The Russian invasion of Ukraine caused an “unprecedented exodus” of foreign investors from Taiwan
Hong Kong (CNN) — The war in Europe has caused a mass flight of capital from the Asian island some 8,000 kilometers away. Over the past month, Russia’s invasion of Ukraine has raised concerns about the risk of China increasing its military might against Taiwan, leading to what some analysts have described as an “unprecedented exodus” of foreign investors.
In the three weeks after the invasion, foreign investors dumped about NT$480 billion ($16.9 billion) worth of stocks, according to Alex Huang, director of Mega International Investment Services, a Taipei-based firm.
The outflow is the largest ever, Huang told CNN, surpassing the value of Taiwanese stocks sold by foreign investors in all of 2021, which Bank of America analysts estimated at $15.6 billion. He added that what happened was “bigger than the global financial crisis of 2008”.
Taiwan has been gaining momentum as a destination for foreign investment in recent years, with strategists often grouping it with India, China and South Korea in a group of emerging economies known as “TICKS”.
But Russia’s attack on Ukraine has renewed fears that China could be emboldened to pursue military aggression against Taiwan, a self-governing democracy that the communist leadership in Beijing has long claimed as part of its territory, although it has never ruled.
In a report published in March, experts at the Eurasian Group noted growing speculation that China might act, “either to exploit Western distraction or to push for a new world order … but these comparisons miss key differences and ignore political signals from Beijing and Taipei.” “
Beijing and Taiwan rejected the comparison, although for very different reasons. Despite the cash outflow, Taiwan’s stock market did not suffer major losses.
Stocks on the Taiwan Stock Exchange were little changed from late February — when Russia invaded Ukraine — to March 17, according to data provider Refinitiv.
Huang said this was because many of Taiwan’s government-backed banks had been buying recently, which helped cushion the losses.
He said Taiwan-based investors did not suffer the same loss of confidence, in part because many thought the two positions were different, and because of the consensus that the United States would intervene to help defend the island in the event of a serious attack.
Even before the start of the invasion of Ukraine, global investors were jittery due to many factors, such as high oil and raw material prices and the expected rise in prices in the United States.
Small but big
Taiwan is known as a global powerhouse in the semiconductor industry, powering everything from cars to smartphones. The island with 24 million inhabitants is the world’s largest producer of chips with more than half of the world’s production.
TSMC is one of the most prominent companies in Taiwan and a leader in the global market, supplying players such as Apple and Qualcomm. Analysts say the chipmaker is highly valued and is often considered the leader of the Taiwan stock market.
Among the local population, TSMC is called “the sacred mountain that protects national security”. But since late February, its shares have fallen more than 3% in both Taipei and New York. Taiwanese technology stocks also fell.
Because of its “stiffness” in the computer chip world, “most concerns about Taiwan are reflected in semiconductor stocks,” said Felix Lee, equity analyst at Morningstar.
In a report to clients, he said investors were worried about two things: fears of a Chinese invasion and concerns about the supply of raw materials, including neon.
Neon is an essential component of lasers used to manufacture chips. Recently, some neon suppliers in Ukraine were forced out of business due to the conflict, raising fears that this could worsen the ongoing shortage of semiconductors.
But if anything happens to Taiwan, there is more to the global economy than chips. Huang added that the island is also an important producer of high-end bicycles and sportswear, including factories for international brands.
Taiwan’s currency also suffered. It has gone from a “regional safe haven to an agent of geopolitical risk” in recent weeks, according to Bank of America.
“Geopolitical uncertainties surrounding Taiwan are the biggest driver of portfolio outflows,” analysts there wrote in a note to clients earlier this March. They said the Taiwan dollar “started to lag after an excellent year in 2021”.
But despite the tension, many experts believe Taiwan is safe for now.
“Russia’s invasion of Ukraine does not raise the prospect of a Chinese invasion of Taiwan in the near future,” Eurasia Group analysts wrote in their report.
They noted that “both Beijing and Taiwan’s President Tsai Ing-wen downplayed Ukraine-Taiwan relations,” saying “there seems to be no preparation in Beijing and no panic in Taipei.”
However, Taiwan’s Foreign Minister Joseph Wu told reporters this month that the government is “watching closely what China might do to Taiwan.” The island has also recently stepped up some of its military exercises.
China’s ruling Communist Party has repeatedly promised “reunification” with the island – using force if necessary.