"Who's on First? NO, Hou's on Second!!"

TAIWAN Elections Special!

The title is a complete dad joke, but at least it motivated me to sit down and write about the Taiwan election that will take place on the 13th of January.

I’ll keep things simple. There’s 3 parties:

• DPP: incumbent party led by Lai, the current VP. He is the most pro-independence of the candidates and would probably annoy Xi the most. Incidentally, he’s also leading the race with an estimate of 35-39% in the opinion polls (source: Wikipedia, ball-park range)

• KMT: led by Hou (“Hou’s on second!”). He is more open for discussion / cooperation with China. Hou is … second in the polls, with 33-36%

• TPP: led by Ko. He is the dark horse. For a brief moment he was going to partner up with the KMT but that fell apart. He’s polling around 20-22%

The peculiarity of the Taiwan election is that the President isn’t elected by “Majority” but by “Plurality”! So the 1st place gets the Presidency, regardless of the % of votes.

To clarify how annoyed Xi would be with a DPP win, here’s what the Chinese defense ministry spokesman said in December: “The DPP authorities are seeking independence by relying on the U.S., turning Taiwan into a powder keg and an island of explosives.”

Xi could of course use the DPP win as an excuse to finally invade Taiwan (not imminently, this would take years to prepare). And a lot of pundits say that this is what’s holding back the Chinese markets:

The “Fear of Getting Gazprom-ed” or FOGG (New acronym, feel free to quote me going forward).

But lets be serious for a second. IF that’s what’s holding back the Chinese markets, then TSM (TAIWAN Semiconductor) should be trading in line with the HSI if not lower. But it’s not. So the most likely explanation for the Chinese stock market performance is not Taiwan but a combination of confidence, frustration, deflation and finally, FOGG (I hope this catches up, it’s a pretty cool acronym).

So how will the Taiwan election affect the markets? Let’s keep it simple as always (KISS):

• If Hou’s on first, I reckon Asian markets rally, possibly by a lot

• If Lai’s on first, I reckon Asian markets sell off, which COULD be a “cleansing moment” and a potential bottom. Or could be the start of WW3 in which case, just hide

It has to be said, Xi really played his cards badly on this one: The Taiwanese saw how he treated Hong Kong during the 2019 protests. And then he harassed Taiwan voters with silly balloons and military exercises. Dear Xi, the way you lure the capitalist Taiwanese is with open arms of progress, innovation and promises of stimulus, not with military threats and a busted economy. Typing this down, it makes me wonder why I bother with China. Oh I remember, I’m long commodities so I kinda have to care. Anyway, I can’t wait for India to become the world’s engine of growth :/

Disclaimer:

This isn’t financial advice.

This is the trading blog of a shrub.

Don’t be Stupid.