Bloomberg News

Taiwan Dollar Declines After China Investment Slumps; Bonds Drop

August 16, 2012

Taiwan’s dollar weakened for a second day after a report showed foreign direct investment slumped to a two-year low in China, the island’s No. 1 export destination. Government bonds dropped.

The currency reversed an earlier gain, while the benchmark Taiex index of stocks pared an advance of as much as 0.6 percent. Overseas investment in China fell 8.7 percent in July from a year earlier to $7.58 billion, the smallest inflow since July 2010, the government said in Beijing today.

“The Taiwanese economy will be affected in the short term as about 40 percent of exports go to China,” said Mill Lin, an economist in Taipei at Chinatrust Commercial Bank. “The currency is still supported by fund inflows, so it’s likely to be stable or appreciate over the long run.”

The local dollar dropped 0.1 percent to NT$30.02 against its U.S. counterpart at the close, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings used to price options, increased nine basis points, or 0.09 percentage point, to 3.40 percent.

Global funds boosted their holdings of Taiwanese equities by $571 million in the last three days, building on net purchases of $1.7 billion last week, stock exchange data showed.

The currency earlier rose as much as 0.5 percent to NT$29.86 after China’s Premier Wen Jiabao said yesterday there’s “growing room for monetary policy operations” as Asia’s biggest economy faces downward pressure.

The yield on Taiwan’s 1.25 percent bonds due March 2022 climbed one basis point to 1.19 percent, according to Gretai Securities Market. The overnight money-market rate was little changed at 0.392 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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