While global macroeconomic conditions remain challenging, Taiwan and South Korea are capable of withstanding the consequences of potential capital outflows from Asia as the US Federal Reserve is preparing to scale down its bond purchasing measures, Credit Suisse said yesterday in a report.
The outflows could trigger higher financing costs and exchange rate volatility for Asia-Pacific economies, keeping monetary policymakers in the region on high alert, especially those with sizable current account deficits or inflexible exchange rates, Standard & Poor’s (S&P) said in a separate report.
The remarks by analysts at Credit Suisse and S&P came at a time when concerns over the planned phasing out of the US central bank’s quantitative easing have started weighing on some emerging markets in Asia, and raised market concerns about whether the situation will spread to other parts of Asia.
“While some ASEAN economies such as Thailand and Malaysia could be vulnerable, we believe [South] Korea and Taiwan possess strong external funding positions that can withstand contagion,” Credit Suisse’s Hong Kong-based economist Christiaan Tuntono said.
Both the New Taiwan dollar and the South Korean won have lost value in recent weeks along with other Asian currencies on speculation that the Fed will soon scale back its monthly US$85 billion bond purchase, but the two countries’ sizable current-account surplus could help protect their currencies from the severe selling pressure that has been seen with India’s rupee and Indonesia’s rupiah.
“[South] Korea and Taiwan run a strong current-account surplus at present, with the former at 5.1 percent of GDP and latter at 10.6 percent of GDP in the second quarter 2013,” Tuntono said.
In comparison, India and Indonesia reported current-account deficits in the quarter, that accounted for 4.8 percent and 3.2 percent of their GDP respectively, he said.
Moreover, Taiwan and South Korea have far higher foreign exchange reserves than India and Indonesia, both in terms of absolute amounts and in percentage of GDP, he added.
While both Taiwan and South Korea are likely to be able to withstand any unexpected stress triggered by redemption pressure from foreign institutional investors, they are not exempt from financial volatility due to the Fed’s tapering, S&P said.
"Most sovereigns are likely to see economic growth weighed down somewhat by modest-to-moderate increases in funding costs," said Kim Eng Tan (陳錦榮), an S&P credit analyst based in Singapore. "The strain is likely to be greater in economies that run sizable current-account deficits or have inflexible exchange rates."
Economists said delayed policies or inappropriate responses, or even any political developments that would negatively surprise investors, could have a bigger impact that an economic slowdown in Asia.
"The Fed’s scaling down of bond purchase should be a margin call for Asia," said Daiwa Capital Markets economists Christie Chien (簡民惠) and Kevin Lai (賴志文), referring to its negative impact on economic growth and financial system stability in this region.
For Taiwan, it should beware that the potential slowdown of its Asian peers through trade channels could hit its export-oriented economy, Chien and Lai said in a research note on Wednesday.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by