As China Taiwan tensions ebb and flow this week, many stock investors are watching their stocks to gauge any potential impact on the Asian markets. While analysts say that the two countries have a solid relationship, and China’s growth is no doubt a boon for Taiwan, many fear that the once-strong economic relationship may be weakening. If the Chinese pull back or halt trade with Taiwan too hard, this could send the economy into a tailspin. How does one know when to get out ahead of this trend?
In the face of high-profile media reports that appear to be highly critical of China’s handling of its relationship with Taiwan, some stock traders wonder if it is time to get out while the iron is still hot. Will the Taiwanese economy crumble if China decides to curb its purchases of Taiwanese government bonds? And if so, what effect will that have on the global economy? Here is a look at how stocks in Taiwan can be affected if China decides to tighten its belt.
First, what are the effects if China decides to pull back from Taiwan? To begin, Taiwan’s main trading partners in the Asian economic forum are China, Japan and South Korea. Cutting off ties with these countries would certainly have a significant impact on Taiwan’s economic growth – and, by extension, the global economy. When average people sell their stocks and pull their money out of the stock market, other countries feel the pinch, too.
So now you ask: Is this the time to buy stocks? There is no clear answer here, because every country has a different history and different circumstances. What you need to do is look at the trends that affect the Taiwanese economy and make an informed decision about whether or not it is time to make a run for the markets. If there is a sense that the government will not continue to support the economy, then you might want to consider putting your money into other options. On the other hand, if the markets begin to rise again, then it is probably a good time to go ahead and buy.
One reason why stocks in Taiwan are higher than they would be in the United States or Europe is the low cost of labor in Taiwan. Taiwanese employees are paid less than people in many other parts of Asia, so they can afford to buy products for much cheaper than people in other countries can. The same can be said for the cost of living in Taiwan. Its currency is very much more favorable to foreign investors than most other countries’ currencies, meaning that they can buy products for much cheaper.
Another reason why it is better to hold onto stocks in Taiwan – even though the stock market in China has dropped – is that the stock market in China is controlled by the government. Unlike the US and European markets, the Chinese stock market is not dominated by large companies. There are plenty of small, immature companies that make up the major part of the market. Because of this fact, small stocks are much more likely to experience rapid growth than their larger counterparts, making them a great long-term investment.
As mentioned above, another reason why it makes more sense to hold onto stocks in Taiwan – because the stock market in China is beginning to weaken – is because of the government’s stabilization policy. The country’s central bank has been pumping billions of dollars into the market to keep it from falling too far. This is something that all investors should be aware of. In times when markets appear to be falling out of favor, it is important to remember that the central bank is not just sitting around waiting for stocks to recover. They are also trying to stabilize the economy through this expansion of the money supply.
Stocks at risk in Taiwan can be found throughout the market. Major banks, insurance companies and telecommunications companies have also acquired some of their shares. The more speculative and less stable the stock, the higher the risk. However, it is important to note that this risk is slowly starting to ease as China grows as an economic powerhouse.