Taiwanese life insurers' portfolios have billions of unhedged dollars
SINGAPORE (Reuters) -Taiwan's currency is at three-year highs after notching unprecedented gains as insurance firms, pension funds and other investors quit U.S. dollar assets or scramble to hedge exposure.
Analysts estimate billions of dollars' worth of hedging or repatriation by life insurance firms could drive the Taiwan dollar even higher.
WHY IT'S IMPORTANT
The latest scramble by Taiwanese life insurers to protect their portfolios reflects an unwinding of massive U.S. dollar holdings by global investors, as U.S. President Donald Trump's chaotic trade policies shake decades of unquestionable faith that investors had in the dollar's dominance.
That means investors based in low-yielding markets such as Taiwan, who for years could count on stable and high dollar yields as well as extra return owing to depreciation in their currencies, are now re-assessing portfolios.
BY THE NUMBERS
Khoon Goh, head of Asia research at ANZ, estimates Taiwanese life insurance companies hold $682 billion of foreign assets, mostly in U.S. fixed income, though he is unsure how much of that they could be selling or bringing home.
UBS analysts say Taiwan's net international investment position, which measures the difference between its external financial assets and liabilities, is "uniquely large" at 165% of gross domestic product as compared to an average of 0% for other emerging Asian economies.
Namik Immelback, chief strategist at SEB Research, estimates that of the $700 billion in foreign assets these life insurance companies hold, only 70%, or $490 billion, is hedged.
Analysts at HSBC said as of last December, the average currency hedge ratio based on their sample of Taiwanese life insurance companies was slightly less than 60%.
The three-month U.S. dollar/Taiwan dollar non-deliverable forward – a common metric used for hedging – fell to its most negative in 17 years on Tuesday, suggesting investors are heavily betting on further appreciation for the Taiwan dollar.
(Reporting by Rae Wee; Editing by Ewan Harwood)
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