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This market's in a sweet spot thanks to Apple

Dhara Ranasinghe
Chris Stowers | Bloomberg | Getty Images

In a sluggish year for Asian exporters, Taiwan's economy and stock market are in a "sweet spot" thanks to the country's strong position in the supply chain for tech products, analysts say.

Media reports in recent weeks suggest Taiwan-based suppliers are gearing up for the production of new Apple (AAPL) products.

For instance Reuters reported last week that Taiwan's Quanta Computer (:2382-TW) will start mass production of Apple's first smartwatch next month, while Taiwanese contract manufacturer Pegatron Corp (:4938-TW) is expected to expand its China workforce by 30 percent to meet high demand for the iPhone 6.

Read More Apple iWatch to begin production in July: Source

"At the moment I think the sweet spot really is Taiwan," said Michael Kelly, the global head of asset allocation at PineBridge Investments in New York, talking about the outlook for Asian exporters on CNBC Asia's "The Rundown " Monday.

"Taiwan is tech heavy, all of these product cycles coming out of Apple - thanks to the iPhone 6, the iPad - will be a very good thing, especially for Taiwan," he added.

Read More Apple suppliers to start making larger iPhones: Report

Taiwan's benchmark stocks index is one of Asia's best performing stock markets so far this year. It has rallied about 7 percent, outpacing a 4.3 percent gain in MSCI's broadest index of Asia-Pacific shares outside Japan.

Its gains also top a 6.5 percent rally in South Korea's main stock index - the market with which Taiwan is most often compared.

Both South Korea and Taiwan remain heavily dependent on exports, which have suffered from weak demand from Europe and a slowdown in China. Taiwan's exports rose 1.4 percent in May on-year, well below analyst expectations for a 3.65 percent rise, while South Korea's exports fell 0.9 percent in May on year.

Still, analysts say the outlook is what matters and that is improving helped by a recovery in the U.S. economy -- the world's biggest.

In a sign of improved optimism towards Taiwan's economy, the country's statistics agency last month revised up its 2014 gross domestic growth (GDP) forecast to 2.98 percent from 2.82 percent thanks to a brighter outlook for global growth and the country's advantageous position in the global tech supply chain.

Analysts say the tech sector is very important to Taiwan, which is at the highest rung of the supply chain for products such as chips and smartphone components.

"The smartphone sector in general is very important to Taiwan," said Manpreet Gill, senior investment strategist atStandard Chartered (London Stock Exchange: STAN-GB) Bank in Singapore.

Read More Chinese tourists opt for Taiwan over Hong Kong

"Technology as a sector broadly offers value and the performance of the sector, the growth of exports in Taiwan and the economy are closely linked to the U.S. cycle," he said. "Since we are constructive on the U.S. outlook we are constructive on Taiwan."

Gill said Taiwan and South Korea are the two Asian stock markets that StanChart has an overweight position on.

Pinebridge's Kelly added: "Taiwan is probably the only market that has seen its prices rise in tandem with earnings and earnings increases."

"The other Asian markets are anticipating better times but they may be a little bit ahead of themselves," he said.

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