Taiwan’s central bank said that net outflows by foreign institutional investors were one of the significant factors behind the sharp weakening of the New Taiwan dollar against the US dollar. From the beginning of July through October 21, net outflows from Taiwan’s financial markets reached about $54.3 billion, while the local currency lost approximately 2% against the US currency over that period, Taipei Times reports.
Stock sales and capital outflows
In a written report to the Legislative Yuan, the central bank said that from July through October 21, foreign institutional investors made net sales of Taiwanese stocks worth NT$1.25 trillion, or approximately $38.7 billion. Total net outflows, which also include capital gains and cash dividends, amounted to about $54.3 billion.
The regulator linked the new wave of capital outflows to renewed concerns about a possible military conflict between the United States and Iran, as well as a global sell-off in technology stocks due to concerns over artificial intelligence spending. According to the central bank, these factors put pressure on the TAIEX index and prompted investors to withdraw more funds from Taiwan’s financial markets.
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Central bank interventions
In the first half of the year, net outflows by foreign institutional investors totaled $23.3 billion. The central bank said that escalating military tensions in the Middle East and concerns over the US Federal Reserve’s tight policy also increased pressure on Taiwan’s currency.
To reduce fluctuations in the foreign exchange market, during the first six months of the year the central bank sold $17.04 billion more than it bought. From January 1 through October 21, the New Taiwan dollar weakened by 3.23% against the US dollar, while the US dollar index rose by 3.49%.
The central bank said that over this period, the decline of Taiwan’s currency was smaller than that of the Swiss franc, which lost 3.89%, the euro, which fell by 4.35%, and the Thai baht, which weakened by 6.29%. The regulator explained the need for currency interventions by Taiwan’s small and open economy, its relatively shallow foreign exchange market, and its significant dependence on trade.
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