Already at last year's meeting the issue of China's intervention in Taiwan was raised. Eli said he was concerned, but he "wasn't losing any sleep" over the situation. Well, let's hope that the political rumblings settle down.
Good article on theStreet.com on Taiwan
subscribers only
thestreet.com
A Presidential Election That Matters
By David Kurapka
Senior Writer
3/15/00 5:03 PM ET
Political junkies who bemoan the lack of drama in the U.S. presidential campaign should be pleased with at least one upcoming election that is packed with drama. Among the plot twists: a potentially historic change of government, severe market drops and the threat of war with a nuclear power.
The election takes place in Taiwan on Saturday, and as the above preview suggests, it's a doozy.
Even if you don't spend your Sundays watching the political dog-and-pony shows on This Week and Meet The Press, there are good reasons to follow this election, particularly if you're an investor. The Taiwanese stock market is almost assured of rising in the wake of the election -- irrespective of who wins. And that makes now a good opportunity to get in.
Saturday's election has the potential to be historic. The race is between three major candidates: Lien Chan of the Nationalist Party, more commonly known as the KMT; Chen Shui-ban of the opposition Democratic Progressive Party, or DPP; and James Soong, an independent who broke away from the KMT last year. They seek to replace Lee Teng-hui of the KMT, who is Taiwan's first democratically elected president. Should either Chen or Soong win, it would mark an end to the KMT's 50-year rule over Taiwan, beginning with Chiang Kai-shek's taking power over the island in 1949.
Right now, the race is too close to call. Taiwan has a law outlawing polls 10 days before an election, but the last ones taken showed Lien and Chen neck and neck, with Soong slightly behind. The DPP is historically the party that favors declaring independence from China -- indeed it is part of the DDP platform -- and the thought that the DPP might take power led the mainland Chinese government to issue its infamous "White Paper" in February, threatening to invade Taiwan if it declared independence.
However, the election is less a referendum on independence and more a referendum on the KMT. If the KMT loses, it will be simply because people want a change. Soong, in fact, broke away from the KMT and ran his campaign Ross Perot-style, promising reform, a position that was undercut when he was recently caught up in a scandal.
The positions on independence as expressed by the candidates are nearly indistinguishable. Neither Soong nor Chan favors it immediately, and both voiced similar outrages over the Chinese government's threats. Ironically, those threats probably helped the DPP.
The concerns over the election have helped drive the markets down, most importantly on Monday, when the main stock index fell 617 points, of 6.6%, its largest one-day point drop ever. Although there was an Asia-wide selloff that day, speculation had risen that the DPP would win after it got some key endorsements over the weekend.
The drama, of course, is more complicated. There was also speculation that the KMT, which is a considerable owner of stocks itself (it is "the richest political party in the world," says one observer of Taiwan), had gone on a selling spree to give Taiwanese investors a sense of what would happen to the markets if the DPP came to power. The KMT denies it.
Investors should bear in mind a simple rule of thumb when it comes to investing in Taiwan: Buy when China is having conniptions about the activities of Taiwan. In 1996, prior to Taiwan's first presidential election, China engaged in military exercises in the Taiwan Straits, which prompted the U.S. to send warships to the area. The stock market fell about 30%. It came back.
Last year, when Taiwan's government suggested that Taiwan should be considered a separate nation in its negotiations with China, rather than a breakaway province -- temerity that triggered an uproar in China even though Taiwan has its own government and military -- the market fell 24%. Again, it bounced back.
Thus, investors in the U.S., especially fund managers, are increasing their positions in Taiwan right now, according to Samuel Webster, director of research in Taiwan for Credit Suisse First Boston.
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