Friday, May 28, 2010
Taiwan dollar spurned by HSBC on 'hawk-like' Perng
Taiwan's policy makers are winning the battle against speculators who drove the currency up more than 6 percent in a year, say HSBC Private Bank and DBS Asset Management Ltd. Investors this month reduced bets that Taiwan's dollar would strengthen, causing forward contracts to drop by the most since February 2009, according to data compiled by Bloomberg.
Taiwan dollar spurned by HSBC on 'hawk-like' Perng
Taiwan's policy makers are winning the battle against speculators who drove the currency up more than 6 percent in a year, say HSBC Private Bank and DBS Asset Management Ltd. Investors this month reduced bets that Taiwan's dollar would strengthen, causing forward contracts to drop by the most since February 2009, according to data compiled by Bloomberg.
The currency slipped 1.1 percent against the greenback since the end of March, after gaining in the previous 12 months on a planned trade accord with China that attracted foreign funds. Taiwan-China Finance Pacts Take Effect
Traders are scaling back wagers after the Central Bank of the Republic of China (Taiwan) ordered a review of loan documentation to ensure credit isn't being used to speculate and set a one-week deadline for money brought into the country to be invested or repatriated. Policy makers have sold Taiwan's dollar most days in the past month to slow gains, according to traders familiar with the central bank's operations who declined to be identified.
“With the hawk-like central bank extremely active, it's hard to make money,” said Desmond Soon, a fund manager in Singapore at DBS Asset, which oversees the equivalent of US$21 billion. The firm, a unit of Southeast Asia's largest bank, has avoided buying the Taiwan dollar even though it is the “most undervalued Asian currency,” he said.
Taiwan joins developing nations from Colombia to Russia that have either implemented or studied capital controls to slow currency advances. Perng Fai-nan, 71, governor of the central bank since the 1998 Asian financial crisis, told an annual meeting of the Asian Development Bank in Tashkent, Uzbekistan, on May 4 that emerging markets need to adopt curbs to address “disorderly” foreign exchange moves.
The International Monetary Fund supported taxes on capital inflows last month to help stem appreciation in Latin America after Brazil imposed a tax on foreign purchases of equities and bonds in October. The real, which gained 33 percent against the dollar in 2009, is down 6.8 percent this year.
The 12-month non-deliverable forward contract for Taiwan's dollar has fallen 2.8 percent from the end of April to NT$31.21, pricing in a 3.1 percent appreciation. Forwards are agreements to buy and sell assets for delivery at a specified time. Non- deliverable contracts are settled in U.S. dollars.
Implied volatility, a measure of foreign-exchange swings used to price options, dropped 41 percent from its peak in October 2008 to 7.5 percent, compared with 22 percent for South Korea's won.
Average onshore daily trading volume of the Taiwan dollar dropped to US$836 million this year from US$1.2 billion in 2008, Taipei Forex Inc. data show. Credit Agricole SA, France's largest lender by branches, is sticking to its forecast for the currency to rise 7.3 percent to NT$30 by Dec. 31 from NT$32.187 at the 4 p.m. close in Taipei, said Mitul Kotecha, the Hong Kong-based head of global currency strategy.
“Our forecast is still for a stronger Taiwan dollar this year,” Kotecha said. “When risk appetite improves, we will see a resumption of capital inflows. Economic fundamentals are improving.”
Overseas investors added a net US$339 million into Taiwan equities this year after injecting US$15.6 billion in 2009, according to stock exchange data. Taiwan's economy grew at the fastest pace in more than three decades last quarter, with gross domestic product rising 13.27 percent from a year earlier, the statistics bureau in Taipei said on May 20.
Central banks intervene in the markets by arranging purchases or sales of foreign exchange. Taiwan's currency reserves climbed 17 percent in the past year to US$357 billion, as policy makers curbed a decline in the greenback to support manufacturers' overseas earnings. Export orders, an indication of shipments in the next one to three months, rose 35.2 percent in April. They had contracted for 12 consecutive months until September last year.
Controls on capital flows have reduced idle funds in the financial system to about NT$250 billion from NT$290 billion on Jan. 1, Deputy Governor George Chou said in a March 11 interview in Taipei.
“We don't trade the Taiwan dollar actively because the central bank is quite restrictive,” said Arjuna Mahendran, the head of investment strategy for Asia in Singapore at HSBC Private Bank, a unit of Europe's largest bank overseeing US$460 billion globally. The currency “might be a dark horse” because “the Chinese are investing in Taiwan,” he said.
“Although it’s a bullish story on the back of the cross- straits story and undervaluation, there isn’t much money to be made in the currency,” Soon said.
The island's 0.18 percent overnight rate also reduces the allure of investing, said DBS Asset's Soon. The rate compares with 0.40 percent in the U.S., 6.3 percent in Indonesia and 3.8 percent in India. The currency delivered returns including interest income of 2 percent against the greenback in the past year, compared with 19percent for the Indonesian rupiah.
