Taiwan Dollar Joins Stocks in Quarterly Rally on Economic Growth

Taiwan’s dollar had the biggest quarterly advance in more than two years and stocks rallied as foreign investors boosted equity holdings amid optimism the island’s economic expansion is gathering pace.

Global funds bought $7.1 billion more Taiwanese equities than they sold in the past three months, the biggest inflow in such a period since 2009, exchange data show. The government last month raised its 2014 growth forecast to 2.98 percent from February’s 2.82 percent. Taiwan will hold municipal elections in November, while Apple Inc.’s new products may benefit the island’s suppliers, according to Goldman Sachs Group Inc.

“Domestic data has strengthened,” said Eddie Cheung, a currency strategist at Standard Chartered Plc in Hong Kong. “Heading into the second half, there may be more inflows pre-positioning for elections and tech launches.”

The local dollar appreciated 2 percent this quarter and 0.2 percent today to NT$29.915 against its U.S. counterpart, prices from Taipei Forex Inc. show. That’s the biggest advance since the period ended March 31, 2012. The Taiex share index jumped 6.2 percent in the past three months, poised for a sixth quarterly advance, the longest stretch of gains since 2007.

The island’s economy expanded at the fastest pace since 2012 in the first quarter, official data show. Sustained equity inflows combined with stronger external demand in the third quarter will boost the currencies of export-oriented economies such as Taiwan, according to Cheung.

The Taiex index added 0.9 percent today to 9,393.07, the highest close since November 2007. Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry Co. contributed the most to the benchmark’s gain in the second quarter, climbing 6.8 percent and 16 percent respectively.

Volatility Drops

One-month non-deliverable forwards on the local dollar climbed 2 percent since the end of March to NT$29.835 and were steady today, data compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, slid 105 basis points, or 1.05 percentage point, in the past three months to 2.55 percent and increased two basis points today.

Government bonds rose for a third quarter, with the yield on the 1.5 percent notes due March 2024 falling one basis point to 1.585 percent, according to prices from GreTai Securities Market. The rate rose one basis point today.

To contact the reporter on this story: Justina Lee in Taipei at jlee1489@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma

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