TWD: July weakness on dividend payment season? – ANZ

The New Taiwan Dollar (TWD) is the best performing Asian currency so far this year, but the month of July tends to see the TWD weaken due to dividend repatriation flows, explains Khoon Goh, Head of Asia Research at ANZ.

Key Quotes

The 6.3% appreciation in the TWD for the year-todate makes it the best performing Asian currency. TWD’s appreciation is on par with the EUR, which is the best performing G10 currency so far this year. Strength in the TWD has been primarily driven by strong foreign inflows into the Taiwan equity market, which the Central Bank of the Republic of China (CBC) noted in their monetary policy statement last week. Equity inflows totalled USD8.9bn over the first half of 2017, an increase of 42% over the same period last year. A strong recovery in Taiwan’s export performance and a positive risk environment in global markets underpinned the equity flows.”

“However, we see the TWD unwinding some of its gains in the month ahead due to: (1) dividend repatriation flows, and (2) equity inflows easing off due to stretched valuations and waning growth momentum.”

“Payout Time

There is a very distinct seasonal pattern for TWD in the month of July. Looking at the period from 2000 to 2016, we note that the TWD tends to weaken against all G10 and Asian currencies with regular consistency. The average TWD decline against the IDR is the largest at 1.4%. However, the result is skewed by the large rally in IDR in July 2001. In terms of frequency, TWD has a strong tendency to weaken against the KRW and SGD in July, having done so in 14 out of the last 17 years.”

“The reason behind TWD weakness in July is due to the repatriation of dividend payments. Companies listed on the Taiwan Stock Exchange usually start to go exdate starting from June and peaking in July, with dividends largely paid out in July and August.”

“In the absence of further upward growth momentum, it is likely that we will see an easing off in foreign equity inflows over the coming months. USD/TWD has recently moved in line with where the TWSE is trading. A slowdown in equity inflows, or even some outflows on the back of profit taking, will see the TWD weakening, particularly with the seasonal dividend repatriation flows. Hence, we can expect some of the gap between the TWD’s outperformance against the rest of the Asian currencies to narrow in the coming month.”