Taiwan: Elections with Outsized Importance

Taiwan voters head to the polls this weekend to vote for their next President in an election that has geo-political implications well beyond its shores. Three candidates will compete for President in a ‘first past-the-post’ election that pits the incumbent DPP against opposition parties that advocate stronger cross-Strait relations with Beijing. The impact of this election thus plays a prominent role in framing Sino-US relations. Legislative elections will also determine the make-up of Taiwan’s unicameral assembly. This is potentially notable: opinion polls in the run-up to the election indicate a likely victory for the DPP in the Presidential election despite a significant proportion of undecided voters, but there is rising expectations on an opposition victory in the legislative election, an outcome that would temper many regional fears around Taiwan’s political status. This would also be the most favourable outcome for markets, including the Taiwan dollar (TWD), where a stronger showing by the opposition would cap any fallout from the event risk around the elections. Investor concerns around the elections look muted with strong cross-border equity flows and an extreme TWD overweight in place.