Taiwan’s currency may soon replace its mainland peer as the region’s favoured carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast, the island’s central bank can afford to be more relaxed as any weakness in the local currency ends up benefiting the export-driven economy, and can attract artificial intelligence-led capital flows into local stocks.
The Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility.
A strategy of borrowing the island’s currency to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns.
