Political reasons for not climbing into the Taiwan market

We have just updated The Economic Clock™ for Taiwan.

Background

Taiwan faces two elections. The legislative one is on 12th January, followed by the presidential one on 22 March. In an effort to improve the election chances of President Chen Shui-bian’s Democratic Progressive Party (DPP) candidates, he wants to run two referenda – proposing to retrieve the KMT's ill-gotten gains during its five-decade rule, and the second to set the stage for Taiwan’s admission to the United Nations -- which is something the United Nations wants no part of. (A referendum is when people vote on a single political issue, as opposed to a general election, when people vote on candidates.)

The Two Referenda

A) Legislative elections on 12th January 2008

The 12th January legislative election is crucial to Chen party. In order to show voters just how "bad" the opposition Kuomintang (KMT) party is, he wants on the same day to hold a referendum.

Chen is seeking to show up the Kuomintang by putting up a measure through which the government would retrieve gains the KMT amassed, either legally or illegally, during five decades in power in Taiwan, until it was defeated by the Democratic Progressive Party in 2000, not to mention its massive misrule of the mainland before that,.

B) Presidential election on 22nd March 2008

On this day, Chen wants to hold a referendum on whether Taiwan should apply to join the United Nations. His goal with this referendum is to get voters to identify with his party's efforts to fight for Taiwanese independence and thus give their votes to the DPP Presidential candidate, Frank Hsieh Chang-tin.

Why we don't like this from an investment perspective

Taiwan's politics are in disarray. Chen's government has not achieved much economically or administratively since his party came to power in 2000. So these referenda are end-runs. They won't work because at least 50% of Taiwan's eligible voters must participate in the referendum vote.

The first referendum, designed to show up the KMT's past, nasty practices, will backfire. Chen too, along with the First Lady of Taiwan and with his own DPP party, have been accused very publicly of the same kinds of illegal dealings. So he will not get any credibility by accusing the KMT of what he himself has been accused of.

The more worrisome one is the UN referendum. China already has stated her displeasure at this, with its obvious overtones of Taiwanese independence. China will be all the more annoyed in that this referendum will occur only five months before the August Olympics, at which point China will be shoved to front and centre stage globally. But this referendum also will annoy the Americans, who want Taiwan only as a thorn in China's side - but who are all too clear about how Taiwan's bid for independence from China could unsettle the region militarily and thus economically. Does Bush need this on top of his malaise in Iraq?

In a nutshell: political storms are brewing, Rarely have investors made money out of such storms.