Investors are keenly looking to Taiwan’s upcoming elections for clues on the path forward for cross-strait relations. The outcome of the vote is expected to have implications on the global computer chips supply chain and foreign flows to the nation’s tech-heavy market.
A win for the incumbent Democratic Progressive Party (DPP) at next Saturday’s poll would likely keep things at the “status-quo,” while a narrower lead — or a surprise win by more China-friendly opposition groups — might boost hopes for better collaboration with Beijing and be a boon for Taiwanese stocks.
The market has already priced in a base case scenario of a DPP win, but “a closer gap between DPP and [the Chinese Nationalist Party (KMT)] may be seen as a slight positive,” as it reduces the risk of conflict with China, said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management.
Photo: CNA
The stakes are high for Taiwan, whose stock benchmark is trading near an all-time high amid an artificial intelligence boom and a turnaround in the chip cycle.
On the one hand, improving cross-strait ties might help to boost sentiment in Taiwanese assets.
On the other hand, a closer relationship with China would likely put Taiwan’s key semiconductor industry under US scrutiny.
Whichever party wins, Taiwanese tech companies would need to “navigate carefully and nimbly between the two superpowers for the sake of their markets and technologies,” Bao said, referring to China and the US.
Here are areas investors should watch around the election:
The semiconductor sector remains at the center of global geopolitics and how the new administration forges ties with the US would be crucial in ensuring access to chipmaking equipment from Western providers such as ASML Holding NV.
Taiwan produces about 90 percent of the world’s most advanced chips.
A best-case DPP administration would continue to secure Taiwan’s status as an “independent location to fabricate chips and assemble AI servers,” while a KMT victory might see firms attempting to diversify their supply chain away from Taiwan, Dylan Patel, founder of the research group SemiAnalysis, told Bloomberg.
Its largest manufacturer, Taiwan Semiconductor Manufacturing Co (台積電), which makes up more than a 27 percent weighting in the TAIEX, would be on investors’ radar.
Tech stocks, including Wiwynn Corp (緯穎), Wistron Corp (緯創), Quanta Computer Inc (廣達) and Asustek Computer Inc (華碩), would also be supported by an array of other factors such as potential interest-rate cuts by the US Federal Reserve and a recovery in the smartphone and PC market.
The nation’s energy policy is among key focuses for the presidential candidates, with the ruling party having pledged to phase out nuclear power by next year.
Meanwhile, the opposition is advocating postponing the deactivation of nuclear plants, preferring a more gradual shift to renewables.
“If the ruling DPP wins another term, it will most likely stick to its current energy policy,” which aims to have over 15 percent of Taiwan’s energy sources from renewables by next year, said Newda Chen, an analyst at Masterlink Securities Investment Advisory (元富投顧).
The wind power companies that benefited from the policy would be able to sustain their favorable conditions and positive outlook, he said.
On the other hand, the KMT’s target for nuclear power to account for 12 percent of Taiwan’s energy mix by 2030 “could lead to slowing of development and growth drivers for the wind power companies,” Chen said.
Firms that produce materials for wind turbines include Century Iron & Steel Industrial Co (世紀鋼構) and Yeong Guan Energy Technology Group Co (永冠能源).
The KMT’s presidential candidate has vowed to “immediately open the door” to Chinese tourists. That would provide a tailwind for Taiwan’s tourism sector, First Capital Management (第一金投顧) chairman Edward Chen (陳奕光) said.
China has barred individual tourists from coming to Taiwan, while cross-strait group tours were suspended since the pandemic.
Key stocks to watch include China Airlines Ltd (中華航), EVA Airways Corp (長榮航空), Phoenix Tours International Inc (鳳凰國際旅行社), Lion Travel Service Co (雄獅旅行社) and Ezfly International Travel Agent Co (易飛網).
All three presidential candidates — the DPP’s Vice President William Lai (賴清德), the KMT’s New Taipei City Mayor Hou You-yi (侯友宜) and Ko Wen-je (柯文哲) of the Taiwan People’s Party — have pledged to bolster Taiwan’s military capabilities by increasing defense spending.
That bodes well for the overall outlook of major defense stocks such as Taiwan’s leading fighter jet maker Aerospace Industrial Development Corp (漢翔航空), which rallied about 50 percent last year.
Shipbuilders, including CSBC Corp (台灣國際造船) and Lungteh Shipbuilding Co (龍德造船), might also get a boost if the DPP wins, following the party’s push for domestically produced submarines.
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