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Nancy Pelosi’s Taiwan Gambit Reshapes Political Risk in Asia

Nancy Pelosi, the speaker of the U.S. House, has come and gone in Taiwan. In her wake have come missile flyovers, enough discussion to briefly crash China’s Twitter-like microblogging service Weibo, the largest Chinese military exercises near the Taiwan Strait in decades—and for those on the island, a surreal sense of life mostly going on.

Markets reacted strongly but not catastrophically. U.S. 10-year Treasury yields fell to a four-month low ahead of Mrs. Pelosi’s arrival as investors fled for safety—and then jumped back after her plane landed without incident. Taiwan’s main stock index, after a precipitous drop Tuesday, has since clawed back all that ground. Shares of Semiconductor Manufacturing International Corp China’s chip manufacturing national champion, which also dropped ahead of the visit, have gained 15% since her plane landed and China announced its military drills. The S&P Defense and Aerospace Select Index is up 9% since July 18, when news of Mrs. Pelosi’s planned trip first broke, outpacing the S&P 500’s 8% gain.