Time for Taiwan ETFs

The iShares MSCI Taiwan ETF (NYSEArca: EWT) has, at various points during its almost 16-year history, been a favorite among investors seeking single-country exposure to developing economies because Taiwan is one of the least volatile emerging markets.

But EWT’s docile reputation relative to other single-country emerging markets exchange traded funds does not mean the fund cannot generate big returns. For example, EWT, the largest Taiwan ETF trading in the U.S., is higher by 14.3% over the past 90 days.

EWT’s hefty technology sector allocation, which is more than 57% of the fund, has become problematic. Moreover, it is the ETF’s arguably excessive weight to one stock, Taiwan Semiconductor (NYSE: TSM), that is creating EWT’s problems.

A prolonged downturn in semiconductor stocks would obviously be unkind to EWT and that scenario is being across some other ETFs as well. In addition to EWT, ETFs with large weights to Apple (NasdaqGS: AAPL) and Samsung are reminding investors that ETFs with 20% weights to a single stock do a poor job of mitigating single-stock risk.

The good news is EWT appears poised to deliver more near-term gains.

EWT’s “price has recently broken above the resistance of the 200-day moving average (red line) and has bounced off of this level on the retest. In technical analysis, it is very common for the price of an asset retests a level of resistance shortly after a breakout. For many, a true buy signal is triggered when the price surpasses the most recent swing high, which in this case is $14.08. Another key buy signal was recently generated when the 50-day moving average (blue line) crossed above the 200-day moving average (red line). This bullish crossover (shown by the blue circle) is known amongst active traders as the golden cross and is one of the most common long-term buy signals. At this point, we’d expect traders to maintain a bullish outlook on Taiwan until the price closes back below the key long-term support levels,” according to Investopedia.