Foreign investors sold Taiwan stocks heavily in March, the central bank prevented the New Taiwan dollar from depreciating, and Taiwan’s foreign exchange reserves fell below $60 billion.

Amid recent geopolitical conflicts such as the Iran war, risk-off sentiment has intensified in global financial markets. Foreign investors sold Taiwanese stocks heavily in March, and funds totaling as much as $24 billion were withdrawn. According to the latest data released by the central bank, Taiwan’s foreign exchange reserves decreased by $8.6 billion from the previous month in March, falling to $596.89 billion. This was Taiwan’s largest single-month drop in the past 15 years, mainly reflecting the costs incurred by the central bank to maintain stability in the New Taiwan dollar exchange rate while intervening to adjust the market.

Foreign investors withdrew $24 billion in March, setting a record high

With tensions in the Middle East growing recently, risk-off sentiment has intensified across global financial markets, which in turn has influenced the movement of capital flows within Taiwan’s capital markets. Due to foreign investors withdrawing funds based on risk considerations, foreign investors’ net outflows in March reached $24 billion (about NT$767.52 billion), reaching an all-time high. This included $3.12 billion in principal outflows and $20.88 billion in surplus outflows.

The Taiwan central bank stepped in to curb depreciation of the New Taiwan dollar; foreign exchange reserves fell below $600 billion

Affected by risk-off sentiment triggered by the Middle East conflict and a surge in oil prices, the New Taiwan dollar was dealt a heavy blow, with large amounts of capital leaving local stock markets. During the March peak of the conflict, the New Taiwan dollar to the U.S. dollar exchange rate at one point nearly reached 32.2. To maintain stability in the overall economy and the exchange-rate market, the central bank intervened to a moderate extent, resulting in a relatively sharp decline in foreign exchange reserves in March. Based on data released by the central bank, at the end of March, foreign exchange reserves amounted to $596.886 billion, ending a three-month streak of increases and dropping by $8.601 billion, the largest change since the European sovereign debt crisis in 2011.

The funding pool remains ample, and foreign exchange reserves have a high level of defensive capability

Although foreign exchange reserves fell below the $600 billion threshold in March, from a macroeconomic perspective, Taiwan’s current level of liquidity still remains highly resilient. The absolute size of $5,968.9 billion still places Taiwan among the leading tier internationally, demonstrating Taiwan’s strength built on long-term current account surpluses. At the same time, Taiwan’s ratio of short-term external debt is extremely low. This indicates that Taiwan’s buffer capacity to withstand external financial shocks remains abundant.

Cai Kong-min, Director-General of the Central Bank’s Foreign Exchange Bureau, said that although foreign investors’ outflows have created downward pressure on the New Taiwan dollar, Taiwan’s ongoing expansion of its current account surplus continues to grow, and with exporters having “dollars in hand,” both can provide support for the New Taiwan dollar exchange rate.

This article, “Foreign investors sold Taiwanese stocks heavily in March; the central bank curbed the New Taiwan dollar’s decline; Taiwan’s foreign exchange reserves fell below $600 billion,” first appeared on Lian News ABMedia.