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Taiwan’s economy rebounds on the back of the smartphone boom

Taiwan’s economy has roared back to health on the back of the global surge in smartphone sales.

The self-governed island’s GDP, most of which comes from exports, expanded by a higher than expected 3.42% in the three months to December.

For investors, Taiwan is a proxy for technology demand in the developed world. The island’s ongoing tension with the Beijing government means Taiwan does not get a lot of business from its huge neighbor. But it has a huge electronics industry, which drives its industrial production, and is clearly doing well out of the fierce battle between the world’s tech giants for smartphone and tablet sales.

Unsurprisingly, the performance of Taiwan’s stock exchange (blue line) correlates closely with US tech stocks (yellow line).

Taiwan = US tech Factset

Taiwan Semiconductor (TSMC), the world’s largest contract chipmaker, just announced it would plough $9 billion into new production facilities.

Last year, TSMC was getting more orders than it could handle. Qualcomm, a San Diego-based supplier of products that connect mobile phones to networks, and which counts TSMC as its manufacturing partner, said last April that the Taiwanese firm had not boosted production quickly enough to fulfil its needs. TSMC is also expected to benefit from Apple’s smartphone and tablet battle with Samsung. Apple currently uses Samsung’s chips in its iPhone 5 and the latest iPad but is rethinking that partnership in light of its commercial rivalry with its supplier.

A recent weakening of the Taiwan dollar against the US dollar is also boosting the island’s exports. UMC, another Taiwanese chipmaker, has said that every 1% fall in the Taiwanese currency against the US dollar adds 0.5% to its gross margin.

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