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Trade War

US business confidence in Taiwan slumps on geopolitical concerns

Top asset manager PIMCO warns of higher odds of global recession in late 2020

Taiwan's President Tsai Ing-wen delivers a speech during the 2018 Hsieh Nien Fan of the American Chamber of Commerce in Taipei in March 2018.   © AP

TAIPEI -- U.S. businesses are losing confidence in Taiwan's economic outlook over the next 12 months due to rising geopolitical concerns, according to a survey of members of the American Chamber of Commerce in Taipei published on Wednesday.

Only 45.8% of respondents said they were very or somewhat confident, down nearly 10 percentage points from 55.5% a year ago. More than half said they were not very confident or not confident at all about the outlook for 2019.

AmCham Taipei has around 1,000 members from more than 500 companies and 24 committees that represent various industry interests. Members include BlackRock, Qualcomm, Applied Materials, Boeing, JPMorgan and Procter & Gamble.

The top three factors for concern were all geopolitical: the trade war between the U.S. and China; President Donald Trump's "America First" trade policy; and the continued pressure from China over Taiwan.

"If the business strain is related to economic issues, companies can deal with it much more easily, but when the strain is due to political issues, it is a lot more difficult for us to judge," AmCham Chairman Leo Seewald, who is the country head of BlackRock Investment Management (Taiwan), told reporters in Taipei. "When it is a political issue, how do you make light of that? How do you deal with that? Those kind of issues are always the one that we struggle with."

The signs are not good for Taiwan. Export orders -- a key indicator for manufacturers' business outlook -- slumped 10.5% in December from a year earlier, the steepest decline since May 2016. The government projects another severe dip in January.

Taiwan Semiconductor Manufacturing Co, the island's biggest company by market cap and a bellwether for the chip industry, has projected a drop of around 10% in revenue on the year for the January-March period. Formosa Plastics Group, Taiwan's largest industrial conglomerate, has also signaled a significant slowdown in 2019. Both companies cited geopolitical uncertainties.

"More nationalist policy means we think there might be some stress in the coming year in terms of investment in Taiwan," Seewald said.

Business leaders also see increasing cybersecurity threats and intellectual property rights infringements as potential factors that will affect their companies' business operations and competitive positioning in Taiwan this year.

AmCham's 2019 business climate survey was conducted by PwC Taiwan between Nov. 12 and Dec. 21. A total of 179 (usually the local chief) of the 391 eligible respondents took the survey.

In a separate event in Taipei on Wednesday, Dan Ivascyn, head of investment at asset management company PIMCO, warned of an increasing probability that the world could enter a recession by the end of 2020 or 2021. He said he saw higher volatility in the market, as well as key indicators pointing to a slowdown.

"PIMCO's biggest concern for the next 5-10 years, and also for next 3-5 years, is the extreme amount of political uncertainty that we are seeing," said Ivascyn. "The direction that politics move we don't know for sure, but we think there will be less in the middle distribution, more in the extremes."

The investment chief added that PIMCO is hopeful that the U.S. and China could strike a deal soon to avoid devastating consequences, but warned it would be difficult.

"American discussions with its trade partners including China are going to be a key area of focus for many years to come," Ivascyn said. "We don't think there will be an easy and immediate resolution to the trade discussions."

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