The central bank has again warned of speculation by foreign institutional investors in the local foreign-exchange market, as it would further raise the value of the New Taiwan dollar against the US dollar.
In the past few sessions, foreign institutional investors have seemed keen to buy reverse exchange-traded funds (ETFs), which bet on the local equity market declining, as a way to reduce possible losses if the spot equity market moves lower, the central bank said.
In Taiwan, investors have to use NT dollar-denominated funds to buy ETFs, so foreign institutional investors have been remitting large amounts of US dollars and converting their funds into the local currency, boosting it.
Photo: CNA
However, foreign institutional investors could instead buy short position futures contracts as a hedging measure, placing a fraction of their foreign currency-denominated deposits in the futures contracts, the central bank said.
That way, they would only need to move a small amount of funds into Taiwan, which would not send ripples through the local forex market, it said.
The central bank said it suspected that foreign institutional investors were speculating in the local foreign exchange market by buying reversal ETFs rather than short-position equity futures contracts.
When the NT dollar rises further, these foreign institutional investors would simply sell their reversal ETFs and convert their funds into US dollars, which would allow them to receive more of the greenback, the central bank said.
Moreover, foreign institutional investors are likely to post additional gains in the equity market through their reversal ETFs when share prices fall, it added.
The NT dollar has moved higher against the US dollar in recent sessions. As of Friday, the NT dollar had risen more than 4 percent against the greenback this year, closing at NT$28.876.
When foreign institutional investors remit funds for investments in Taiwan, they have to invest up to 30 percent of their funds in financial instruments with a fixed income, such as bonds, and must place the remainder in the equity market as soon as possible.
By investing in reversal ETFs, they can get around the 30 percent ceiling imposed by financial authorities, the central bank said.
Foreign institutional investors had bought NT$48 billion (US$1.66 billion) worth of reversal ETFs as of the end of last month, it added.
The central bank said that it is determined to maintain market order and stabilize the local financial market, adding that it would meet with the Financial Supervisory Commission to create measures to solve the large purchases of reversal ETFs by foreign institutional investors.
DOLLAR CHALLENGE: BRICS countries’ growing share of global GDP threatens the US dollar’s dominance, which some member states seek to displace for world trade US president-elect Donald Trump on Saturday threatened 100 percent tariffs against a bloc of nine nations if they act to undermine the US dollar. His threat was directed at countries in the so-called BRICS alliance, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Turkey, Azerbaijan and Malaysia have applied to become members and several other countries have expressed interest in joining. While the US dollar is by far the most-used currency in global business and has survived past challenges to its preeminence, members of the alliance and other developing nations say they are fed
LIMITED MEASURES: The proposed restrictions on Chinese chip exports are weaker than previously considered, following lobbying by major US firms, sources said US President Joe Biden’s administration is weighing additional curbs on sales of semiconductor equipment and artificial intelligence (AI) memory chips to China that would escalate the US crackdown on Beijing’s tech ambitions, but stop short of some stricter measures previously considered, said sources familiar with the matter. The restrictions could be unveiled as soon as next week, said the sources, who emphasized that the timing and contours of the rules have changed several times, and that nothing is final until they are published. The measures follow months of deliberations by US officials, negotiations with allies in Japan and the Netherlands, and
Foxconn Technology Group (富士康科技集團) yesterday said it expects any impact of new tariffs from US president-elect Donald Trump to hit the company less than its rivals, citing its global manufacturing footprint. Young Liu (劉揚偉), chairman of the contract manufacturer and key Apple Inc supplier, told reporters after a forum in Taipei that it saw the primary impact of any fresh tariffs falling on its clients because its business model is based on contract manufacturing. “Clients may decide to shift production locations, but looking at Foxconn’s global footprint, we are ahead. As a result, the impact on us is likely smaller compared to
TECH COMPETITION: The US restricted sales of two dozen types of manufacturing equipment and three software tools, and blacklisted 140 more Chinese entities US President Joe Biden’s administration unveiled new restrictions on China’s access to vital components for chips and artificial intelligence (AI), escalating a campaign to contain Beijing’s technological ambitions. The US Department of Commerce slapped additional curbs on the sale of high-bandwidth memory (HBM) and chipmaking gear, including that produced by US firms at foreign facilities. It also blacklisted 140 more Chinese entities that it accused of acting on Beijing’s behalf, although it did not name them in an initial statement. Full details on the new sanctions and Entity List additions were to be published later yesterday, a US official said. The US “will
RSS