As the U.S.-China trade war continues, an air of uncertainty hangs over the global financial-services sector. The precariousness of the situation caused stock markets to perform very poorly last year. The Dow Jones Industrial Average’s annual return for 2018 was -5.63%, while the S&P 500 returned -6.24%, the first decline for the two indexes after three robust years. Taiwan’s TAIEX fared even worse, dropping 8.6% for the year.
Given such dismal performance, Taiwanese investors may have felt some trepidation as 2019 approached and analysts began forecasting another year under the shadow of global trade tensions.
However, those with investment portfolios managed by the capable team at Leich Capital Management Ltd. were likely less concerned. Despite the rough going for major stock markets in 2018, Leich’s clients enjoyed an 8.8% return on their investments. This was no accident; since the Leich arbitrage fund was established in August 2015, it has developed a track record of strong returns, with a peak of 11.04% in 2017.
Mark Lin, Leich’s CEO, knows his client’s needs well. Lin began his foray into international finance over two decades ago, while working as a CPA in Taipei. “Back then, Taiwan did not have the capacity to provide CFA (Chartered Financial Analyst) licenses, so Taiwanese looking to invest abroad had to consult their personal accountants about how to develop their overseas assets,” he says.
In 1995, Lin boarded a plane from Taipei to Chicago and New York, looking to understand more about the U.S.’s investment environment and to help his clients by researching promising long-term financial products. In Chicago, the bulk of the investment activity centers on futures trading. Lin was particularly impressed with the work of Chicago’s CTAs (commodity trading advisors), since investing in commodities futures was still virtually unheard of in Taiwan at that point.
After returning home, Lin began getting involved in Taiwan’s newly established futures market. “I started using the methods I learned from the traders and brokers in Chicago to assist my clients back in Taiwan,” he says. “Over the years, I began to cultivate an operations team, and also asked contacts in the U.S. to assist us.”
The team that eventually became Leich Capital Management started assisting Taiwanese investors build their portfolios in 2005. Between then and the formal establishment of the arbitrage fund in 2014, it managed to gain clients a cumulative 302.45% in returns. Over the years, the company has built up an impressive roster of individual and corporate clients, whom it assists with a broad range of capital market, financial consulting, and wealth management services.
Lin says the secret to Leich’s solid performance throughout the years is quite simple. “We focus mainly on agricultural commodities – coffee, soybeans, wheat, corn, cocoa – natural products which, unlike the stock value of companies, aren’t so easily impacted by the volatility of the stock market,” he explains.
Lin disagrees with the conventional thinking that commodities are more volatile and thus riskier investments, letting Leich’s consistently impressive rates of return speak for themselves. But he adds that his trading team’s extensive experience and concurrent use of actuals and options have been instrumental in reaping big rewards for clients.
Lin refers to one of the major trade-war-related incidents this year, when on May 31, China’s Ministry of Commerce issued its “unreliable entity list” in response to the increase in U.S. tariffs on Chinese goods. “Once this list was issued, it caused panic among many U.S. enterprises and that same day, the Dow Jones fell 350 points. Global stock markets lost US$5 trillion in value for the month of May,” Lin says. Leich’s arbitrage fund also took a dip, but began climbing back up in June, and the company reported a 4.22% return for September.
Overall, stock markets have made huge rebounds this year and Taiwan’s markets have done particularly well. With many Taiwanese firms repatriating manufacturing operations from China to Taiwan, analysts tend to be taking an optimistic view of the outlook for the coming year. The TAIEX as of early November was up 19% for the year, with the upward momentum showing no signs of slowing.
In spite of the positive signs, Lin remains cautious. “Taiwan is entering an election year, and historically the party in power will do its utmost to enact policies to boost stock market performance to try to ensure a smooth electoral victory,” he observes.
“I think most stocks in Taiwan will continue to rise, but not to the level some are predicting,” Lin adds. “Stock markets are fragile and any number of things – the results of the Taiwan elections, actions taken by either side in the trade war, and especially the U.S. election next November – could once again cause panic and turmoil,” he says.
In light of this possibility, what is the most practical approach for investors to take going into 2020? “If they’re buying Taiwan stocks, I recommend that they focus on the petrochemical sector, as well as construction and property development,” says Lin. “Unlike tech companies, these are less heavily affected by the trade war.”
As for the future, Lin and his team are dedicating themselves to maintaining their stellar investment record and guaranteeing client satisfaction, regardless of the direction markets take. “Our clients’ success is our success,” Lin says. “So, we will continue to focus on helping them meet their investment targets. That’s our most important objective.”