The New Taiwan Dollar's appreciation triggers linked pressure, and industry risks emerge.

After Taiwan and the US released their first joint currency exchange rate statement, the NT$ foreign exchange market experienced noticeable changes. The market opened today morning at 31.13 yuan, appreciating by 2 points in the short term, but the gains soon narrowed, resulting in significant volatility throughout the day. According to market analysts, if the NT$ to USD trend reverts to the strong appreciation seen in early May 2022, it could exert coordinated pressure on multiple industries in Taiwan.

Increased Exchange Rate Volatility, Central Bank Faces Stability Challenges

The NT$ non-deliverable forward foreign exchange jumped by 4角 immediately after the statement was released, reflecting a significant shift in market expectations for the exchange rate. The large daily fluctuation has already put pressure on the foreign exchange market, and the market generally anticipates the central bank will intervene appropriately. Based on past experience, the NT$ once appreciated to around 28 during tariff negotiations. While the current level at 31 does have room for further appreciation, the central bank is expected to take suitable actions to suppress excessive volatility, and in the short term, the NT$ is expected to fluctuate within the 30 yuan range.

CITIC Financial Holding’s spokesperson stated that, referencing the experience of neighboring countries like Japan and South Korea signing similar statements, such measures may not necessarily lead to drastic exchange rate fluctuations. However, if the NT$ continues to strengthen, it could bring complex impacts across various sectors of the economy.

Corporate Profit Pressures, Multi-Industry Facing Dual Challenges

Traditional industries will face dual pressures from tariffs and exchange rates. If the NT$ appreciates too much, export competitiveness will be significantly weakened, and the margins of traditional manufacturing industries will be compressed.

Life insurance companies holding large amounts of foreign currency assets will see book value losses as the NT$ appreciates. According to CITIC Financial Holding’s latest financial report, the company’s cumulative pre-tax profit reached NT$69.96 billion, with a net profit of NT$60.76 billion, and an after-tax earnings per share of NT$3.06. The return on equity remains high at 17.46%. However, under unfavorable exchange rate conditions, financial performance may face downward pressure.

In the tech sector, challenges are also evident. Although TSMC and other leading wafer foundries opened higher today, with the weighted index rising over 200 points in the early session, recent foreign selling has exceeded NT$300 billion, making it difficult for the index to effectively break through the 28,000-point level. Market funds have shifted from AI-related stocks to memory chip groups, with clear rotation patterns. In the context of NT$ appreciation, valuation bubbles in tech stocks could further expand.

Market Focus and Short-Term Outlook

This week, the market will focus on NVIDIA’s earnings report and the settlement of the Taiwan index futures, which will directly influence the subsequent trend of the Taiwan stock market. It is expected that the Taiwan stock index will remain volatile at high levels in the short term. Investors should closely monitor the potential impacts of NT$ to USD exchange rate fluctuations on various industries and adjust their investment portfolios accordingly based on industry characteristics.

Overall, if the NT$ to USD trend in 2022 continues to appreciate, the Taiwan stock market may face systemic correction risks. The central bank’s policy stance and market participants’ response strategies will be key factors in determining the future direction.