a factory making industrial fasteners for the auto industry. Six months after he started work, the factory went bust. So Ken decided to go to graduate school instead. While filling out application forms for his prospective schools, he came up with a new method for manufacturing those industrial fasteners.

Ken was so sure of his idea, he used a university acceptance letter to secure a large student loan. Then he bought equipment at auction, rented a small industrial space, and started producing fasteners.

Twenty years later, Ken’s company had reached $100 million in annual sales, producing fasteners, airbag canisters, highway construction tools, and dozens of other small manufactured components. Ken recently sold his company… And it became a division of a publicly traded business.

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I asked Ken how his business was able to grow so fast in a shrinking industry.

“Simple,” he said. “I made my fasteners cheaper than anyone else. When money got tight in Detroit, all the automakers came to me. I became the major supplier of fasteners in Detroit.”

This is why business is booming at companies like McDonald’s (MCD) right now. McDonald’s is probably the cheapest place to eat in America. You simply can’t get cheaper food anywhere else… even in the supermarket. With the real estate and credit problems, Americans are tightening their budgets. So they’re going to McDonald’s for food instead of more expensive options. Sales at McDonald’s have risen 5% in April and 7.7% in May.

It’s the same at Wal-Mart (WMT). With inflation pushing up food and energy prices, consumers are looking for bargains. Wal-Mart is the cheapest place the shop on Earth. It’s winning market share from more expensive retailers…

Wal-Mart’s profit increased 6.9% in the recent quarter and its sales went up 10.2%.

Wal-Mart and McDonald’s are the price leaders in their markets. They’re up 35% and 20%, respectively in the last nine months… And the S&P has fallen 12%.

Ken made millions in Detroit’s recession making fasteners cheaper than anyone else. If there’s a recession in the United States, I expect Wal-Mart and McDonald’s will dominate their markets… just like Ken’s business did in Detroit.

Good investing,

Tom

Source: The Two Best Stocks to Own in a Recession

Tom is a major Jim Rogers fan. He says Jim is “never wrong.”

Just look at the two trades he’s recommended so far this decade. In 1999, he started telling people to buy commodities. He set up an index to track commodities – the Rogers International Commodities Index – and published a book about commodities in 2004. The Rogers International Commodities Index is up 470% since inception.

China was his second trade of the decade. He’s been talking up China since the early part of this decade, too. The Chinese stock market went up 400% between 2006 and 2007…

 The Last Time Around, This Asian Stock Market Gained 990% 

By Tom Dyson

Jim Rogers is one of the world’s best investors. I’ve followed his recommendations and ideas for 15 years, and I’ve never seen him make a mistake…

Now Jim has a new “favorite” investment. Rogers is buying Taiwanese stocks. He started buying in March. How much will Taiwanese stocks rise? We’ve seen a situation like this before…

In 1987, a new president won power in Taiwan and improved relationships with China… just like we’re seeing today. Taiwan’s stock market rose from 1,100 to 12,000 between 1987 and 1990. That’s a gain of 990% in three years.

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The island of Taiwan split from China in 1949 following a civil war. But China still claims Taiwan as its territory and threatens to attack Taiwan from time to time. Officially, the two countries remain at war.

This political uncertainty creates news headlines… and deters investors from buying Taiwan stocks. Look how badly Taiwanese stocks performed over the last two years:

On average, regional stock markets in Asia have risen 90% since January 1, 2000. Taiwan’s stock market actually declined 3% this decade… and 18% since 1997.

Taiwan’s poor stock performance has given the country its lowest stock valuations ever.

The Datastream Taiwan Index has a price-to-earnings (P/E) ratio of 12.8, which is well below the Datastream China Index’s P/E of 20.9 and the Datastream U.S. Index’s P/E of 17.7.

According to Stansberry’s quant analyst, Ian Davis, of all the indexes in the Datastream database, Taiwan is the cheapest major stock index in the world when you compare its current median P/E, price to book, and dividend yield with its own historical norms.

Most people don’t realize commercial relationships between Taiwan and China are booming. Trade between mainland China and Taiwan will probably reach $120 billion this year. And according to the Associated Press, Taiwanese companies have invested more than $120 billion since the early 1990s in mainland businesses.

These businesses supply advanced plant and equipment – like high-tech electrical machinery or rare industrial textiles – to the factories and industries of mainland China.

And the political relationship between China and Taiwan is improving, too. In March, a new president won power in Taiwan. His name is Ma Ying-jeou. Improving relations with China is at the top of Ma’s agenda.

Since Ma’s election, China has reportedly withdrawn half of the missiles it had pointed at Taiwan… And next month, the first direct flights will connect Taiwan and China. Taiwan will allow 3,000 Chinese tourists to visit every day. That’s a big deal. According to Goldman Sachs, tourism may add about 60 to 80 basis points (0.6%-0.8%) to Taiwan’s economic growth.

It’s still illegal for Chinese investors to invest in Taiwan… or for Taiwanese investors to invest in China. But that’s changing, too.

In August 2007, Chinese authorities unveiled a plan for mainland residents to invest in Hong Kong. This was the first time the government had allowed Chinese investors to invest outside Shanghai. The news sent Hong Kong’s Hang Seng Index up 55% in 10 weeks.

I think Taiwan could be one of the next markets Chinese authorities open up to mainland investors. If this happens, we should see a similar pop in Taiwan’s stock index…

Taiwan’s new president knows tying his country economically to China is the best way to prosperity. Opening Taiwanese stock markets to mainland investors is a way to do this. Wu Rong-I, chairman of the Taiwanese stock exchange, says these elections should “pave the way for an agreement with Beijing to ease such restrictions.”

Mainland Chinese investors have $2.3 trillion in savings. To date, they haven’t been able to invest this money outside China or Hong Kong. If they lift these trade barriers, Taiwan’s stock market will soar…The last time Taiwanese and Chinese politicians made progress, you could have made 990% in three years.

I’m not predicting another 990% gain in the Taiwan stock market this time around. But Taiwan is cheap. There’s a catalyst. I think we could easily see a double in Taiwan’s stock index…

Good investing,

Tom

P.S. Taiwan’s main stock index could double. But pick the right Taiwanese stock, and you could make 10 times your money in the bull market.

I think I’ve found the perfect Taiwan investment. This stock pays a 6.3% dividend… and it’s the recommendation in the latest issue of my 12% Letter. To learn more about The 12% Letter, click here.

Source: The Last Time Around, This Asian Stock Market Gained 990%