Taiwan Billionaires Send Cash Home as Currency Climbs

By Yu-huay Sun and Lilian Karunungan

Nov. 12 (Bloomberg) -- The biggest inflow of capital to Taiwan in four years is prompting investors to bet that the central bank will give up efforts to keep the world’s second- worst performing major currency from strengthening.

Pictet Asset Management, which oversees $3.9 billion of emerging-market debt, added to holdings of Taiwan’s dollar last month even as the central bank stepped up sales, limiting gains in 2009 to 1.7 percent. A Nov. 10 ban on foreigners’ opening of time deposits won’t hurt investment in the island’s markets, HSBC Holdings Plc said. The bank predicts the currency will rise 11 percent against the U.S. dollar by the end of 2010.

Billionaires from Tsai Eng-meng, who earned $3.6 billion selling rice crackers made at China-based factories, to Wei Ing- chou, whose Chinese noodle business earned him $3.2 billion, are sending money home after President Ma Ying-jeou reversed his predecessor’s stance that such investment made Taiwan too dependent on the mainland. Overseas investors also bought $11.8 billion more Taiwan shares than they sold this year through yesterday, helping lift the Taiex stock index 67 percent.

“We expect funds to come back into Taiwan,” said Wee-Ming Ting, the head of Asian fixed income at Pictet Asset, the investment unit of Pictet & Cie, Switzerland’s largest closely held private bank. “At some point, the central bank has to step away.”

Capital Inflows

Taiwan’s central bank has sought to prevent inflows from pushing up the currency and making Taiwan’s exports uncompetitive amid a global recession. Funds from China are increasing as Ma’s government pushes for an agreement that would allow mainland investors to buy the island’s stocks, acquire stakes in companies and build ports and airports. China says Taiwan is part of its territory, though the two sides have been ruled separately since a civil war in 1949.

Taiwan’s financial account surplus, which gauges investment flows, in the July to September period probably matched the $4.65 billion of the second quarter, which was the highest since 2005, Singapore-based Action Economics estimated before a Nov. 20 report. That compares with an average deficit of $1.5 billion in the past decade, central bank data show.

The Central Bank of the Republic of China (Taiwan) has intervened in markets by arranging purchases of U.S. dollars. Foreign-exchange reserves rose by $63 billion in the past year to $341.2 billion, according to a Nov. 5 central bank report. October’s increase of $9 billion was the biggest this year.

Holding Pattern

The Taiwan dollar traded within a range of NT$33.2 per dollar and NT$32 for the past six months, and was at NT$32.266 today. Its gain for 2009 compares with a 36 percent increase for the Brazilian real and a 35 percent climb for the Australian dollar. Only the yen rose less with a 0.5 percent advance.

The 12-month non-deliverable forward contract for the currency has risen 10 percent in the past eight months to NT$31.09, pricing in a 4 percent appreciation. Forwards are agreements to buy and sell assets for delivery at a specified time. Non-deliverable contracts are settled in dollars.

Gains in the currency may be gradual, making Taiwan bonds a better way of investing than NDFs, said Warren Hyland, a money manager in London at Schroder Investment Management Ltd., which oversees $200 billion in assets. Hyland forecasts the currency will be as strong as NT$27 per dollar in two years’ time.

“The Taiwanese central bank is very determined not to appreciate the currency and seems to set a limit of NT$32,” he said. “It has been very difficult for me to make money.”

‘Sitting Idle’

Central bank Deputy Governor George Chou said on Nov. 10 the ban on opening time deposits will “make sure” foreign investors return to placing their money in capital markets. Governor Perng Fai-nan said Oct. 14 that overseas investors have NT$500 billion ($15 billion) of funds “sitting idle,” which may be used for speculation.

Pictet’s Ting said the central bank will scale back intervention to avoid flooding the market with its own currency as growth returns. Taiwan’s economy may expand in the October- to-December period after contracting for five straight quarters, the statistics bureau said in August.

Overseas sales dropped 4.7 percent from a year earlier in October, the smallest decline since September 2008, the Finance Ministry said on Nov. 9. Shipments to China, Taiwan’s biggest market, rose 9.8 percent from a year earlier.

“The balance the central bank has to play is to attract capital inflows without stalling exports,” said Robert Reilly, the co-head of fixed-income at Societe Generale SA in Hong Kong. SocGen recommends buying the currency against the Swiss franc.

‘Driving Force’

HSBC’s forecast of NT$29 by the end of 2010 is the most bullish in a Bloomberg survey of 13 strategists. The median is for the Taiwan dollar to appreciate 6 percent.

“So far foreigners have played a role in pushing the currency higher,” said Perry Kojodjojo, a strategist at HSBC, Europe’s largest bank. “In 2010, the driving force will be the wealthy Taiwanese who have kept their money offshore.”

Wei Ing-chou’s Ting Hsin International Group recently increased its stake in Taipei 101, East Asia’s tallest building, to 37 percent from 32 percent, according to Michael Liu, spokesman for the skyscraper’s owner. Frank Lin, chief financial officer at Wei’s noodle maker Tingyi Holding Corp., said direct flights had made it easier to shuttle between Taiwan and China, while declining to discuss the Wei’s investments.

Belief in Future

Tsai Eng-meng, chairman of rice-cracker maker Want Want China Holdings Ltd., bought the island’s second biggest business daily last year. Tsai didn’t respond to e-mails and telephone calls seeking comment. Tsai is the third-richest man in Taiwan and Wei is the fifth, according to Forbes Asia magazine.

“Nobody used to believe in the future of the country and when entrepreneurs made money they would just take it out,” said Neo Teng Hwee, Singapore-based head of portfolio management for Asia at Bank Julius Baer, which oversees about $141 billion in assets. “This year we are seeing more of the offshore money coming back.”

Julius Baer bought property and bank stocks in May.

Mainland-based Taiwanese companies invested NT$35 billion on the island in the first nine months, 88 percent more than in 2008, the economic ministry said in an e-mailed response to questions. The government in Taipei estimates that Taiwanese investments in the mainland exceed $150 billion.

As recently as July 2008, Taiwan companies were barred from investing more than 40 percent of their net worth in China. During the era of martial law between 1949 and 1987, Taiwanese businessmen could be tried for treason by their government for investing in China.

“It’s a trend for relatively successful China-based Taiwanese businesses to come home with glory,” said C.Y. Huang, head of investment banking for the greater China market at Polaris Finance Group, which controls Taiwan’s biggest investment trust company. “There’s a peace dividend.”

To contact the reporters on this story: Yu-huay Sun in Taipei at ysun7@bloomberg.net; Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.