Taiwan saw a record high in fund outflow in the first quarter of this year, marking the 47th consecutive quarter of a fund outflow, as the central bank attributed the growth to an increase in overseas bond investments by Taiwanese financial institutions.
It was the third straight quarter for Taiwan to report a record high in fund outflow.
Data compiled by the central bank showed net fund outflows in Taiwan’s financial account, which measures the flow of direct investment and portfolio investment, totaled US$32.22 billion in the January-March period, up from US$18.56 billion a year earlier.
The first quarter’s fund outflow also beat US$31.78 billion recorded in the fourth quarter of last year, the central bank’s statistics indicated.
Officials from the central bank said a spike in U.S. treasury yields prompted many Taiwanese financial institutions to park their funds overseas at a time when the U.S. Federal Reserve has kicked off a rate hike cycle that began in March.
The Fed raised its key interest rates by 25 basis points in March and an additional 50 basis points in early May. More rate increases are expected to follow as the U.S. central bank has become aggressive in tightening its monetary policy to take on skyrocketing inflation with the consumer price index hitting a four-decade high of 8.5 percent in March.
Fund moved to overseas investment
The local central bank said the increase in net fund outflows came after portfolio investments abroad posted a net asset increase of US$49.92 billion, as insurance companies raised their investment in debt securities overseas.
The significant increase in portfolio investment overseas came as U.S. treasury yields soared almost 90 basis points in the three-month period, the central bank said.
Out of the US$49.92 billion, the central bank said, residents’ portfolio investment abroad posted a net increase of US$35.21 billion on the back of a rise in overseas debt securities investment by insurance companies as well as other institutions in the financial sector.
However, non-residents’ portfolio investment recorded a net fall of US$14.72 billion since foreign investors reduced their equity holdings in the local stock market in the first quarter, when the Taiex, the weighted index on the Taiwan Stock Exchange, shed 525.37 points or 2.88 percent after foreign institutional investors sold a net NT$459 billion (US$15.45 billion).
Over the past 47 quarters, accumulated net fund outflows hit US$660.51 billion or about NT$18.91 trillion, which is equivalent to seven and half years of total tax revenue for Taiwan.
Other countries
Addressing concerns that investors will keep moving funds out of the country and into U.S. dollar-denominated assets, the central bank said net financial account outflows were common among countries like Taiwan that have a long-term current account surplus.
Other countries, including Japan, Singapore, South Korea and Germany, which have all enjoyed a long-term current account surplus, have also tended to record net financial account outflows, the central bank said.
The current account mainly measures exports and imports of a country’s merchandise and services.
In the first quarter, Taiwan recorded a current account surplus of US$30.68 billion, up US$4.85 billion from a year earlier with the country reporting a US$20.47 billion surplus in commodity trade, up US$1.7 billion from a year earlier, due to solid global demand for tech gadgets for a digital transformation.
In addition, service trade also reported a surplus of US$4.34 billion, a new quarterly high, due to an increase in income raked in by cargo shipping services providers at a tune of a tight supply, the central bank said.
Meanwhile, the central bank’s reserve assets rose only US$260 million as the bank entered the foreign exchange market by selling the U.S. dollar to cap the depreciation of the Taiwan dollar against a strong greenback.
Source : Focus Taiwan News Channel