The results are out and pro-independence Lai Ching-te, the DPP candidate, is the newly elected president of Taiwan. Naturally, this raises concerns that cross strait tension will increase. In my opinion, the level of tension is unlikely to increase. They will however, remain high.
DPP won 40% of the vote (This is lower than the 57% they won at the last election). Beijing friendly KMT candidate gathered 33% while former Taipei mayor received 26%. Voter turnout rate is estimated to be 69%, lower than the previous 75%. If Taiwanese are voting based solely on the China issue, we do not have a majority siding for independence, since the Taipei mayor presented himself as a balanced candidate.
The legislative election outcome is unlikely to lead to greater tension. The DPP lost 10 seats, while the KMT gained 14 seats. It is hard to make a case that the Taiwanese people is moving towards pro-independence.
The outcome is also expected by the Chinese, as we did not see any mass military exercise around the island. It also helps that US president, when asked for his reaction, said that the US does not support an independent Taiwan. All these point towards an unchanged environment for cross straits relation.
It is likely that the US presidential election may matter more, especially if a Republican, who tend to take a more aggressive posture with China, wins.
Financial markets reaction is fairly muted thus far, with Asian equities, gold, FX trading in a tight range. The election result is not expected to have any impact on financial markets.