What Happens When There's No One Left to Sell...

"We don't usually open accounts for foreigners," said the broker. "But we'll make an exception this time."

I shuddered with greed...

We arrived in Taiwan last week. On the first morning, I got up early for a tour of a sheet-metal factory in Taichung. Taichung is Taiwan's third-largest city. It's 80 miles from Taipei.

After my tour of the factory floor, I went upstairs and hung out with the owner – Mr. Li – in his office. I turned the conversation to stocks...

Mr. Li is a stock market investor. He showed me his notebook. He keeps meticulous records of all his buys and sells in pencil. He showed me his online brokerage account... and some charts of his favorite stocks.

I asked Mr. Li if his broker allows foreigners to open accounts. He phoned him up to ask. "Before it was impossible," said the broker. "But my boss says it's OK to do it now."

I asked Mr. Li why they were making an exception. "It's because the market is so weak," he said.

The Taiwan stock market has fallen 25% in the last 90 days.

Talk about a kick in the teeth. Taiwan's stock market has been the worst- performing stock market in Asia – and probably in the developed world – over the last 18 years. In February 1990, Taiwan's headline index was 44% higher than it is today. Now it yields 5.5% and trades for 11 times earnings.

But things are going to change...

This year, Taiwan elected a new president. President Ma Ying-jeou is of Chinese descent. He promises to bring China and Taiwan closer together. And he's already made progress... This year, for the first time in 60 years, direct flights started between China and Taiwan.

The Taiwanese stock market had a good rally before and after the election. So did the Taiwan dollar. Taiwanese investors must have thought they'd seen the end of the bear market... because they started piling in again. Then the market fell 25%. Now I sense Taiwan's investors have thrown in the towel...

Here's an example of why:

The day after I met with Mr. Li, I went to see Taipei 101. Taipei 101 is the world's second-tallest skyscraper, after the Burj Dubai. The Taiwan Stock Exchange is on the ninth floor. It was a weekend, so the exchange was closed... but I did find a stockbroker who was open for business.

The guy didn't speak much English, and he wasn't able to open an account for me. But I did get him to print a list of Taiwan's 50 largest stocks. As I was leaving, I asked him to circle his favorite five Taiwanese companies. He refused.

"I would not buy Taiwanese stocks now," he told me. "Too risky."

When there's no one left to sell, the market has to rise. This is where Taiwan's stock market is today.

Good investing,