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Taiwan's Election Earthquake May Provide Buying Opportunity

While the market may swoon after a surprise election result, investors should be on the lookout for bargains.

HONG KONG -- A political earthquake rocked East Asia on Saturday, and when politics changes this profoundly overnight, it's hard to see how the economy and markets can escape unaffected. It's also hard to see any market fallout as anything but a buying opportunity for smart investors.

As with real earthquakes, the big tremor -- the win in Taiwan's presidential election by a party favoring official independence from China -- should be followed by aftershocks. Those could include rumblings of military action by China, and the consequent jitters in the markets of Taiwan and Hong Kong that can accompany talk of war.

Initially, the Taiwan market could fall sharply. After all, Chen Shui-bien of the

Democratic Progressive Party

won with 39% of the vote, which means that more than 60% of Taiwanese could buy the argument that China's anger at his win will increase the likelihood of war.

But there are a few things worth remembering if you read in the coming days dark warnings from Beijing about having to take Taiwan back by force.

Most importantly, for the moment it can't be done. Beijing knows this, which is why Taiwan's electoral verdict leaves the Communist regime so bitter with rage. Its statements after the election were measured, but in the week before the election, China had said that Taiwan voters were choosing "war or peace," and warned them against voting for Chen.

Chen has promised not to declare independence unilaterally, or to hold a referendum on independence. In this way, his approach to China is little different from that of his predecessor, Lee Teng-hui.

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This is not Hong Kong, where China held all the cards against a toothless Britain as the two negotiated the 1997 handover. Hong Kong had no army to speak of, and depended on China for most of its food and water. Taiwan is different: It has American F-16 fighter jets and a promise by the U.S. to come to its defense if invaded. Even without the Americans, China's capacity to stage an amphibious landing and take Taiwan is strongly in doubt.

All of this means that even if the stock market should plunge on Monday -- Taiwan's investors are panicky, and retail buying constitutes the vast bulk of market trading -- good technology companies such as

Taiwan Semiconductor Manufacturing

will continue to beat all comers as they export to the rest of the world.

Longer term, as pointed out

recently, Chen could start breaking up the current ruling

Nationalist Party's

$20 billion business empire. That would free up a lot of banking and Old Economy assets currently coddled and protected by the government, but which could soon be thrown to the wolves.

As for Hong Kong's market, it could get dragged into a war of words too. In order to put pressure on China, a Taiwan official once speculated on the possibility that if China lobbed missiles Taiwan's way, Taiwan could close down the Hong Kong market by landing one off the shore of China's major financial center. He later said he was joking, but the message was clear.