TAIPEI: Taiwan's moves to shore up stock markets after the election of an independence-leaning president might have spared it short-term chaos, but easing more entrenched concerns about the island's economy and renewed tensions with China will be a tougher task.
The country's colourful politics and often rocky ties with the mainland have a long history of pushing its financial markets around, a reason Taiwan's largest government fund has pledged to support stocks until April, continuing a series of interventions it started in August.
In the week leading up to the Jan. 16 election of the Democratic Progressive Party's Tsai Ing-wen, foreign mutual funds investing in Taiwan stocks posted net outflows of $820 million, according to data from Fuh Hwa Securities Investment Trust, almost as large as the $865 million of inflows for all of 2015.
"Taiwan stocks have plunged in the prior elections where there was a switch of power," said Tu Jin-lung, chairman of KGI Securities Investment Trust, adding he has advised his clients to stay away from the market.
"It will happen again, especially given the current world market meltdown."
Taiwan's benchmark index could fall to 6,700 points in March, he said, down 13.6 percent from its Friday close and 19.6 percent from the end of last year.
While the $15 billion National Stability Fund's pledge on Monday helped Taiwan's stock market end in positive territory - defying a global market rout that day - foreign fund outflows could continue as concerns grow over cross-strait relations.
This is despite president-elect Tsai's promises not to provoke China.
Beijing has urged Taiwan to abandon its "hallucinations" about pushing for independence, describing any such moves as "poison", Chinese state-run media reported after the vote. China sees Taiwan as a breakaway province, one that it vows to take back, by force if necessary.
Overhanging political concerns are wider global challenges facing the trade-dependent economy, which has seen its exports collapse.
In the first 15 days of January, foreign investors, who account for one-third of Taiwan's market trading, sold a net T$81.07 billion ($1.84 billion) in local shares, according to data compiled by CTBC Asset Management, not far off the full month figure for June 2015 when the onset of China's market turmoil triggered foreign selling of T$84.7 billion.
Foreign selling in the first half of this month outweighed selling in other emerging markets such as South Korea, India, Thailand and Indonesia.
THE MAINLAND
Taiwan's benchmark index has been hovering around five-month lows and the local currency is approaching its weakest level against the U.S. dollar in nearly seven years.
China could punish Taiwan economically, either by cutting the number of mainland tourists to the island or making it more difficult for Taiwan to negotiate free-trade deals with other countries.
To be sure, some analysts are less pessimistic as Tsai is seen as focused on improving the sluggish economy and being more pragmatic than the prior DPP government.
"Tsai has pledged to uphold the status quo in her dealings with China, and we expect her to take a much more conciliatory approach than the previous DPP president," according to a note published by Capital Economics.
"In any case, we doubt China will want to make the situation worse by unnecessarily ratcheting up the pressure."
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