Appreciation of NT$ to slow: HSBC

By Patricia Lui, Bloomberg

TAIPEI, Taiwan — Taiwan’s dollar, the fastest gaining currency in Asia this year, may see the pace of its appreciation slow on concern the new government will be slow to deliver on promises to improve relations with China, said HSBC Holdings Plc. The currency has surged 6.5 percent this year on optimism the economy will grow after President Ma Ying-jeou won a landslide election in March on pledges to improve trade links with China. The currency fell and the stock market dropped the most in two months Tuesday after Ma urged China to move toward democracy and said Taiwan will acquire more weaponry. “We have seen a lot of appreciation and there’s probably less room now for further gains,” said Daniel Hui, a Hong Kong- based currency strategist at HSBC in a telephone interview. “What you need are the authorities to deliver” on their promises for the currency to extend its rally. Taiwan dollar’s advance this year tops the 10 most- traded currencies in Asia outside Japan and compares with a 0.5 percent gain in 2007.

“Upside in the currency at this point is quite limited and you really should be looking at how risky the downside is,” said Hui, confirming a research note dated yesterday. London-based HSBC is maintaining its forecast for the Taiwan dollar to trade at NT$30.00 for the rest of the year, he said.

The benchmark TAIEX has risen 6 percent this year, the region’s biggest gainer, as investors have poured funds into the island on speculation improved ties with China will boost company earnings. “A lot of the Taiwan dollar strength in the first quarter has been due to portfolio inflows which tend to be more skittish, fickle and based on positive expectations on cross straits economic relations,” Hui said. “This puts a lot of onus on the ability of the new administration to deliver on the promises in a timely manner.”

Foreign investors have bought a net US$1.36 billion of Taiwanese equities in May compared with net purchases of US$1.2 billion this year, stock exchange data shows.

A narrower trade surplus due to slower global demand for Taiwan’s exports and rising costs of oil imports may also curb the pace of the currency’s appreciation, Hui wrote in the note.

The first quarter current-account surplus narrowed to US$8.7 billion from a revised US$9.4 billion in the previous quarter. The current account is the broadest measure of international trade.