Fear is one thing, but new economic ties to perhaps the fastest growing economy in the world surly stands for something when evaluating the prospects of ^TWII – especially since the index is down over the past 52 weeks from 9,437.43 to a tempting 4,110.09.

The trade agreement between China and Taiwan has been in the works for the past six months, following the election of Taiwan’s new president, Ma Ying-jeou.
With missile threats and naval exercises by China perhaps a thing of the past, Beijing and Taipei buried the political hatchet to work on strengthening economic ties.

The timing does indicate a sense of desperation by both nations to cooperate in this devastating global cash crunch.

Under the new accord, China and Taiwan will expand shipping, air travel, food safety and mail service – underscoring Taiwan’s role as a major transportation hub in the region. It also means that Taiwan’s high-tech industry will get a boost with unfettered access to the mainland’s growing middle class.

The news, however, lacked the fuel to send up ^TWII. The index has been see-sawing since mid-October – closing at 4,995.06 on Nov. 3, down from a monthly October 1 high of 5,764.01.

Rather than looking to Beijing, it seemed that all eyes were on Taiwan’s central bank, as it cut interest rates on Thursday for the third time in about a month.
The central bank cut its benchmark discount rate by 25 basis points to 3.0%.

It’s the central bank’s third reduction since late September and follows cuts on Wednesday by the U.S. Federal Reserve and the central banks of China and others.

In a way, ^TWII represents a trading mentality of hope against hope.

As fear grips the world’s markets, ^TWII could make a rational choice for investors who tend to see that the numbers underlying this new agreement favor Taiwan.