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Goldman’s New Index Shows China-Taiwan Tension at Decade High

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(Bloomberg) -- Goldman Sachs Group Inc. says China-Taiwan tensions have risen to the highest in the past decade but these are now largely priced in to the island’s equities, based on two new indicators it has created.

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The Cross-Strait Risk Index -- which tracks news articles on geopolitical tensions -- jumped after Russia’s invasion of Ukraine in February and the inverse correlation with broader Taiwan equities rose to the highest level in its time series, strategists including Alvin So in Hong Kong and Timothy Moe in Singapore wrote in a note to clients.

“This suggests that the broader Taiwan market has started to price in cross-strait risk for the first time over the past decade,” they said.

Goldman also created a second indicator, the Cross-Strait Risk Barometer, to measure market implied risks based on variables such as Taiwan’s tech exporters with exposure to China, and also tourism stocks. The analysts said the two gauges have both spiked in the past three months as investors sharply priced in higher cross-strait risk and they both now look to be “fairly priced.”

China has ratcheted up its rhetoric toward Taiwan this month, claiming “sovereignty” over the Taiwan Strait and saying it doesn’t qualify as international waters. US President Joe Biden last month answered “yes” when asked if the US would act “militarily” to defend the island in the event of a Chinese attack. White House officials later said the president was only promising US aid to help Taiwan defend itself.

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