Taiwan sits out forex intervention to duck Trump blast

Mega Financial Holding Co

02/03/2017 03:39

* Trump rhetoric deters cenbank from forex intervention 
-source 
    * Forex losses for Taiwan insurers set to climb further 
    * Taiwan dollar up 5 pct so far this year 
 
    By Faith Hung 
    TAIPEI, March 2 (Reuters) - Taiwan's central bank, fearful 
of being labelled a currency manipulator by U.S. President 
Donald Trump, has pulled back on intervention to weaken the 
Taiwan dollar, making it Asia's second best-performing currency 
in 2017. 
    The currency  TWD=TP  has risen 5 percent so far this year, 
giving the island's stock market a boost, but knocking its 
fourth-quarter balance of payments to a five-year low 
 urn:newsml:reuters.com:*:nT8N1FE00I and hammering its insurers, which are heavily 
invested overseas. 
    A central bank official told Reuters the currency movement 
was directly related to the bank not intervening so much in the 
foreign exchange markets. 
    "The central bank wants to signal to the United States that 
it does not manipulate Taiwan's currency," the official said. 
    The bank's governor, Perng Fai-nan, declined to comment when 
asked on Thursday if the currency's strength was linked to the 
bank's nervousness that Trump might label it a manipulator. [ 
nL3N1GF188] 
    Trump has criticised especially China, Japan and Europe for 
policies he claims artificially weaken their currencies and make 
their exports more competitive. 
    His administration has said it will analyse the currency 
practices of major trading partners, and the U.S. Treasury is 
required to publish a report on these practices in mid-April.  
    After any declaration that a country manipulates its 
currency, the Treasury will try to negotiate a resolution, but 
the process could result in punitive tariffs on that country's 
goods. 
    Taiwan already meets two of the three U.S. criteria to be 
labelled a manipulator, including intervention to weaken the 
currency. An upcoming new iPhone model, for which Taiwan makes 
many of the components, is expected to boost its trade surplus 
with the United States to levels that could provoke a reaction. 
     
    TOXIC 
    "The effects of Trump's pronouncements that some central 
banks are manipulating their currencies have been quite toxic," 
said a vice-president at Mega Financial Holding's  2886.TW  
banking arm, which is Taiwan's biggest state-run bank operating 
in overseas markets. 
    The effects have been particularly toxic for Taiwan's 
insurers, which have been hit with a T$14 billion ($455 million) 
loss on the foreign exchange risk reserves they hold to contain 
currency volatility. 
    Their currency reserves declined by a third in January to 
their lowest in at least a year and are set to plunge further. 
    "The insurers must manage their forex risk ... We're closely 
monitoring the impact," said Thomas Chang, deputy director 
general of the insurance regulator. 
    For now, the insurers say they are hedging the risks and 
riding out the immediate storm. 
    "Insurance firms tend to invest in the long term, for 15-20 
years. Short term volatility is unavoidable. Our team has 
adjusted accordingly," said Lin Chao-ting, an executive vice 
president of privately owned Cathay Life Insurance, which has 
more than US$161 billion in assets. 
    Fubon Life Insurance was also sanguine, and expects the 
forex losses to wind down after March. 
    "A large percentage of life insurers' overseas assets have 
been hedged. So industrywide, only 3-10 percent of asset 
positions will be impacted by volatility in the forex market," 
the company said. 
    Cathay and Fubon are the insurance arms of Cathay Financial 
Holding  2882.TW  and Fubon Financial Holding  2881.TW , 
respectively. 
     
    UNPREDICTABLE 
    Investors say the concerns in Taipei are in part because 
they are unable to read Trump, an unorthodox new president with 
no prior political experience. 
    "Taiwan's central bank is in a very difficult position," 
said a president of a foreign fund management house in Taipei. 
    "People used to be able to predict what would happen if a 
country were named on the U.S. currency manipulation list. With 
Trump in office, it's a totally different story. You can't 
predict what the outcome could be," he said. "That's the scary 
part." 
    The central bank in South Korea has also cut back on 
interventions that could weaken its currency. 
    China on the other hand has spent a trillion dollars since 
mid-2014 to stop capital outflows that have been dragging the 
yuan lower, but Trump's campaign rhetoric focused on its 
previous interventions to weaken the currency. 
    Meanwhile, the upward pressure on Taiwan's currency and the 
central bank's hands-off approach have attracted billions of 
dollars of foreign capital to the country's stocks. 
    After a week of volatility following Trump's election on 
Nov. 8, the country's main index  .TWII  has risen more than 8 
percent. 
    And Julianne Chu, a fund manager for Uni-President 
Securities Investment Trust, thinks it will keep rising. 
    "Foreign investors will continue to buy Taiwan stocks, which 
have been their favourite market in Asia since Trump took 
office," she said. 
    "The focus of their buying will be iPhone 8 component 
makers," she said. 
 ($1 = 30.7810 Taiwan dollars) 
 
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Taiwan insurers' currency reserves    http://tmsnrt.rs/2leKqza 
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 (Reporting by Faith Hung; Additional reporting by Loh Liang-sa; 
Editing by Vidya Ranganathan and Will Waterman) 
 ((faith.hung@thomsonreuters.com; 8862 2500 4893; Reuters 
Messaging: faith.hung.thomsonreuters.com@reuters.net)) 
 
Keywords: TAIWAN MARKETS/TRUMP