Investors might take heart from the latest twist in the presidential race, as a tie-up of opposition candidates raises the odds of a more China-friendly government taking post next year.
The benchmark TAIEX rose on Wednesday and the New Taiwan dollar advanced, as traders digested the announcement that the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP) would put forward a united candidate. That came as a relief for some who have been worried about a potential deterioration in cross-strait relations should Vice President William Lai (賴清德), the Democratic Progressive Party’s (DPP) presidential candidate, who has consistently led opinion polls, win.
Geopolitical risks have been an overhang over Taiwanese equities for years, with investors fretting over the possibility of a military conflict between Taipei and Beijing. While the TAIEX has rallied more than 20 percent this year as an artificial intelligence (AI) boom buoyed chip giants, foreigners are on track for a fourth straight year of outflows.
Photo: CNA
“It gives us a sense of temporary relief on the election uncertainty,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management in Paris. “The alliance raises the potential for further dialogues to improve cross-strait relations.”
Voters going to the polls on Jan. 13 are to choose between a ruling party determined to maintain Taiwan’s sovereignty, and an opposition that sees closer ties with China as the only viable path. The outcome would define Taipei’s relations with Beijing in the years to come, while also setting the tone for US-China tensions.
Then-US House of Representatives speaker Nancy Pelosi’s visit to Taipei in August last year raised angst in financial markets, as Beijing ratcheted up military drills around Taiwan in a show of warning. The TAIEX fell 1.6 percent in the session before Pelosi met President Tsai Ing-wen (蔡英文), but posted small gains on the day.
“Taiwan market volatility tended to rise in the six months leading up to the presidential elections,” Goldman Sachs Group Inc strategists including Alvin So (蘇瑋忠) wrote in a note. “Taiwan equities have shown greater performance in the three months following a KMT victory, while underperforming significantly after a DPP victory.”
While the election remains a key focus, the Taiwanese market is also affected by an array of factors, including the US monetary policy, as well as semiconductor and AI cycles.
A potential dovish pivot by the US Federal Reserve might drive more inflows into emerging markets, with such expectation on full display on Wednesday following a softer-than-expected US inflation report.
The local currency on Wednesday rose the most since July after sliding more than 4 percent this year, hammered by a large rate differential with the US and equity outflows. The TAIEX closed up 1.3 percent.
Wednesday’s announcement by the opposition “should be broadly positive for Taiwanese and Chinese assets, especially when considered in conjunction with improving US-China relations,” said Rory Green, China economist at TS Lombard.
Sectors most exposed to cross-strait trade, including semiconductor companies, agriculture producers and tourism-related firms stand to benefit, he added.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to