Last quarter saw the nation’s balance of payments slip into negative territory for the first time in three years as foreign equity funds pulled out amid fears that Europe’s worsening debt crisis would drive the global economy into a double-dip recession.
The balance of payments recorded a deficit of US$3.46 billion (NT$104.7 billion) last quarter as the financial account showed a net outflow of US$11.57 billion, the central bank’s quarterly report yesterday indicated.
Chen E-dawn (陳一端), deputy chief of the bank’s economic research department, cited record foreign funds’ outflow of US$16.26 billion as the main cause.
“Foreign institutional investors had to unload local shares to meet fund redemption demand abroad,” Chen said. “The practice is common in times of volatility.”
Foreign securities brokerages repatriated US$2.5 billion in stock dividend income to their parent companies, Chen said, adding that the amount rose to US$4.64 billion if other foreign companies were included.
US insurance giant, American International Group Inc, sold its 97.57 percent shares in local Nan Shan Life Insurance Co (南山人壽) to a Taiwanese consortium led by Ruentex Group (潤泰集團), Chen said.
BEARISH SENTIMENT
The bearish sentiment also affected Taiwanese investors as they trimmed US$1.56 billion in overseas securities from July to September, Chen said.
However, domestic institutional investors strengthened their foreign portfolio holdings and direct investment abroad — especially in China — in pursuit of greater profitability, Chen said.
The foreign fund outflows, despite continuing this quarter, have shown signs of a slowdown, thanks to reassuring economic data, said Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan.
“Taiwan’s electronic exports, in particular, fared better than expected in the current quarter as seen in the latest exports and export order data,” Cheng said by telephone. “That will help to shore up the trade surplus and GDP growth.”
The current account posted a surplus of US10.21 billion in the third quarter, as exports outpaced imports despite slowing global trade and Formosa Plastics Group’s (台塑集團) partial suspension of operations for safety reasons.
CAPITAL GOODS
However, the sharp decrease in imports of capital goods bodes ill for private investment, a key driver of the nation’s GDP growth last year and the first half of this year, the report said.
Major manufacturers have cut capital expenditures for the rest of the year and have provided conservative guidance for next year.
Economic bellwethers are set to head down in the first quarter as export orders may dry up after the Christmas season, Cheng said.
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