Feeling the Pinch: NT Dollar Appreciation Bites Taiwan's Exports and Finances
Increased NT Dollar Strength Posing Threat to Export Sectors
By Staff Writer, with CNA
The New Taiwan dollar's swift rise against the USD is giving a cold shoulder to export-reliant sectors, with semiconductor and auto part manufacturers taking the hardest hit. But it's not just these industries feeling the pinch; life insurance companies are also grappling with the currency's impact on their financial health.
Surging Foreign Exchange Risks for Exporters
If Taiwan's dollar gains an extra cent against the greenback, leading chipmaker ASE Technology Holding Co can lose about 1.5% of its gross margin. The rapid appreciation has been the steasiest daily increase since 2002, and it's proving to be a double-edged sword for exporters.
Manufacturers strive to maintain margins, and currency volatility poses a formidable challenge, especially for players with limited risk management capacities. ASE's reaction to exchange rate swings echoed the sentiments of other prominent chipmakers, TSMC and UMC, who cautioned that they too would suffer from a stronger NT dollar.
As the NT dollar soars, Taiwan's competitive edge takes a hit in US-favored sectors such as semiconductors and auto parts. The higher exchange rate makes Taiwanese products more expensive for international buyers, which could lead to a reduction in export orders and shrink profitability margins.
Financial Fears for Life Insurance Companies
While the semiconductor and auto parts sector faces squeezed margins and uncertain revenues, the strong NT dollar poses unique challenges for life insurance companies. Their investment portfolios often hold foreign assets and liabilities denominated in various currencies, including the USD.
With the NTD's appreciation, the value of foreign currency assets decreases, impacting investment income from overseas holdings and potentially hitting profitability and solvency ratios of life insurers. However, cheaper foreign currency-denominated liabilities can offer some reprieve.
Increased market volatility from heightened foreign capital inflows has added an element of uncertainty to the financial landscape in which life insurers operate. Central bank interventions to curb the "excessive" inflows and stabilize the market further magnify the complexity of the situation.
A Shaky Outlook for Taiwan's Economy
Taiwan's economy is heavily dependent on exports, accounting for around 70% of the GDP, and a stronger NT dollar is causing jitters among exporters who now anticipate a weaker economic performance for 2025. The financial sector, particularly life insurance companies, are grappling with currency-related challenges and opportunities, potentially impacting their profitability and market stability.
Investors should closely monitor Taiwan's foreign exchange market and examine how leading corporations and financial institutions adapt to the continuing NT dollar rise to anticipate market trends and make informed investment decisions.
- The strong NT dollar poses challenges for life insurance companies as their investment portfolios often hold foreign assets and liabilities denominated in various currencies, including the USD.
- In the financial sector, life insurance companies are grappling with currency-related challenges and opportunities, potentially impacting their profitability and market stability due to the NT dollar's appreciation.
