That was quick. Asian markets have instantly shaken off all the Iran-induced panic as fast as it started. Most Asian markets are above their week-ago level on Friday, with Australian shares touching an all-time high. Stocks in Tokyo, big recent losers, are back above their starting point for the year, and the safe-haven yen currency has dropped against the dollar as the emergency passed.
There have been casualties. Although it is Iran that appears to have accidentally shot down Ukraine International Airlines flight PS752, there's the sneaking suspicion none of this would have happened had U.S. President Donald Trump not injected an unnecessary dose of geopolitical uncertainty with the killing of Iranian general Qasem Soleimani.
Despite those passenger lives so sadly lost, for the markets, the blood has quickly been washed away. This unexpected crisis has passed, U.S.-Iran relations can go back to being merely hostile rather than warlike, and investors can return to worrying about the many other political pitfalls littering the path in 2020.
So we should be watching our step with Taiwan's stock market. The country that's not technically a country (but really is) takes to the polls on Saturday to elect a president. Most likely, it will re-elect China skeptic incumbent Tsai Ing-wen.
Tsai will have Hong Kong to thank if she does win with a handy majority. After nine months of street fighting in Hong Kong, more than one in four Taiwan citizens want Taiwan to achieve full, official independence as a nation, according to a survey released last October by Taiwan's Mainland Affairs Council, which oversees relations with mainland China.
The demonstrations that unfurled in Hong Kong starting last spring have laid bare the issues with the "One Country, Two Systems" that supposedly gives Hong Kong and Macau autonomy while remaining under China's arm. China hopes that Taiwan will accept the same concept, but 89.3% of Taiwanese people now reject it, the same survey shows. More than half (54.8%) say mainland China has not lived up to its promises with Hong Kong.
Those sentiments are expected to drive voter behavior at this weekend's polling stations. Before the demonstrations in Hong Kong, there was considerable support for closer relations with China, particularly economically. Now, most Taiwanese want to keep China at arm's length. The China-U.S. trade war has prompted Taiwan to establish a program of tax breaks and incentives to encourage Taiwanese companies to "re-shore" Chinese factories back home.
China has essentially refused to deal with Tsai since she took office in 2016. Instead, it has threatened her for efforts to "split" China, and built up its military force.
According to a self-professed former Chinese spy, Wang Liqiang, China has also sent spies to influence local and national elections in Taiwan. Wang, who has defected to Australia, says China is using a "cyber army" to influence Taiwanese political opinion, has infiltrated its media, and directed him to work as a spy in Taiwan under an assumed Korean identity.
The confessed spy, whose claims are virtually impossible to verify but sound reasonable to intelligence experts, said China has been supporting Tsai's opponent, Han Kuo-yu, and his Kuomintang party. Han, who denies getting Chinese support, was elected mayor of Taiwan's second-largest city, Kaohsiung, in regional elections that dealt Tsai's Democratic Progressive Party a humiliating defeat.
That was before Hong Kong. It seems likely that Saturday's elections will reassure markets if they are concluded successfully. A Tsai victory is widely anticipated, so that result shouldn't disrupt stocks. Investors should watch for developments in the tech sector instead for an indication of where Taiwan's semiconductor-driven market is heading.
Taiwanese stocks are approaching all-time highs, with the benchmark Taiwan Stock Exchange weighted index above 12,000 for the first time since 1990. Since then, the market has had three previous peaks, all of which came in the spring. They were then followed by disastrous crashes.
The Taiwan index breached the 10,000 mark in March 1997, a rally undone by the Asian financial crisis, which caused Taiwanese stocks to lose two-thirds of their value. The Taiwan index then set another high at 10,393 in February 2000, only for the market to fall by more than half in the dot.com crash. It peaked again above 10,000 in April 2015, then dropped by one-quarter.
Taiwanese stocks had a great year in 2019, rising 31.0%. That was the second-best showing in Asia, behind only mainland China's 32.4% gain. Both markets got a strong vote of confidence after it became clear China and the United States have at least declared a truce in their trade war. Existing tariffs on Chinese goods still provide a motive for Taiwanese companies to expand production back home. But the trade-dependent Taiwanese economy should fare better if China and the United States temporarily set aside their differences.
It has been external, global shocks in the tech sector that have caused the Taiwan market to collapse in the past. Frosty relations with China politically mask the fact that many Taiwanese companies have large operations in China. But under Tsai, Beijing has been less willing to encourage those ties, and has cut off tourism to Taiwan.
The Mainland Affairs Council poll shows that 6.0% believe Taiwan should declare independence as soon as possible, and another 21.7% would maintain the status quo but want Taiwan to achieve eventual independence.
Only 1.4% of respondents want unification with Communist China as soon as possible. Another 8.9% of people believe Taiwan should maintain the status quo but pursue unification later.
So only one in 10 Taiwanese citizens favor an eventual combination of the Republic of China, as Taiwan calls itself, and the People's Republic of China, declared in the mainland by the Communist Party in 1949.
When asked about mainland China's attitude to Taiwan, 69.4% of Taiwanese people believe that China's attitude to Taiwan is "unfriendly" or "extremely unfriendly."
Those figures all show a significant souring of attitudes toward mainland China. In a similar poll at the start of this century, there were more Taiwanese people who favored eventual unification than those that advocate independence.
Taiwan has never been directly ruled by mainland China. But the People's Republic has been obsessed with claiming the island after the Republican, right-wing forces of Chiang Kai-shek and the Kuomintang moved to Taiwan in 1945 to escape the Communists.
Taiwan functions as an entirely independent nation, with its own currency, immigration and military, and a thriving democracy. But mainland China has through its economic might isolated it diplomatically, refusing to have diplomatic relations with any nation that recognizes Taiwan. Only 14 mainly island nations recognize Taiwan, as well as the Vatican.