On Saturday, Vice President Lai Ching-te won the presidency, marking the third consecutive term for the ruling Progressive Democratic Party. However, the party lost its parliamentary majority, complicating Lai’s plans for spending and adopting an aggressive stance towards China. Despite China previously describing Lai as separatist and a “troublemaker,” its tone softened after the elections. China did not mention Lai by name, stating that the results revealed the Progressive Democratic Party “cannot represent the prevailing public opinion” in Taiwan.
Analysts anticipate a significant blow to the Taiwanese stock market this week as political paralysis leads to increased selling activities. Nonetheless, the outcome is also relieving for investors who feared that Lai might push for Taiwan’s formal independence. Investors are concerned about China’s hostile reaction and the potential cascading response of sanctions that could disrupt the global semiconductor industry.
Some experts have stated, “If China doesn’t do anything, the markets might interpret it as not a big deal, and positivity may prevail.” While investors expect some unpredictable selling in Taiwanese stocks and possibly the currency this week, market participants may exercise patience until the new government takes office. The parliament is scheduled to convene on February 1, and Lai’s government is expected to assume its duties on May 20.
China’s response remains a wildcard for global markets, with Beijing indicating on Saturday that most voters had voted against Lai. Simultaneously, Lai kept his statements vague, stating the need for cooperation but being “determined to protect Taiwan from threats and intimidation from China.” Risks are high for global markets as the expectation is that the United States will support Taiwan in the event of a Chinese invasion.
Taiwan produces 60% of the world’s semiconductors, used in various applications such as smartphones and fighter jets, and 90% of the most advanced chips. Economic sanctions imposed on Taiwan could cripple the global technology and artificial intelligence sectors, affecting the NASDAQ index.
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Shady Fouad is a technical analyst at LDN Company
Shady's strategic vision in the currency markets is reinforced by more than fifteen years of trading experience, which enables him to blend economic and technical analyzes with high efficiency, and find the best investment ideas for traders.
