On January 13, the incumbent Democratic Progressive Party (DPP) secured an unprecedented third term to govern Taiwan, winning 40% of the vote but failing to secure a parliamentary majority. All eyes are now on how investors will interpret the result, with Beijing’s reaction a key determinant of a market upset.
“I would imagine the reaction is negative. The market could read weak government in Taiwan, lots of external risks from the mainland and lots of internal risks, because there is no control of the legislature,” says Alicia Garcia Herrero, chief economist Asia-Pacific at the investment bank Natixis. But again, this depends a lot on China. “If China does nothing, maybe the market will read it is not a big deal and might remain positive.”
The President-elect William Lai is a self-proclaimed “deep green”, meaning he is far towards a pro-independence and anti-China stance on Taiwan’s political spectrum. Lai’s strong stance has stoked fears that he will push for formal independence for the island if elected, putting war with China on the cards. A major escalation in cross-strait tensions would have disastrous effects on tech supply chains and global markets, as Taiwan produces 60% of the world’s semiconductors and 90% of advanced semiconductors.
But Lai’s failure to secure a parliamentary majority could act as a buffer preventing him from taking any extreme measures against China. Taken with Lai’s relatively neutral victory speech, some commentators are certain that Lai will ultimately seek to maintain the status quo with China, with most of the market effects of the election localised to fluctuations in the value of the Taiwanese Dollar.
“On the macro, geopolitical side I don’t think there will be huge ripples from a global perspective,” reassures Vishnu Varathan, chief economist Asia at Mizuho Bank.
So far, Beijing has chastised political leaders, including Biden and Sunak, who have congratulated Lai on his win and continues to assert that reunification with Taiwan is a certainty. This reaction is expected, as are more military exercises targeting the island, which became more frequent in 2023.
In the months ahead, Lai has his work cut out for him amid a spate of domestic issues and a disillusioned population. China has troubles of its own as growth forecasts for the year ahead get gloomier, and Beijing may just find itself too preoccupied to risk any major moves against Taiwan.