Further gains in value of NT dollar could hurt business

The New Taiwan dollar is likely to strengthen further this year, which could have a negative impact on foundries, integrated circuit design, basic materials and automobile parts, as well as the financial sector, Macquarie Research Equities said in a client note yesterday.

"Our forecast of NT$30.5 against the US dollar by the end of this year, which was viewed as too aggressive last year, now appears too conservative," Daniel Chang (張博淇), an analyst at Macquarie Research Equities in Taipei, wrote in the note.

The NT dollar rose NT$0.034 to close at NT$30.624 against the greenback yesterday in Taipei. The local currency has risen 5.61 percent so far this year, causing many exporters to complain that their earnings have been eroded by forex losses.

While currency effect has had different repercussions on export-oriented technology firms in this country, given the various currency hedging strategies at work, the NT dollar appreciation "will surely have a negative effect on IC back-end players and foundry players in Taiwan," Chang wrote.

In the IC design sector, Realtek Semiconductor Corp (瑞昱半導體) and Novatek Microelectronics Corp (聯詠科技) are expected to encounter larger non-operating losses due to their higher net US dollar exposure, he said.

Macquarie that a 6 percent rise in the value of the NT dollar would translate into a 9 percent decrease in earnings per share for the basic materials sector.

Within financial segment, both banks and insurers would see a downside on their share prices in the near-term due to the currency risks, while brokerage firms are believed to be immune from such negative impact because of their limited foreign currency exposure in terms of assets and liabilities, Macquarie said.

"We expect further upward revisions by our regional economists because a strong NT dollar would allow the central bank to curb inflation and retain capital onshore," Chang wrote.

Macquarie's research note came as the consumer price index remained elevated last month, rising 3.89 percent year-on-year following a 2.96 percent increase in January, the Directorate General of Budget, Accounting and Statistics said.

Central Governor Perng Fai-nan (彭淮南) told lawmakers on Monday that the NT dollar appreciation had helped ease imported inflationary pressure, but he also urged exporters to exercise necessary currency hedging to avoid forex losses.

It may be too late for Chunghwa Telecom Co (中華電信), however, which announced last Wednesday that it had encountered NT$4 billion (US$130.2) in unrealized forex losses because of the rapid NT dollar appreciation in the first two months this year.

Standard Poor's yesterday placed Chunghwa Telecom's foreign currency corporate credit rating on its "CreditWatch" list, with negative implications, an e-mailed statement said.

Chunghwa the nation's largest telecom operator. The company said it had long-term foreign-exchange derivative contracts with a maximum tenor of 10 years when it announced the massive losses last week.