Asia's Other Opportunities

The Chinese stock market has so mesmerized investors in recent years that many have overlooked promising smaller exchanges right in the neighborhood. Case in point: Taiwan, according to Yiannis G. Mostrous, editor of the Silk Road Investor, an emerging markets newsletter.

"Taiwan could be the biggest out-of-consensus investment story -- along with Japan -- as the first decade of the 21st century comes to a close," Mostrous writes in a recent edition. He ranks Taiwan fourth in what he calls Fresh Money Buys, behind Russia, Hong Kong and India.

Taiwan will gain, Mostrous says, from the evolving political landscape in Asia. As China's footprint in the region widens, Beijing is undertaking a more nuanced approach to diplomacy, raising prospects for an easing of tensions and better economic ties between the mainland and the island. China and Taiwan have been at odds since the Communist Revolution on the mainland in 1949.

Both sides seem to recognize the value in smoothing the fractious relationship. For China, better relations would help increase its influence in Asia and diminish the power of the United States. For Taiwan, the benefits would be economic -- and a boon to Taipei stocks.

"Once normalization with the mainland gets underway . . . China will make sure Taiwan is the recipient of big investments -- just as it did with Hong Kong in the past," Mostrous writes.

Mostrous sees money flowing into Taiwan hotel and resort construction, which in turn will spur growth in island tourism. He also expects the property sector to get a boost from mainlander buying of Taiwan real estate.

The best way to play Taiwan's future growth, according to Mostrous, is through the exchange-traded fund iShares MSCI Taiwan (EWT). Though it is down about 6 percent so far this year, the fund has gained 22 percent over the past three years.

-- Steven E. Levingston