Taiwan's economic data still weak; focus on election results

Taiwan's economic data remained disappointing. Exports contracted for the 11th straight month in Dec15 (-13.9% YoY), as shipments to emerging markets continued to fall and the seasonal demand for electronics started to fade. Meanwhile, inflation dropped by 0.4ppt to 0.1% in Dec15, reflecting the slide in international oil prices and the deterioration in domestic demand. Sluggish data, together with the rapid depreciation of the CNY and the plunge in Chinese equities, have depressed sentiment in the Taiwan market. 

USD/TWD rate rose 1.5% last week to reach 33.3, the highest level seen since April 2009. This week will be quiet on the data front. Attention will be given to the presidential and parliamentary elections scheduled to be held on Saturday. According to various public opinion polls, there is a good chance that the opposition DPP's candidate Tsai Ing-wen will win the presidential election, but whether her party could gain a majority in the overall seats in the parliament remains uncertain. 

Like the KMT, the DPP also supports the idea of carrying out economic reforms to develop new growth industries, increase the degree of trade openness, and improve the fairness of income distribution. But the stances of the two parties differ on cross-strait policies. The DPP calls for reducing Taiwan's trade reliance on China and increasing the connections with other emerging markets. The KMT, on the other hand, wishes to promote Taiwan's trade liberalization on a broad basis and continue to deepen the ties with China. 

A DPP's victory in the elections implies the risks that the bilateral economic cooperation between Taiwan and China will lose momentum in the next four years, which would dampen the confidence of the foreign investors who consider Taiwan as a gateway to access the mainland market. How well the DPP's overall policies could be executed will depend on whether it can achieve an absolute majority in the parliamentary election. The results of the twin elections and the reactions in the stock market will be keenly watched in the coming days.