Election gives investors the jitters

EQUITY markets in Asia dipped today as investors again weighed the risks of a greater terrorist threat after the Spanish bombings. But there was an added impetus to the sell-down in

Brokers said the hard-fought electoral contest on the island was causing stock market jitters as the result could spark a rise in tensions with Beijing.

The benchmark Taiwan Weighted index traded 46.26 points or 0.7% down at 6589.72.

Before the poll appeared on the horizon, the market had done well, striking a three-and-a-half-year high earlier this month as investors bet on a steady improvement in economic fundamentals and corporate profits.

The result of Saturday's poll appears too close to call. In one corner incumbent President Chen Shui-Bian is seeking to extend his run in office. His backers view him as more supportive in the long run of formal independence for Taiwan, the main driver of the market's tensions.

Beijing regards Taiwan as a renegade province and has repeatedly vowed that any moves to declare it fully separate from mainland China would be resisted by force.

Taiwan, a large island just off the Chinese coast, was the refuge in late 1940s of Chinese anti-Communist forces and since then has been run separately.

Beijing's Communist rulers are particularly upset at a referendum that will also be held on Saturday on defence-related matters. China views that poll as a possible dry run for a second, later vote on full independence.

In the other corner, Lien Chen of the Kuomintang Party has charted a more moderate course. He says he would take a softer line towards Beijing, eschewing politics in favour of stronger trade ties.

'The Presidential election in Taiwan is the most important election in Taiwan's history,' ING said bluntly in a note to clients. 'The outcome will determine whether Taiwan goes on the path of greater integration with China or on the path to independence.

'The stakes are high and with the outcome uncertain look for investors to move to the sidelines.' Market bellwethers today felt the strain of the contest - and the post-Madrid tensions that sparked declines in US equities yesterday. China Steel, the largest steelmaker in Taiwan, was clipped by 40 cents or 1.2% to T$33.60.

Australian equities were exposed to the chill breeze from Wall Street's fifth reversal in six sessions. Brokers said the Madrid bombing was to blame.

Companies with sizeable overseas sales took the biggest hits. News Corporation, the media conglomerate headed by Rupert Murdoch, fell by 24 cents or 2% to A$11.90. In resources, Rio Tinto gave up 44 cents or 1.3% to A$34.71, while BHP Billiton eased 22 cents to A$12.11, a decline of 1.8%. The All Ordinaries fell below 3394 before closing just 0.20 points down at 3410.10.

Japanese shares also eased on the regional drop, exporters yielding ground as some claimed that higher global tensions would cut sales. Sony dipped 80 yen or 1.9% to 4250 and Matsushita - the power behind Panasonic - slid 24 yen or 1.5% to 1556.

Major exporter Honda dropped 110 yen or 2.3% to 4690 yen and Nissan weakened 24 yen or 2% to 1179. The Nikkei 225 index fell to 11,236.35 before closing at 11,242.29, a loss of 75.61 points or 0.67%.