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Investors shrug off effect of `anti-secession' gambit

The release of a three-point outline for China's proposed anti-secession bill is not expected to impact Taiwan's economy, foreign investors and local academics said yesterday, while international rating agency Standard & Poor's said it has no plan to change its ratings on Taiwan in the near future.

The impending bill is also not likely to rock the nation's stock markets as no drastic measures were revealed by Beijing, they added.

China yesterday said it would allow the use of "non-peaceful means" to prevent independence by Taiwan in the event that efforts to secure peaceful unification are unsuccessful.

Against this backdrop, the benchmark TAIEX declined 0.8 percent to 6,173.34, while the NT dollar fell NT$0.004 to close at NT$30.875 against its US counterpart.

"I did not see any new ideas in the bill, which is pretty much the same as China's claims in the past," said Kung Ming-hsin (龔明鑫), an economist at the Taiwan Institute of Economic Research (TIER, 台經院).

The extent of any negative effect will depend on further details of the bill -- due to come out in the next few days -- and China's stated bottom line for "non-peaceful" action, Kung said.

Kung's view was echoed by other analysts, who said they did not expect a profound impact on Taiwan's stock markets.

"Investors had factored in the political concerns before the meeting of the congress. With the unveiling of the draft, the uncertainty hanging over the local stock markets should be lifted now," said George Wu (吳裕良), a portfolio manager in charge of the equivalent of US$31 million for Invesco Taiwan Ltd (景順投信) in Taipei.

Overseas fund managers have long seen cross-strait relations as one of the biggest risks for investing in Taiwan's stock markets. Investors tend to stay on the sidelines when cross-strait tension ratchet up, as they did last year during the presidential elections. Escalated tensions between Taipei and Beijing tend to put investors on the sidelines at the time.

Peter Sutton, head of a research team with CLSA Ltd in Taipei, said "There's nothing new at all."

With the improvement in cross-strait relations and a possible end to gridlock in the Legislative Yuan after the meeting between President Chen Shui-bian (陳水扁) and the chairman of the People First Party, James Soong (宋楚瑜), Sutton said this could lead to optimism on direct links and a significant easing in investment restrictions.

Direct links refers to direct trade, postal and transport links.

Another investor said the bill raises no significant concerns.

"China revealed no aggressive moves to curb Taiwan from secession, which means no imminent threat of war across the Taiwan Strait," said Wu Pei-wei (吳佩偉), a fund manager with ABN AMRO Asset Management in Taipei.

In addition, China did not set a timetable for unification with Taiwan, or for taking aggressive military actions to thwart the "renegade province" from independence, which means long-term foreign direct investment in Taiwan should not be affected, said Wu Chung-shu (吳中書), a research fellow at Academia Sinica.

Standard & Poors (S&P) on Nov. 30 last year gave Taiwan a "AA-" foreign currency debt rating and a "negative" sovereign outlook, citing political tensions with China and a deteriorating fiscal situation.

But the rating agency believes that there is room to interpret China's bill in two ways, a credit analyst at S&P told the Taipei Times yesterday.

"On the one hand China reiterated its position that it is willing to use non-peaceful means to prevent Taiwanese independence. On the other hand it promised to explore all diplomatic means available to resolve the dispute," Philippe Sachs said in a telephone interview from Singapore.

Although S&P believes rising Chinese nationalism and moves by Taiwan away from unification could lead to heightened tensions, the passage of the bill will not necessarily result in a worsening of relations in the near term, Sachs said.

"We have to wait and see how Taiwan reacts to the passage of the law ... Will Taiwan react positively to the tempered language in the proposed law or will they react negatively, thus reversing some warming in relations in recent weeks. Regardless, at this point we have no plan to change our ratings on Taiwan in the near future," Sachs said.

The bill's passage is not expected to deter Taiwanese businesspeople from investing in China, Academia Sinica's Wu said.

"The substantial economic and trade exchanges across the Taiwan Strait will never stop in spite of sporadic conflicts in the political arena," Wu said.

As a result, any short-term impact would be from strong emotional reactions from some local groups, which could cause foreign investors to put a hold on investment in Taiwan, he added.

Looking ahead, ABN AMRO's Wu said he expects the TAIEX to climb another 15 percent to 7,000 points by mid-year, boosted by purchases by foreign investors.
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