Taiwan Dollar, Stocks Slump as Global Recession Damps Exports

By Bob Chen

Dec. 22 (Bloomberg) -- Taiwan’s dollar weakened the most in seven years and stocks slumped on signs a global recession is cutting demand for the island’s electronics goods.

The island’s currency retreated against the U.S. dollar after its biggest weekly advance in a decade, before a report tomorrow that will probably show export orders fell the most since 2001. Hon Hai Precision Industry Co., the world’s largest contract maker of electronics, announced job cuts and Chairman Terry Gou told the United Evening News that the recession was three times worse than the company expected.

“Exports have been in a bad shape,” said Cindy Wang, a currency trader at Bank SinoPac in Taipei. “Gains in the local dollar are negative for competitiveness of exports.”

The local dollar weakened 1.2 percent to close at NT$32.930 against its U.S. counterpart at 4 p.m. local time, according to Taipei Forex Inc. That was the biggest drop since May 28, 2001. The currency rose 2.4 percent last week. The Taiex index lost 3.4 percent to close at 4,535.54, the most since a 3.7 percent drop on Dec. 12, after rising 4.8 percent last week.

“Terry Gou’s comment on the economy raised concerns among some local investors,” said Robyn Hsu, who helps manage $4.9 billion funds at Capital Investment Trust Corp. in Taipei.

Export Slump

Export orders fell 13.6 percent in November from a year earlier, a Bloomberg News survey showed before a government report tomorrow. Another report tomorrow may show industrial production declined 15.7 percent last month from a year earlier, the biggest drop since September 2001, a separate survey indicated.

Japan’s exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. The drop was the sharpest since comparable data were made available in 1980.

“Asian forecasters have been overestimating growth in recent months,” said Sean Callow, a currency strategist with Westpac Banking Corp. in Sydney. “I would say the market has not fully priced in the 2009 outlook.”

Taiwan’s authorities signaled they weren’t alarmed by the decline. Taiwan’s dollar is “relatively stable,” the Central Bank of the Republic of China (Taiwan) in Taipei said today. Policy makers last week intervened to check the currency’s advance, the China Times reported on Dec. 19.

The central bank bought U.S. dollars last week after exporters complained the local currency’s strength is hurting them, the Taipei-based Chinese-language newspaper said, citing traders it didn’t identify. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

Bonds Decline

Taiwan’s 10-year government bonds fell for a third day before the finance ministry’s auction of NT$40 billion ($1.23 billion) of the debt tomorrow.

“Over the past week the market has reflected the negative sentiment toward tomorrow’s bond sale,” said Ernest Lee, a debt trader at Mega Securities Co., in Taipei. “The increasing amount of bonds is a bearish factor.”

The yield on the 2.125 percent bond maturing in September 2018 climbed 3.1 basis points to 1.441 percent, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. Its price fell 0.2876, or NT$287.6 per NT$100,000 face amount, to 106.1826. A basis point is 0.01 percentage point.

To contact the reporter on the story: Bob Chen in Hong Kong at bchen45@bloomberg.net