Taiwan is proving a surprising investment winner under US President Donald Trump.
The nation is home to the only currency in Asia to climb against the resurgent greenback since the US election.
Against a backdrop of Trump starting to make good on protectionist trade pledges and signaling a readiness to risk damaging Taiwan’s fragile relationship with China, analysts are still optimistic the nation will see equity inflows this year.
Foreign investors have pumped US$1.5 billion into local shares this month, helping drive the TAIEX to a one-and-half-year high and the New Taiwan dollar to its highest since October last year.
The disconnect amounts to a big bet on Apple Inc. It is up to the firm to deliver the iPhone orders that underpin forecasts for a 20 percent increase in earnings per share on the TAIEX in the next 12 months.
“As long as there’s still hot money around and earnings growth is positive, funds will still come to Taiwan,” said Ben Lin, a money manager at Uni-President Asset Management Corp (統一投信) in Taipei. “Based on feedback from the supply chain, this year’s new iPhone will have a more obvious upgrade.”
Taiwan bulls have history on their side. The NT dollar and equity benchmark have been Asia’s top performers over the past 12 months, even with US monetary tightening and slower growth in China — the nation’s largest single export market.
The NT dollar rose 0.2 percent to NT$31.33 against the US dollar yesterday morning, while the TAIEX closed at 9,447.95 on Tuesday, extending its 12-month gain to 30 percent in US dollar terms.
The iPhone 7’s release last year was a fillip to the nation’s exports. Shipments finally snapped a 17-month run of declines in July last year and climbed at the fastest pace since December 2013, while in the past year industrial production has also been on a steady uptrend.
As for this year, there is speculation that Apple will release the iPhone 8 on the 10th anniversary of its flagship product, while Taiwan’s economic growth is projected to reach a three-year high this year.
Taiwan’s two biggest firms by market capitalization — Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Hon Hai Precision Industry Co (鴻海精密) — are both Apple suppliers.
While slower Chinese growth is a drag on Taiwan’s economy, stricter tax rules, lower interest rates and currency weakness in its neighbor have prompted some Taiwanese firms to take their money back to the nation, Yuanta Securities (元大證券) Taipei-based chief economist Woods Chen (陳森林) said.
The central bank has also pared back moves to weaken the currency after the US Department of the Treasury highlighted its intervention practices in a report.
“We expect the greenback to strengthen, which will bring some depreciation pressure to the Taiwan dollar,” DBS Group Holdings Ltd Singapore-based economist Ma Tieying (馬鐵英). “But it will still outperform among Asian currencies because of economic and trade factors, its current-account surplus, and don’t forget: Taiwan is on the US’ currency watch list.”
Other analysts are less sanguine. The median forecast in a Bloomberg survey is for the NT dollar to drop 5.3 percent against the greenback by the end of the year, the biggest projected loss in Asia.
Part of that pessimism stems from a Trump presidency, which poses a unique risk to the nation. Not only is its export-dependent economy especially vulnerable to US protectionism, Trump’s hints of a deviation from the US’ longstanding “one China policy” also raises the risk of a cross-strait conflict.
After breaking Washington protocol by speaking to President Tsai Ing-wen (蔡英文) by telephone after his election win, Trump suggested commitment to the “one China” policy could be dependent on China’s concessions on trade and currency issues.
“If Trump is just using Taiwan as a bargaining chip, his interest in Taiwan could be over in a New York minute,” said Cliff Tan (陳仲華), East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Hong Kong. “I think he’s really mainly concerned about the bilateral trade balance between the US and China.”
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