Another major move in the Fund has been to increase exposure to the financial sector. Year-to-date, the financial index has dropped 2.95%, underperforming the Market by 8.34%. The sector has been an underdog as the Market prefers higher growth tech names. Currently, the financial sector only accounts for 5% of the Market turnover, the lowest percentage in five years and far below its Index weighting  of 13%. With solid balance sheets, an improved business outlook and reasonable valuations, we believe the downside is limited. We increased the Fund’s financial exposure from 3.6% to 8.5% during  the month.

Taiwan Outlook

The low season for electronic companies is traditionally May to July. We expect this year to be no exception. Other than the seasonal dip, we are concerned with the demand in China. Both TV and mobile phone sales in China were below expectations during the holiday period in early May. Considering these factors, we are becoming more selective in electronic names, especially upstream semiconductors.

Apple plays are still favorable, including companies like Hon Hai Precision Industry (2317.TT), Largan Precision (3008.TT) and Catcher Technology (2474.TT). Apple is about to announce its new generation iPhone 6 in September. With much anticipated increased screen size and new operating system, we expect the iPhone 6 to be a huge success. To prepare for the launch, the Apple supply chain will likely begin warming up in early June.

We will be more cautious on companies that cater to China mobile phone demand. Until recently, the demand for mobile phone-related integrated circuits (“ICs”) has been very strong. However, the official sell through number suggests that smart phone demand in China is saturated. We see potential for semi- conductor inventory to pile up and future demand to be hampered, so we decreased our exposure in related names.

There are, however, still quite a few bright spots in the electronic hardware space. For example, we have been adding names in fiber optics networking, Bluetooth speaker box, internet and computer gaming. Most of them are niche players with sound governance and an exciting business outlook.

Tech names aside, we are increasingly interested in financial stocks as the sector is the leveraged play to the entire economy. We also like biotech and auto part names due to the strong business performance. Overall, we believe the Taiwan market is still healthy given the current liquidity environment and funda- mental outlook. Government policy is likely to be increasingly supportive because of the general election in November.

Objective

The Fund was launched on December 23, 1986 to allow US and other investors to access and participate in the growth of the economy and the stock market in Taiwan, the Republic of China. The Fund’s investment objective is to seek long-term capital appreciation primarily through investments in equity securities listed in Taiwan. The Fund is a diversified, closed-end management investment company listed on the New York Stock Exchange (NYSE) under the symbol ‘TWN’.

Taiwan, with its global market leadership in high technology goods and its significant investments throughout mainland China and Southeast Asian economies, is now an integral economic player in the Asia Pacific Region as well as around the world. Investing in Taiwan not only allows investors to capitalize on Taiwan’s dynamic economy, but also allows investors to reap the growth and investment potential of mainland China and other emerging economies of the region.

Performance (US$ Returns)	NAV %	Market Price %
One month	5.12%	5.33%
Three months	3.67%	4.49%
Three years % pa	1.73%	1.64%
Source: State Street Bank and Trust Company

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TAIEX Index

 

The TWSE, or TAIEX Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Index was based in 1966 and does not include re-invested dividends.

 

TAIEX Total Return Index

 

The TAIEX Total Return Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange, based in 1966, which includes re-invested dividends.

 

MSCI Taiwan Index

 

The MSCI Total Return Taiwan Index is a free-float adjusted market capitalization index. The Index represents Taiwanese companies that are available to investors worldwide. The Index has a base date of December 31, 1987. As of November 30, 2013, it contained 107 constituents.

 

This document is issued and approved by Allianz Global Investors U.S. LLC ("AllianzGI U.S."), as investment manager of The Taiwan Fund, Inc. (the 'Fund'). AllianzGI U.S. is an investment manager registered with the U.S. Securities and Exchange Commission. Information herein is believed to be reliable but has not been verified by AllianzGI U.S. AllianzGI U.S. makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from this newsletter.

 

The Fund is classified as a diversified investment company under the US Investment Company Act of 1940 as amended. It meets the criteria of a closed ended US fund and its shares are listed on the New York Stock Exchange. AllianzGI U.S. has been appointed investment manager to the Fund.

 

This newsletter does not constitute an offer of shares. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares are bought and sold on the open market through a stock exchange. AllianzGI U.S., its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell any security, including the securities, commodities, currencies or financial instruments referred to herein.

 

It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

 

Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:

 

Discretionary investment is not risk-free. The past operating performance does not guarantee a minimum return for the discretionary investment fund. Apart from exercising the duty of care of a prudent adviser, Allianz Global Investors will not be responsible for the profit or loss of the discretionary investment fund, nor guarantee a minimum return.

 

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It should be noted that investment in the Fund is only suitable for sophisticated investors who are aware of the risk of investing in Taiwan and should be regarded as long term. Funds which invest in one country carry a higher degree of risk than those with portfolios diversified across a number of markets.

 

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Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companies often have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which they are exposed, may not be available.

 

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Investments within emerging markets such as Taiwan can be of higher risk. Many emerging markets, and the companies quoted on their stock exchanges, are exposed to the risks of political, social and religious instability, expropriation of assets or nationalization, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxa­tion which may affect the Fund's income and the value of its investments.

 

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The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted open­ing of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be undeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.