TWD likely to outperform KRW amid intensifying US-China trade disputes, says Scotiabank

The TWD is expected to outperform the KRW amid intensifying US-China trade disputes, while the USD/CNY currency pair is likely to test 7.20 if the PBoC decides to set USD/CNY much higher than 7.0730 in the coming sessions, according to the latest research report from Scotiabank.

Foreign investors could turn net sellers of Taiwanese shares again amid escalating US-China trade tensions, imposing upward pressure on USD/TWD spot and points in the coming sessions.

When external uncertainties fade away, however, USD/TWD spot and points will likely resume its downward trend on the back of 1) concerns over an extra currency-risk capital charge of 6.61 percent on the bond ETFs; 2) more investment by local firms returning from mainland China amid the trade disputes and; 3) increasing remittances due to the passage/implementation of the Act on the Use and Taxation on the Inward Remittance of Overseas Funds.

The prolonged US-China trade disputes have boosted investment by Taiwanese firms returning from mainland China, which has amounted to TWD615.2 billion as of October 7 and could reach TWD700-800 billion by the year-end, the report added.

In addition, there will be increasing remittances due to the implementation of the Act on the Use and Taxation on the Inward Remittance of Overseas Funds.

Meanwhile, the two-year Act effective on August 15, 2019 will likely attract TWD130 billion, TWD420 billion and TWD890 billion respectively in the worst-, average- and best-case scenario, according to the official estimate. As of October 2, a total of TWD1.8 billion remittances have been approved, Scotiabank further noted in the report.