Taipei:With foreign institutional investors holding substantial Taiwan dollar-denominated assets, the central bank will face challenges in stabilizing the Taiwan dollar if foreign investors continue to move funds out of the country, market experts said.

According to Focus Taiwan, Cathay United Bank Chief Economist Lin Chi-chao noted that foreign institutional investors' share of the local market's capitalization has shown signs of increasing as the local stock exchange expanded. Government data indicated that their share rose from 43 percent at the end of 2024 to nearly 50 percent in early October.

This increase in market share has coincided with a rise in the Taiex, the Taiwan Stock Exchange's benchmark index, which reached an all-time intraday high of 49,968.92 on Oct. 6. However, since then, the Taiex has shed about 10,267 points, or 20.55 percent, due to concerns over potential restrictions on AI data center development in the United States.

Lin emphasized that foreign institutional investors tend to adjust their portfolios in response to heightened volatility in the stock market, complicating the central bank's efforts to stabilize the currency. As of the end of October, foreign investors held US$1.743 trillion in Taiwan-listed stocks, bonds, and Taiwan dollar deposits, equivalent to 292 percent of Taiwan's total foreign exchange reserves.

The Taiwan dollar depreciated 3.2 percent against the U.S. dollar in 2026, with continued weakness into November. On Friday morning, the currency weakened further to NT$33.04 against the greenback but rebounded to NT$32.768 in the afternoon, attributed to central bank intervention and Taiwanese exporters converting U.S. dollar earnings into local currency.

Due to market intervention, the central bank's foreign exchange reserves fell below US$600 billion, ending October at US$596.44 billion, a decrease of US$4.31 billion from the previous month. Foreign institutional investors recorded net capital outflows of about US$28 billion in October.

Lin remarked that the central bank cannot rely solely on its foreign exchange reserves to support the Taiwan dollar, as sustained intervention could be costly. He suggested encouraging Taiwanese exporters to convert their U.S. dollar holdings into Taiwan dollars to alleviate downward pressure on the currency.

In comparison, the South Korean won appreciated 8.38 percent against the U.S. dollar during the January-October period, supported by capital inflows and repatriation of overseas earnings by South Korean companies. Forex analyst Lee Chi-chan added that despite the Taiwan dollar's recent rebound, there are no clear signs of a sustained upward trend, and volatility in the stock market could persist.