Taiwan’s Markets Rebound as Jitters Over Election Ease
Taiwan’s markets are recovering from the scare over Saturday’s presidential election victory by an opposition candidate whose party advocates independence from mainland China.
The country’s largest stock barometer, the TWSE index, gained 0.7% on Wednesday on top of Tuesday’s 5.5% gain. The index surged an additional 4.75% by midday today to 9,500.88.
That regains about two-thirds of the market’s decline that began Feb. 17 in response to fears that a victory by opposition candidate Chen Shui-bian, 49, would inflame relations with China. And it more than wipes out Monday’s precipitous fall on the first trading day since Chen’s election ended the 51-year domination of Taiwan’s politics by the Kuomintang party.
Analysts said the visions of economic peril raised by Chen’s election are moderating to cautious optimism that the new Taiwan regime won’t do anything to undermine its own economy, which has developed a mutual reliance on mainland China.
“Taiwan may have changed its government but that does not change its fundamentals,” said Ross Atkinson, Asia treasurer at DG Bank in Hong Kong. “Taiwan continues to pump out goods that the world wants.”
Other Asian markets, which also had the jitters after Chen’s victory, took heart as well Wednesday. South Korea’s Kospi index rose 2.2%, while markets in Japan, Australia and Singapore gained moderately.
Since the Saturday vote, Chen has sought to calm fears of conflict by backing away from his party’s insistence on independence from mainland China. He has also voiced support for China’s entry in the World Trade Organization and has stated intentions to do away with restrictions on trade with the mainland.
Chen is backing away from overt independence moves because they would almost certainly provoke a military reaction from the mainland, said Robert Kapp, president of the U.S.-China Business Council in Washington. Citing easing political fears, analyst Jeff Bahrenburg of Merrill Lynch says Taiwan is on track for robust economic growth of 6.5% or more in 2000.
The Taiwanese dollar has remained surprisingly stable, closing Wednesday at 30.7 to the U.S. dollar, strengthening from 30.795 on Monday. After a substantial outflow of foreign capital on Monday, the drain has slowed.
“Internally the economic conditions will improve under the new president so I feel very positive going forward,” said Li-Pei Wu, chairman of General Bank, a Los Angeles-based institution that is active in U.S.-China trade and which was founded to serve Taiwanese immigrants.
So far, the capital flight bears no comparison to the massive drain from Taiwan seen in 1996, when Chinese missile firings prompted many Taiwanese to seek a safe haven. Much of it wound up invested in Southern California real estate, said Dominic Ng, chairman of East West Bank in San Marino, another bank with strong Asia ties.
Chen’s Democratic Progressive Party ended the KMT party’s 51-year dominance of island politics with its victory Saturday. He takes office in May. He ran on a platform of fiscal responsibility and putting an end to Taiwan’s rampant corruption.
Many observers say the economic ties are too strong for either Taiwan or China to risk war. Taiwan has $40 billion or more invested in mainland factories, and 25% of the products ordered from Taiwanese businesses are actually made in China, said Nicholas Lardy, senior fellow at the Brookings Institution.
Lardy cautions, however, that the situation could “turn on a dime” for the worse, if Taiwan provokes the Chinese with an overt move to independence.
But Gary Hufbauer, senior fellow at the Institute for International Economics in Washington, said: “Taiwan has too much at stake and realizes their precarious position only too well to want to press for independence.”
Bloomberg News Service was used in compiling this report.
