Taiwan President Tsai Ing-wen speaks as Lai Ching-te, Taiwan’s vice president and presidential candidate of the ruling Democratic Progressive Party (DPP) during a campaign rally ahead of the election in Taipei, Taiwan on January 11, 2024.
Carlos Garcia Rawlins | Reuters
Taiwan’s election results put the island on a “collision course with China” and the market reaction was too bloody, according to veteran investor David Roche.
Beijing has already rejected the result of Saturday’s election in which the ruling Democratic Progressive Party elected Lai Ching-te as president after a split vote in parliament.
China sees the DPP as a threat to its ultimate goal of “unification” with the self-governing island of 23 million people and claimed on Saturday that the result of the presidential election was not representative of popular opinion. The DPP rejects the so-called “one China principle” and advocates a separate and distinct Taiwanese national identity.
“When you look at what this election will bring, it clearly tells you that there is absolutely no support in Taiwan for reunification with China, and it’s not going to happen,” Roche, president and global strategist at Independent Strategy, told CNBC ” Squawk Box”. Europe” on Monday.
“What this election tells you in all its ramifications, including the split vote in the legislative yuan, is that Taiwan is now a developed, sovereign, democratic state, and that is not something that China will accept. For China, this is from them separate, so that’s why you’re running to a bigger crisis,” he said.
Over the weekend, China insisted that Taiwan is “China’s Taiwan” and hit out at world leaders who congratulated Lai, accusing them of meddling in China’s internal affairs.
However, market reaction was muted in Asian stocks on Monday. Taiwan’s weighted index rose 0.19%, while mainland China’s CSI 300 closed 0.1% lower.
The reason markets have reacted in this altered way, Roche argued, is because they are driven by the belief that “money buys everything” and that the sheer scale and global importance of Taiwanese corporate giants such as TSMC and Foxconn means Beijing will be reluctant to cause too much of a stir.
“That’s just the wrong idea – (Chinese President Xi Jinping) puts politics way ahead of the economy, he’s always said it, he’s always said it and he’s always done it,” said Roche, who correctly predicted the 1997 Asian crisis and the global financial crisis in 2008.
Xi has repeatedly stated that Taiwan will be reunited with China and has not ruled out using military force to achieve his goals. Many analysts believe that if diplomacy fails, a military invasion could follow.
Roche argued that Xi will always put the Chinese Communist Party’s interests ahead of the economy, a tendency he said the market is overlooking because the outcome “will by no means be peaceful” and puts Taiwan “on a collision course with China”.
However, Citi analysts were more optimistic about the election outcome, suggesting in a research note on Sunday that Lai was likely to “seek to maintain the status quo in cross-strait relations”.
“The DPP has lost its legislative majority, with the opposition KMT holding the most seats in the legislature, though it also lacks a majority, with the TPP and independent lawmakers holding alternating votes; this is likely to offer checks and balances to the ruling administration.” , but it is unlikely to impede the normal implementation of policy,” the bank’s Taiwan macro strategy team said.
Citi believes Taiwan’s economic momentum will become increasingly visible in the second half of the year and the Taiwan dollar is likely to outperform after “some initial turbulence with the election build-up”.
“The market is likely to shift back to fundamentals of a better outlook for the semiconductor industry and lower global yields, which in our view is more likely to increase foreign flows and support TWD,” the strategists added.
Still, Roche said Saturday’s voting patterns indicated that parts of the electorate were disillusioned with Taiwan’s traditional mainstream parties and that for Lai to fulfill his promises of independence and sovereignty, he would need to reduce Taiwan’s economy’s dependence on China.
Lai won 40% of the popular vote, but his party lost 10 seats in Taiwan’s parliament and fell below the threshold for a majority. The main opposition Kuomintang won 52 seats, one more than the DPP, and the smaller Taiwan People’s Party, with eight seats, makes it a potential kingpin in the 113-seat Legislative Yuan.
TPP candidate Ko Wen-je received over 26% of the presidential vote, while the percentage of non-voters increased to 29%. Roche said this indicated “a certain fatigue with the classic politics of confrontation and compromise with China” and pointed to a shift in priorities among younger voters towards creating a more dynamic economy and affordable housing.
“He’s got a big challenge on his domestic economy to win back all those disillusioned voters before he really goes directly into any further confrontation with China,” Roche added.