The Taiwan Dollar Is a Surprise Winner From the Trade War

(Bloomberg) -- The Taiwan dollar is proving to be an unexpected beneficiary of the U.S.-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 U.S. tariffs against China. Taiwan’s financial markets were closed Monday due to a typhoon.

The local dollar strengthened 0.1% 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 $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 U.S-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.

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, 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.

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 steady at 31.045 per U.S. dollar Tuesday.

Taiwan bond buyers predicted the 10-year sovereign yield to range from 0.65% to 0.75% in the fourth quarter and end the year at 0.73%, another Bloomberg survey showed. The yield was little changed at 0.725% at the close on Tuesday.

--With assistance from Argin Chang, Lilian Karunungan and Miaojung Lin.

To contact the reporters on this story: Cindy Wang in Taipei at hwang61@bloomberg.net;Chinmei Sung in Taipei at csung4@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Magdalene Fung, Kevin Kingsbury

©2019 Bloomberg L.P.