CONNECTED MARKETS: Taiwan’s tech-heavy indices are vulnerable to the waves and currents of the tech world in particular, as firms rethink major AI expenditures
By Crystal Hsu / Staff reporter
The central bank sought to reassure markets yesterday as the New Taiwan dollar came under renewed pressure from a global technology selloff and foreign capital outflows.
The bank in a statement pledged to monitor global financial markets and foreign fund flows, adjusting its operations as needed to maintain exchange rate stability.
Compared with other major currencies, the NT dollar has been relatively stable against the US dollar over the longer term, it said.
The central bank’s logo is pictured on the door of the bank in Taipei on Sept. 17.
Photo: CNA
The local currency yesterday dropped 0.33 percent to close at NT$32.445, after touching an intraday low of NT$32.57, the weakest since April last year. Foreign institutional investors sold a net NT$76.74 billion (US$2.37 billion) in local shares, adding to the currency’s downward pressure.
The central bank attributed the NT dollar’s 1.37 percent decline last week to a global correction in technology stocks and foreign capital outflows, highlighting Taiwan’s vulnerability to shifts in investor sentiment toward a sector that dominates its stock market. The TAIEX fell 4.47 percent last week.
The South Korean won and Chinese yuan strengthened against the US dollar last week, while Japanese yen fell 0.24 percent, the central bank said.
Foreign investors have been reducing their exposure to Taiwan’s stock market amid concerns over elevated valuations of artificial intelligence (AI)-related stocks and rising financing risks in the industry, the central bank said.
Last week, foreign investors sold US$19.4 billion in Taiwanese shares and remitted a net US$17.961 billion out of Taiwan, intensifying pressure on the local currency, it said.
Taiwan’s heavy concentration in technology stocks leaves its financial markets sensitive to shifts in global sentiment toward AI and semiconductors. When investors scale back their exposure to the sector, equity outflows can coincide with capital repatriation, putting pressure on the NT dollar.
From Oct. 7 to Friday last week, the Philadelphia Semiconductor Index fell 15.7 percent, while the TAIEX dropped 5.4 percent over the same period, which was relatively resilient, the central bank said.
Cathay United Bank Co (國泰世華銀行) said the NT dollar’s breach of the NT$32.5 level came as selling in local equities intensified, compounding the currency’s near-term weakness.
Expectations of higher US interest rates have weighed on Asian currencies by pushing up US bond yields, Cathay United said.
The pressure comes as the US Federal Reserve is scheduled to review its monetary policy on Oct. 27 and 28. A further rate hike would make US dollar-denominated investments more attractive, it added.