Taiwan’s benchmark stock index advanced as the ruling Democratic Progressive Party won the presidential election while losing its legislative majority, evoking a muted response from China.
The election results indicate that the DPP will have to work with other major parties, including the more China-friendly Kuomintang, on policy. The Taiex stock benchmark gained as much as 0.7% before paring, while the local dollar fell.
Lai Ching-te, whose party is reviled by Beijing for its pro-independence stance, will succeed President Tsai Ing-wen. After securing the lowest winning percentage since 2000, Lai pledged to study his rivals’ policies and include people from other parties in official appointments.
The DPP’s loss of its majority in the legislature is likely to weaken Lai’s presidency, giving rival parties leverage in shaping the legislative agenda, said Redmond Wong, chief China strategist at Saxo Markets, predicting a “minimal” market impact on Monday.
“They will also have significant power to scrutinize the Lai administration’s budgetary bills, including those related to arms purchases, foreign aid, and subsidies under the New Southbound Policy,” Wong said. “The potential result is a series of heated negotiations and standoffs that may lead to a more centrist orientation of policies in Taiwan over the next four years, potentially having a positive impact on financial markets.”
Markets will watch how China acts going forward, after the Kuomintang failed to either win the presidency or a legislative majority. The Chinese government avoided mentioning the winner’s name in its initial responses, with a Taiwan Affairs Office spokesperson saying the election result showed the DPP doesn’t “represent mainstream public opinion on the island.”
“The election results signal largely a maintenance of the status quo,” said Gary Tan, a portfolio manager at Allspring Intrinsic Emerging Markets Equity, adding the market will watch to see who will be appointed to run the legislature. He does not expect a “meaningful impact on Taiwan equities.”
The island’s benchmark Taiex stock index and the Taiwan dollar saw some volatility in the two weeks ahead of the vote. The Taiex rose 27% last year, while the currency was little changed despite a year of swings.
A tourism sub-gauge of the Taiex fell 1.5% on Monday, the worst sectoral performer, on concerns that the election result bodes badly for cross-strait travel.
“While the uncertainty on who governs Taiwan is over, the uncertainty on cross-straits relations remains a risk,” said Christopher Wong, an FX strategist at OCBC Bank. Aside from geopolitics, the currency will be driven by factors such as export trends, the tech outlook and Fed policy in the US, he said.
Here’s what else analysts are saying:
Redmond Wong, Saxo Markets:
The dynamics of the triangular relationship between the U.S., China and Taiwan geopolitically, and in the global semiconductor supply chain, are risk factors that investors should follow closely in the medium term.
Gary Tan, Allspring Intrinsic Emerging Markets Equity:
China may take some consolation in that there is a more balanced representation of parties, and the DPP’s expression of willingness to engage more with China.
Gary Ng, senior economist at Natixis:
The election outcome does not change the global trend of de-risking. Taiwanese firms have no choice but to pursue overseas investment more than ever for friend-shoring integration in non-China markets.
The fact that the US is the biggest client of export orders means Taiwan will continue to decouple from China, though the pace may be affected by a hung parliament.
Its crucial role in chip-making will continue to be the magnet for attracting FDI with advantages in efficiency and innovation. Foreign investment sentiment will likely stay positive.
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