Capital outflows weigh on Taiwan dollar

TUMULTUOUS CLIMATE: AI concerns have seen investors shift funds out of Taiwan since the beginning of the month, opening the door for possible currency weakness

Foreign institutional investors have moved about US$10 billion out of Taiwan since the beginning of this month, putting downward pressure on the New Taiwan dollar against the US dollar, central bank Governor Yang Chin-long (楊金龍) said yesterday.

However, Yang said the outflows included stock market profits and dividends received by foreign investors, describing the transfers as normal business activity.

He said foreign institutional investors routinely shift money between markets.

Central bank Governor Yang Chin-long speaks at a meeting of the legislature’s Finance Committee in Taipei on Oct. 28.

Photo: George Tsorng, Taipei Times

On Monday, the TAIEX posted its second-largest single-day point gain, rising 1,960.06 points.

Despite the stock market rally, the NT dollar remained weak, falling NT$0.114 against the US dollar to close at NT$32.882 amid continued foreign institutional selling of Taiwanese shares.

Foreign institutional investors sold a net NT$90.06 billion (US$2.74 billion) of Taiwanese shares on Monday, marking their eighth consecutive session of net selling.

Their cumulative net sales over the eight sessions totaled almost NT$800 billion amid market volatility linked to concerns about artificial intelligence development.

Before Monday, the NT dollar had depreciated 1.20 percent against the US dollar since the beginning of this month, with the greenback briefly rising above NT$33 and prompting central bank intervention.

Last month, the NT dollar fell 1.93 percent against the US dollar as net fund outflows by foreign institutional investors reached approximately US$28 billion.

The central bank’s foreign exchange reserves fell below US$600 billion to US$596.44 billion at the end of last month, down US$4.31 billion from a month earlier, as a result of its market intervention.

The central bank has said it would maintain sufficient foreign exchange reserves to help keep Taiwan’s financial markets stable and guard against sudden capital outflows, while working to ease volatility in the foreign exchange market.

However, experts said the central bank could face challenges in stabilizing the NT dollar if foreign institutional investors continued moving funds out of the country, given their substantial holdings of NT dollar-denominated assets and the high cost of market intervention.

Yesterday, the TAIEX rose 1,050.22 points, or 2.52 percent, to close at 42,711.92, while foreign institutional investors continued to stand on the sell side with net stock sales of NT$34.116 billion.

The NT dollar rose against the US dollar yesterday, gaining NT$0.017 to close at NT$32.865.