SMM News: under the gloom of global trade friction, a "perfect storm" is sweeping Taiwan, the new Taiwan dollar exchange rate against the US dollar hit a new low of more than two years, capital flight frenzied.
On Thursday, the New Taiwan dollar closed down below 31.6 against the dollar for three consecutive trading days, continuing its new closing low since January 20, 2017, at a 28-month low. Since the beginning of May, the Taiwan dollar has continued to decline, falling 2.3 percent, the worst monthly performance in more than three years.
At the same time, foreign investment continued to sell off frantically in the Taiwan stock market. Taiwan's weighted index is down 5.3 per cent this month, the biggest drop since October. Global equity investors fled Taiwan faster than any other market in Asia this month, pulling out about $3.7 billion, according to Bloomberg.
In addition, Mingsheng (MSCI) this week adjusted the second quarter index weight, Taiwan stocks in Asian stocks and global emerging markets quarterly weight was double-cut, the biggest decline since the February 2016 quarterly adjustment, passive capital selling pressure rose sharply.
As trade frictions turn into a technology contest, investors worry that Taiwan's technology companies will be affected. Technology companies account for as much as 2/5 of Taiwan's benchmark stock index.
In a recent research report, DBS Group pointed out that trade frictions will impact the electronic supply chains in Taiwan and South Korea. South Korea has an advantage over Taiwan in commodity substitution and supply chain diversification. For example, in the supply chain, Samsung's foreign investment is scattered in major markets. On the other hand, 40% of Taiwan's foreign investment is mainly in the mainland market, and the impact of trade frictions is relatively heavy for Taiwan.
As trade concerns intensify, analysts believe the new Taiwan dollar will face further devaluation in the future. Global investors will continue to cut their exposure to technology stocks, which will put pressure on Taiwan's stock market and hit the New Taiwan dollar, Bloomberg quoted Ken Cheung, senior foreign exchange strategist at Mizuho Bank, as saying.
Taiwan's Lianhe Evening News had previously quoted bankers as saying that the new Taiwan dollar could fall to 32 yuan to the US dollar in the future.
The impact on Taiwan's financial markets is also expected to spread to the real economy. A number of financial media in Taiwan previously reported that the exchange rate of the new Taiwan dollar has gone from bad to worse recently, giving Taiwan exporters an advantage in quotation, but importers are in a weak position. Import prices, including oil prices, are afraid to rise and affect consumer prices such as oil and electricity.
Taiwan's inflation continued to rise slightly in April, with (CPI), the consumer price index, which measures inflation, rising 0.66 per cent from a year earlier, the highest level in six months, according to Taiwan statistics.
Li Woban, a professor of finance at Tamkang University in Taiwan, said in a column that the devaluation of the new Taiwan dollar may lead to the withdrawal of foreign investment and the loss of foreign exchange, increasing the pressure of imported inflation, and ultimately hitting economic growth.
According to Xinhua News Agency, as international economic and trade frictions heat up, fluctuations in global financial markets intensify, financial fragility increases, and geopolitical risks rise. Taiwan's economic boom signal has been in the yellow and blue light between "recession" and "growth" for four months in a row, and the consumer confidence index has fallen further.