Who would have thought a simple telephone call would cause such trouble?
President-elect Donald Trump's phone chat with Taiwanese President Tsai Ing-wen has created so much gossip, you would have thought Melania had caught The Don in a late-night chat with his ex (well, one of them).
But the call was no accident. It's a sure sign that Trump is keen to assert his presence in Asia where he feels it is necessary, and to alert China to the fact that he won't be pushed around. Tsai surely felt happy that the United States would stand even more firmly behind her quasi-country.
It's also a call that investors should heed. While politics don't always translate into immediate market action -- and they have not this time around -- the dynamics at play could have long-running implications for Asian geopolitics. In terms of investment, it could also impact those Taiwanese companies that do a lot of business on the mainland, in particular. And there are tens of thousands of those.
The United States has not had formal relations with Taiwan since 1979, since it recognized Beijing's "One-China" policy. Taiwan gradually lost virtually all the nations that recognized it as a sovereign nation as China bought them off, bit by bit, with the offer of aid here, new schools and a road there.
But Taiwan certainly feels like a sovereign state. The ROC, as it's known, has its own military. It has its own government. It has its own currency. When you visit, they'll put the visa-on-entry on a separate piece of paper if you request, since China may deny entry to people who have a Republic of China stamp in their passport. Most importantly, Taiwanese people have a fierce sense of their own identity.
Chinese culture, I would argue, is stronger in Taiwan than in China. You can see how much richer China, which you sometimes sadly feel is now mostly in a win-at-all-costs battle for money, would be in cultural terms had the Cultural Revolution not done so much damage in the mainland.
While the political relationship between Taiwan and the mainland may be frosty, business connections are anything but. There are around 70,000 Taiwanese companies doing business on the mainland. I once visited Dongguan, a factory town in Guangdong province across the border from Hong Kong, only to find that 90% of its main business park consisted of Taiwanese-owned companies making cheap shoes.
Trump's dealings with foreign leaders have so far been more than a little haphazard. The first phone call that he took to congratulate him on his victory was from an Egyptian general who took power in a coup. Most heads of state said they didn't know how to get in touch with him.
For his first in-person meeting with a head of state, a face-to-face with Japanese Prime Minister Shinzo Abe, there was little coordination. Abe's camp said the day before the meeting that they didn't know what time or where the get-together would happen, or who would attend, as I wrote about for TheStreet.com in November. As it turned out, Abe went alone to Trump's penthouse, and Trump invited his daughter and son-in-law, neither of whom have held office of any kind, and who cannot in theory take a role in his administration due to U.S. anti-nepotism laws.
But the phone call with Tsai was no ghost dial. It was a carefully thought-out gambit that indicates Trump may take a very different approach to relations with China and Taiwan than any of his recent predecessors.
Closer ties between the United States and Taiwan could lead to trade sweeteners. But they could also disrupt intra-Asian trade.
Taiwanese stocks responded modestly on Monday, falling 0.5%. That bucked the trend in Asia, though, which was overwhelmingly bullish.
The key Taiwanese stocks to watch if Trump draws the United States much closer to Taiwan, politically, militarily and particularly economically, are principally chipmakers. The top two are Taiwan Semiconductor (TSM) , generally referred to simply as TSMC, and Semiconductor Manufacturing International Corp. (SMI) , typically called just SMIC.
Neither has yet to show any disruption over the political fuss. SMIC, which is also listed in Hong Kong, rose 3% here on Monday. TSMC, the world's largest contract chipmaker, fell 0.5% in Taipei trading. Hardly earthshattering moves.
TSMC has a $3 billion facility in the Chinese city of Nanjing. Of course, as chipmakers, their business is driven more by international demand for semiconductors than any China-Taiwan trade.
Perhaps the most-interesting stock to watch as far as cross-Strait relations go is Hon Hai Precision Industry (HNHPF) , better known as Foxconn Technology Group. The world's largest contract manufacturer of electronics, it has 12 factories in China, more than in any other nation. It makes parts for Apple's (AAPL) iPhones, among other products. (AAPl is a holding of Action Alerts PLUS)
You may remember the company from when it hit the headlines earlier this decade due to a spate of suicides at its largest Chinese factory, in Shenzhen. Some blamed the deaths on great pressure placed on the workers. Others pointed out that among a work force that measures in the hundreds of thousands, the suicide rate was not out of the norm.
Hon Hai stock fell 1.6% on Monday, one of the main drags on the Taiex, Taiwan's main index. MediaTek (MDTKF) , the largest chip supplier for smartphones on the mainland, is also worth a watch. It fell 0.4% on Monday. Phison Electronics T:8299, a designer of integrated circuits, has also been expanding aggressively on the mainland. It fell 0.2% on Monday.