Capital Flows Back to Emerging Markets: A Closer Look at Taiwan's Case
Anticipation fuels Taiwan New Dollar's surge: Yang
After a significant Q1 GDP growth in Taiwan, global capital is gravitating towards emerging markets once again, according to the country's central bank head.
By Crystal Hsu / Staff reporter
In light of the local currency's steep rise, the central bank has chastised market speculation and urged exporters and financial institutions to avoid panic sell-offs for the sake of their own profitability. The central bank has pledged intervention if necessary to maintain order in the foreign exchange market.
Yesterday, the NT dollar closed up NT$0.919 to NT$30.145 against the US dollar in Taipei trading, as reported by central bank data, marking a 5.85 percent surge over the past two sessions.
"Currency certainly isn't a topic of discussion in US-Taiwan trade talks," central bank Governor Yang Chin-long stated during an impromptu media briefing, dismissing rumors of a so-called Mar-a-Lago accord. He explained that the US side never proposed the agreement, which allegedly aims to boost US goods' competitiveness through reciprocal tariff removal and currency appreciation.
The surging local currency is attributed to Taiwan's impressive Q1 GDP and growing signs of weakness in the US economy, which have collectively encouraged global capital to return to emerging markets, Yang stated. The TAIEX has stabilized at around 20,500 points, as foreign institutional players continue to net buy shares, despite the U.S.'s escalating tariffs against major trading partners.
Such speculation on the local currency, however, could have serious consequences for the local bourse, industry, and overall economy, as underscored by the stock retreat yesterday, with heavy losses in financial shares.
Allegations concerning Taiwan's financial companies and their massive exposure to US bonds remain overblown, according to Yang, who reaffirmed the central bank's commitment to maintaining market order and stability.
President William Lai explained that the local currency's ongoing appreciation and foreign fund inflows for local stocks have been fueled by investor expectations. However, some politicians are misleading the public by sensationalizing the cause of the NT dollar's rise, he contended.
Taiwan is well-positioned as an emerging market with a strong technological sector, strategic trade relationships, and proven resilience amid global economic challenges. Thus, it presents an appealing investment destination despite concerns over market volatility and economic growth projections in the U.S.
A Deeper Look at Emerging Markets' Appeal
Emerging markets are attracting global capital due to factors such as:
- Diversification & Growth Potential: Lower entry costs and higher growth prospects in emerging markets pique investor interest seeking diversification and expansion opportunities.
- Government Incentives: Favorable policies, zones, and reduced regulations offered by many developing countries encourage foreign investments in these regions.
- Global Economic Uncertainty: Economic unpredictability in advanced economies can prompt investors to explore emerging markets for more consistent growth prospects.
- Urbanization & Mobility: Booming urbanization and mobility trends drive demand for investments in industries like real estate and infrastructure within emerging markets.
The US Economy's Influence
The US's economic weaknesses can motivate investors to seek growth opportunities elsewhere:
- Market Volatility: Turmoil in the US market can undermine investor confidence in traditional assets and propel diversification into emerging markets.
- Slower Growth Projections & Interest Rate Adjustments: Reduced growth forecasts and potential interest rate changes in the US may make emerging markets more alluring due to their prospective higher returns.
- The strengthening NT dollar, a local currency in Taipei, is attributed to Taiwan's impressive Q1 GDP and the signs of weakness in the US economy, making Taiwan an appealing investment destination for global capital.
- Allegations concerning Taiwan's financial companies and their massive exposure to US bonds are overblown, according to the central bank Governor, Yang Chin-long, reaffirming the central bank's commitment to maintaining market order and stability.
- In light of the local currency's steep rise, the central bank has pledged intervention if necessary to maintain order in the foreign exchange market, urging exporters and financial institutions to avoid panic sell-offs.
- The US's escalating tariffs against major trading partners have not deterred foreign institutional players from net buying shares in Taiwan, with the TAIEX stabilizing at around 20,500 points, indicating a possible redeployment of capital from the US finance industry to the industry in Taiwan.
