© Reuters. A screen shows a news update on polls in the presidential and parliamentary elections in Taipei, Taiwan, January 13, 2024. REUTERS/Ann Wang
By Tom Westbrook and Ankur Banerjee
SINGAPORE (Reuters) – Taiwan's election could allay global concerns about the island's relations with China, while triggering a slight sell-off domestically on Monday as investors fear the outcome could hamper economic policy.
Vice President Lai Ching-te won the presidency on Saturday, the third consecutive term for his ruling Democratic Progressive Party (DPP), but the party lost its parliamentary majority, complicating Lai's spending plans and any attempt to take an aggressive stance toward China.
China, which claims Taiwan as its territory, had called Lai a separatist and a “troublemaker to the core” but adopted a gentler tone after the election, not mentioning him by name and saying the results revealed that the DPP “cannot represent the dominant public opinion”. ” in Taiwan.
Analysts expect Taiwan's stock market to take a hit this week as the specter of political paralysis drives sales in a market that is up 25% in just over a year.
However, the result is also a relief to investors who feared that hawkish Lai would push for formal independence for Taiwan, something he has denied. Investors are worried about a hostile reaction from China and a chain reaction of sanctions that could cripple the global semiconductor industry.
“I imagine the reaction is negative. The market could read a weak government in Taiwan, many external risks from the mainland and many internal risks, because there is no control from the legislature,” said Alicia García Herrero, chief Asia-Pacific economist at French investment bank Natixis in Hong Kong. .
But Herrero says Lai's “balanced” victory speech and the deadlock in parliament are reasons why China might not react.
“If China doesn't do anything, maybe the market will understand that it's not a big deal and could remain positive,” he said.
While investors expect some knee-jerk selling of Taiwan stocks and even the currency this week, market participants are likely to stay put until the new government takes office.
Parliament will be inaugurated on February 1 and Lai's Cabinet will take office on May 20.
Aninda Mitra, head of Asia macroeconomic and investment strategy at BNY Mellon (NYSE:) Investment Management, expects heated political rhetoric and other conflicts in the near term as Taiwanese politicians and their Chinese and American counterparts trade blows in the coming days. .
“On the macro and geopolitical side, I don't think there will be any big repercussions from a global perspective,” said Vishnu Varathan, chief Asia ex-Japan economist at Mizuho Bank in Singapore.
But the PDP's loss of its parliamentary majority was a bigger problem, he said. “Taiwanese dollar could take a small hit amid further potential for stagnation.”
In the coming weeks, investors will have a better idea of how much support Lai will get from parliament, where his DPP won 51 seats, compared to 52 for the opposition Kuomintang and eight for the Taiwan People's Party.
WHAT CHINA DOES
China's reaction remains the wild card for global markets.
Beijing noted on Saturday that the majority of voters voted against Lai. Meanwhile, Lai remained vague, saying cooperation was necessary but that he was “determined to safeguard Taiwan from China's threats and intimidation.”
The stakes are high for global markets, given expectations that the United States would support Taiwan if the Chinese invaded.
Taiwan produces 60% of the world's semiconductors, used in everything from smartphones to fighter jets, and 90% of the most advanced chips. Economic sanctions on Taiwan could cripple the global technology and artificial intelligence sectors.
Its largest company, Taiwan Semiconductor Manufacturing Co, has often found itself in the crosshairs of geopolitical tensions and trade sanctions. Shares of TSMC, Asia's most valuable listed company, are up 32% in 2023.
“From now on, what will need much more evaluation are the strategic policies of the incoming Taiwanese government and its internal cohesion,” Mitra said.
“Will they try to balance their relationship with China and the United States or move away from one or the other? It is still too early to definitively answer these questions at this time.”
