Once again, tensions are running high in the Taiwan Strait but this time, the risk is barely registering on investors’ radar.
(Bloomberg) — Once again, tensions are running high in the Taiwan Strait but this time, the risk is barely registering on investors’ radar.
In global markets, the dollar and Treasuries are discounting the prospect of a US-China military conflict to focus instead on the latest repricing of Federal Reserve interest-rate hikes. Most Asian stock indexes are in the green while the yen, a traditional haven, is taking its cue from the outlook for Bank of Japan policy.
In looking past China’s military drills around Taiwan, investors are likely calling to mind how quickly market jitters faded after then US House Speaker Nancy Pelosi’s trip to Taiwan in August. But, traders risk getting caught out if tensions worsen in the run-up to presidential elections on the island in early 2024.
“This is not an intention to start a military aggression,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “Markets are watching developments closely. But there is really no need for investors to jump the gun to price in anything drastic at this point.”
Taiwan Sees China’s Drills as Similar to Pelosi Visit Reaction
Taiwan’s presidential election in January 2024 will pit the ruling Democratic Progressive Party against the opposition Kuomintang, which has generally had warmer ties with Beijing.
But for now, traders appear to be unmoved by the risk of worsening tensions in the Taiwan Strait.
Investors “already past the boiling point last year when Pelosi visited,” said Stephen Chiu, chief Asia FX & rates strategist at Bloomberg Intelligence in Hong Kong. “Geopolitical risk not priced into market sentiment yet.”
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