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Surprise Taiwan dollar gains seen lasting despite outflows

Bloomberg/Taipei

Sunday، 10 May 2020 11:56 PM

Taiwan’s early success containing the virus outbreak and resilient economy have the currency trading near a two-year high, even as foreigners depart the stock market at a record pace.
And the strength can continue, with strategists citing Taiwan’s ability to navigate the China-US trade dispute, convincing local companies to bring capital home and demand for the semiconductors made by some of its leading firms.
The Taiwan dollar has climbed about 0.5% in 2020, among the best performances in Asia -- and much better than the 5% drop by the South Korean won with which it is often compared. 
The advance comes even as overseas investors have offloaded more than $18bn of local equities year-to-date. While it is early in the year, that is on pace for the most net selling in Bloomberg-compiled data going back to 2000. The Taiwan dollar closed on Friday at 29.90.
“The TWD has outperformed other regional currencies as it’s seen as a coronavirus haven,” said Gao Qi, a currency strategist at Scotiabank. More local investment as companies repatriate assets can help the currency climb to 29.6 by the end of the first half, he said.
Fitch Solutions echoed that view in a note this week, saying the Taiwan dollar can hold around 29.9 in 2020, up from an earlier call of 30.5. Morgan Stanley sees the local currency rising to 29.5 in the next one to two months.
Here are four reasons describing why the currency strength is expected to last.
Virus containment: Taiwan has a population of about 24mn but has seen just six deaths despite its proximity to China. It has confirmed 440 coronavirus cases, among the lowest figures globally.
Economic expansion: Taiwan’s GDP grew 1.54% on-year in the first quarter, shrugging off some of the effects of the pandemic. 
That compares favourably with the performances of economies in South Korea, Singapore and Hong Kong.
Returning assets: The government said it expects about NT$320bn ($10.7bn) to be invested in the economy in 2020 as local companies repatriate assets, accounting for 1.7% of GDP.
Chip demand: North American shipments of equipment used to produce semiconductor devices has been valued above $2bn for six consecutive months, implying gradual recovery of global chip demand, benefiting markets including Taiwan, Agnes Lin, a global market strategist at JPMorgan Asset Management Taiwan, said.




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