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Taiwan Dollar Gains on Improving China Relations; Bonds Fall

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By Carmen Ng and Yu-huay Sun

April 1 (Bloomberg) -- Taiwan’s dollar strengthened for a second day on speculation trade with China
will improve after a newspaper reported the two militaries will meet for the first time in August.
Government bonds fell.

The currency added to March’s biggest gain against the U.S. dollar in a year, on optimism better
relations with the mainland will help boost demand for Taiwan’s exports, which have slumped for six
straight months. Chinese and Taiwanese officials will meet in Hawaii at a military exchange seminar
organized by the U.S. Asia-Pacific Center for Security Studies under the U.S. Pacific Command, the
Beijing-based China Daily said yesterday, citing an unidentified China defense official.

“We’ve been seeing some positive risk appetite for emerging-market assets for the past few weeks,
but this time the talks about stronger ties between Taiwan and China are justifying appetite for the
currency,” said Sebastien Barbe, Hong Kong- based head of emerging-market strategy at Calyon,
the investment- banking unit of France’s Credit Agricole SA.

Taiwan’s dollar rose 0.2 percent to close at NT$33.835 against the U.S. currency, according to Taipei
Forex Inc. The currency gained 3.1 percent in March. The island’s Taiex index of stocks rose 2
percent today.

Taiwan has been a flashpoint in U.S.-China relations since the end of a civil war in 1949, when the
defeated Kuomintang government fled to the island after the Communist victory on the mainland.
Tensions between China and Taiwan eased after the election of Taiwanese President Ma Ying-jeou a
year ago, the U.S. top Pacific commander, Timothy Keating, said on March 24.

Stock Sales, Exports

The currency is down 3 percent this year as foreign investors’ appetite for risk waned amid the
deepening global recession that is reducing demand for Asian goods. Overseas funds sold more of
the island’s equities than they bought for a fourth straight day, according to stock exchange data.

Taiwan will report export numbers for March on April 7. Overseas sales declined 28.6 percent in
February following a record 44 percent slump the previous month, the government said on March 9.

“I would remain a bit bearish on the currency,” said Barbe at Calyon. “We’re still seeing a lot of
uncertainty, such as the banking performance in the U.S. and a correct down in the second quarter
won’t be surprising.”

Bonds Decline

Taiwan’s 10-year government bonds fell for a second day on speculation traders were preparing to
move funds to new debt to be auctioned this month.

The Ministry of Finance plans to sell NT$40 billion ($1.2 billion) of five-year bonds on April 21, with
pre-auction trading starting on April 3.

“Some people will come out to trade when trading of the new debt starts,” said Leo Sun, a trader at
China Bills Finance Corp. in Taipei. “The current benchmark 10-year debt isn’t moving much lately.”

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The yield on the 1.375 percent bond maturing March 2019 climbed one basis point to 1.55 percent
as of the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan’s biggest exchange
for bonds. Its price fell 0.086, or NT$86 per NT$100,000 face amount, to 98.4114. A basis point is
0.01 percentage point.

To contact the reporters on this story: Carmen Ng in Hong Kong at cng98@bloomberg.net;

Yu-huay Sun in Taipei ysun7@bloomberg.net

Last Updated: April 1, 2009 04:46 EDT

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