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Taiwan dollar is a surprise winner from the trade war

The Taiwan dollar is proving to be an unexpected beneficiary of the US-China trade war.

[TAIPEI] The Taiwan dollar is proving to be an unexpected beneficiary of the US-China trade war.

The currency notched its first quarterly rise since March 2018, as foreign funds returned and firms redirected investments to Taiwan to avoid US tariffs against China. Taiwan's financial markets were closed Monday due to a typhoon.

The local dollar strengthened 0.1 per cent in the third quarter, the biggest winner among all Asian currencies after the Thai baht.

The currency strength came as foreign investors turned net buyers of Taiwanese stocks again in September, with US$2.5 billion worth of inflows, the most among all Asian markets tracked by Bloomberg, excluding China. They were net sellers in August.

"Taiwan was expected to be one of the most-hit economies in the US-China trade war, but it turned out to fare better than expected," said Hao Zhou, a senior emerging-markets economist at Commerzbank AG, adding that data showed the economy was performing better than China's and South Korea's.

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Taiwan's economy has benefited from companies relocating their manufacturing operations and other investments from China amid the protracted trade dispute. Investors also found a haven in Taiwanese equities, Mr Zhou said.

The Taiwan central bank recently boosted its 2019 economic growth estimate, adding to an increasing number of upbeat forecasts that predict the island will ride out the trade war better than most of its neighbors.

The local dollar tends to be "more resilient in times of heightened global uncertainty given Taiwan's large net foreign asset position," Barclays Bank strategists including Kritika Kashyap wrote in a note dated Sept 24.

The global trade outlook remains the currency's biggest overhang, however.

Mr Kashyap sees the Taiwan dollar falling to 31.2 against the greenback by year-end and 31.6 in the second quarter of 2020, given expectations of further weakness in China's yuan as well as global trade.

The currency is expected to end this year at 31.5, according to the median forecast of economists in a survey compiled by Bloomberg. Their estimates range from 30.9 to 32. The Taiwan dollar closed at 31.042 per US dollar Friday.

Taiwan bond buyers predicted the 10-year sovereign yield to range from 0.65 per cent to 0.75 per cent in the fourth quarter and end the year at 0.73 per cent, another Bloomberg survey showed. The yield was 0.7235 per cent at the close on Friday.


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