Although the Taiwan exchange traded fund (ETF) iShares MSCI Taiwan Index (EWT) is down 5.4% for the week, year-to-date it is up 10.6%. While the country’s ETF continues to enjoy an overall positive performance, the same cannot be said for the political conditions between Taiwan and its motherland China, according to Carl Delfeld of ETF XRAY. Tension arose between the two over Taiwanese President Chen Shui-bian’s planned referendum on Taiwan’s entry into the United Nations under its own name rather than under the Republic of China. Although China and Taiwan are not on the best of terms lately, Delfeld says China is unlikely to take action against Taiwan for five reasons:

1. Conflict with Taiwan wouldn’t reflect well on China who is hosting the summer 2008 Olympics.
2. Taiwan presidential candidate Frank Hsieh announced that Taiwan’s independence is not part of his platform, but it is a goal.
3. The United States has treaty obligations to Taiwan should China invade.
4. Japan joined the United States in its declaration to help Taiwan should conflict occur with China.
5. China is swallowing Taiwan economically.

For full disclosure, some of Tom Lydon’s clients own EWT.

Tags: Asia, China, Taiwan

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