Few signs of fund exodus despite Taiwan dollar dip
December 22, 2013, 12:01 am TWN
TAIPEI--Although the New Taiwan dollar has been falling steadily against the U.S. dollar in the past nine trading sessions, there are few signs that foreign investors are moving large amounts of funds out of the country, market analysts said yesterday.
Compared with the massive fund outflows during the 2011 global financial crisis, the local foreign exchange market appears relatively calm as foreign investors are keeping their funds in Taiwan at the moment, analysts said.
This week, the New Taiwan dollar fell almost 1 percent to close at NT$29.980 against the greenback. The closing level on Friday was the lowest since Sept. 5, when the local currency finished at NT$29.985.
On Thursday alone, the New Taiwan dollar dropped NT$0.200 or 0.67 percent against the U.S. dollar, the day after the U.S. Federal Reserve announced a scale back of its monthly US$85 billion bond buying program by US$10 billion, starting from January 2014.
The Fed, however, said it will keep interest rates “exceptionally low” unless the U.S. jobless rate falls to around 6.5 percent or inflation exceeds 2 percent.
In Taiwan, local analysts said that in the past few sessions, foreign institutional investors continued to buy shares in the local bourse while the foreign exchange trading volume remained limited.
Foreign institutional investors bought NT$1.88 billion (US$62.71 million) net worth of local shares this week, while the weighted index on the main board was up 0.38 percent, according to the Taiwan Stock Exchange.
The situation is different this time than in 2011, when the debt crisis in the eurozone spurred fears among many investors at home and abroad about the possibility of a global recession, dealers said.
Investors, at the time, rushed to park their funds in U.S. dollar assets, which caused the regional currencies, including the Taiwan dollar, to dive, dealers said.
However, the latest drop of the regional currencies against the U.S. dollar, which followed the Fed's decision to taper off its quantitative easing, did not scare away many foreign investors since the global economy is recovering and recession is not an immediate worry, dealers said.
The Fed's moderate scaling back of its fund injections indicates that the economic fundamentals of the U.S., the world's largest economy, are improving, dealers said.
They said a growing U.S. economy is good news for Taiwan because the the U.S. is one of the biggest markets for Taiwan products, particularly high-tech exports.
In the first 11 months of this year, the U.S. absorbed 10.7 percent of Taiwan's exports, remaining the second largest market after China.
Dealers said, however, the Fed's retreat from the QE is likely to lead to some fund outflows, which will depress the New Taiwan dollar as the greenback gains momentum on growing demand for U.S. dollar-denominated assets.
The New Taiwan dollar may test the nearest technical support at the NT$30.00 mark in the short term but a steep depreciation is unlikely, dealers said.