Taiwan will hold presidential and legislative elections on January 13. Our preview report last week laid out the geopolitical and market implications of this event (see link HERE). In this note we provide a quick update on the latest dynamics.
SUMMARY
- Vice president William Lai of the Democrat Progressive Party (DPP) remains the front-runner to win’s Taiwan January 13 presidential election; a Lai victory would mean that China-Taiwan tensions remain elevated for the next four years, a neutral-to-negative outcome for markets
- A victory by Hou Yu-ih of the Kuomintang Party (KMT) is very possible and would imply at least a temporary reduction in China-Taiwan tensions that should be favorable to Taiwan assets in particular; Ko Wen-je of the Taiwan People’s Party is in third place but could play spoiler in the presidential race as well as in legislative elections
- Factors that could swing the election include the candidates’ final performance on the campaign trail, the potential for China to issue threats in a bid to influence the election, and the extent to which Ko’s supporters defect for the two leading candidates
Taiwan’s election law limits the release of public opinion polls within ten days of the election, so the final polls are now out, as of Jan. 2. These show DPP candidate William Lai (Lai Ching-te), Taiwan’s vice president, leading his two opponents in a race that remains competitive into the home stretch. Pictured below is Economist.com’s aggregate of recent polls, which is consistent with other sources.
Lai has a five point lead over KMT challenger Hou Yu-ih. This margin makes it a much closer race than in 2016 and 2020, in which the DPP’s Tsai Ing-wen was leading the KMT candidate by double-digits and went on to win comfortably. An additional wildcard in this election is a third party candidate, Ko Wen-je of the Taiwan People’s Party. Ko has a chance for second, and his supporters could potentially tip the election to Hou if they end up defecting to the KMT in sizable numbers (by no means assured, as discussed below).
As a reminder of the key geopolitical and market implications (see also table at bottom):
- A victory by the DPP (Lai) is market-neutral to -negative, in that it would mean that China-Taiwan tensions remain high for the next four years; Taiwan would also remain a highly sensitive flashpoint for US-China relations.
- A victory by the KMT (Hou Yu-ih) would be at least modestly market positive, especially for Taiwan assets, as it would lower China-Taiwan tensions and the tail risks of a crisis or conflict – at least temporarily.
- A victory by Ko Wen-je of the TPP is highly unlikely but would also lower China-Taiwan tensions for a while.
Nathan Batto, a political scientist who runs a highly informative blog on elections on Taiwan (https://frozengarlic.wordpress.com/), emphasizes the uncertainty in the home stretch:
The polls suggest that Lai is the most likely to win, but it is no sure thing. Likewise, the polls suggest that Ko will finish last, but that’s also not written in stone. Hou is most likely to finish second, but I wouldn’t bet my house against him either winning or coming in last place. This is one of those elections where we have to wait until they count the votes. The crystal ball is pretty cloudy.
And remember, there are still 10 days to go, and we won’t have any polling during that period. Lots of crazy things can happen in that time to make all this previous polling irrelevant.
What are some of the “crazy things” and other factors that could impact the final results?
- Swings in momentum such as due to gaffs by candidates. Polls show 11% of respondents are undecided.
- Potential actions by China to influence the election. Beijing has learned that aggressive saber-rattling close to the election can backfire but this does not rule out surprises. Beijing’s overt threats have thus far been relatively restrained. Its most visible move has been to fly surveillance balloons around and over Taiwan in the last month in a subtle (by Beijing’s standards) reminder of how closely China is watching.
- “Strategic voting.” If Ko’s supporters conclude that he is unlikely to win and decide to vote for other candidates, the KMT’s Hou is likely to be the net beneficiary. Batto’s blog has a deep dive on this topic (link HERE) and concludes that strategic voting may not be as powerful a factor for Hou as some observers expect but could play a role especially in a tight race.
Barring major events in the final days of the campaign, the next watchpoint will be the results themselves. Bloomberg News notes that based on past elections, results should be clear by around 8pm in Taiwan, or 7am ET on January 13.
As discussed in our outlook piece, it is worth remembering that voters will also cast ballots for the legislature (known as the Legislative Yuan). While not as important for geopolitics as the presidential election, the legislative elections are part of the picture. Most forecasters expect the DPP to lose its majority in the legislature. For Beijing, a particularly strong showing by the KMT and/or TPP in legislative elections – demonstrating political support for parties in favor of dialogue with China – could make the DPP winning the presidency a bit more tolerable.
