The Taiwan dollar climbed twice as fast as the Chinese yuan,

The Taiwan dollar rose twice as fast as the Chinese yuan in the past three months, to reap the benefits of strengthening trade and investment ties with the fastest growing economy in the world.

the island's currency appreciated 5.6 percent against the dollar since Aug. 20, while the yuan has risen 2.2 percent as Chinese President Hu Jintao said earlier this month exchange rate change of policy will be "gradual." Taiwan's economy expanded 9.8 percent in the third quarter, completing its longest stretch of overcoming the mainland in 19 years.

Taiwan's currency stock data gathered showed foreigners bought a net $ 1.7 billion of equities since the beginning of November, boosting net purchases this year to $ 6.3 billion, after the government signed a trade agreement with China in June. Compared investors betting on yuan appreciation pace as China deflects criticism of his monetary policy in the Group of 20 in Seoul on 12 November.

"The trade pact has made relations between Taiwan and China closer together, making it a very good indicator for the yuan," said Samson Tu, who helps manage the equivalent of U.S. $ 1.6 billion stock bonds in Taipei at the Uni-President Assets Management Corp. and the purchase of corporate bonds in Taiwan dollars. "China's booming economy will mean more appreciation of the Taiwan dollar."

Thaw relations

Relations have improved since Taiwan President Ma Ying-jeou, won elections in March last year, abandoning his predecessor's stance in favor of independence. The island has enjoyed autonomy since the Nationalists of Chiang Kai-shek fled the mainland in 1949 after losing to Mao Zedong's communists in a civil war. Under the trade agreement, China agreed to open markets in 11 sectors such as banking services and lower tariffs on imports from Taiwan valued at $ 13.8 billion last year, or about 16 percent of the total.

Taiwan's economic growth of 9.8 percent in the three months through September, followed by expansion of 12.9 percent in the second quarter and 13.7 percent in the first. The figures were faster than similar types of China's 9.6 percent, 10.3 and 11.9 percent, the longest streak of outperformance since 1991.

The Taiwan dollar rose 0.2 percent to NT $ 30,628 after 17:40 local time, while the yuan has changed little to 6.6416. the island's currency has climbed 11 percent in the last five years, well below the 22 percent gain in the Chinese yuan. The correlation between the Taiwan dollar and the yuan rose to 0.65 in October from 0.17 the previous month. A reading of 1 means the two currencies moved in unison.

Forward Cues

The 12-month forward delivery without betting the yuan reflects rise by 2.9 percent to 6.4625 over a year, while contracts for the Taiwan dollar indicate an increase of 3.7 percent to NT $ 29.53 .

The annual cost of insuring the debt of China in foreign currency for five years with credit-default swaps fell 2 basis points on November 19 to 60, according to CMA prices. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if the government fails to adhere to its debt agreements. Taiwan has no similar contracts.

Taiwan's benchmark 10-year yield of 1.37 percent from 3.74 percent in China and 2.89 percent in U.S. Treasury bonds due in 2020. island populations have joined with the TAIEX index closing at the highest since Nov. 10 June 2008.

"It is improving Taiwan's ties with China, which makes the shares attractive," said Yosuke Mimaki, a fund manager in Tokyo at Sumitomo Mitsui Asset Management Co., which has 128 billion U.S. dollars of assets under management, including shares of Taiwan.

Flood of investment

Taiwanese companies have invested 8.7 billion U.S. dollars in China over the past nine months, compared with $ 6.1 billion in 2009, according to the Chinese offshore island and the Foreign Investment Commission. It sold a record NT $ 344 300 000 000 of bonds this year, helping to fund expansion in China. Taiwan's shipments to China jumped 18 percent in October from the previous year, representing more than 26 percent of all overseas orders.

Taiwan's Foxconn Technology Group, whose flagship of Hon Hai Precision Industry Co. makes iPhones for Apple Inc. and Dell Inc. said Aug. 18 it planned to add 400,000 more personnel to its nearly 1 million workers in China in 2011 .

"Many Taiwanese companies have large manufacturing segments in China," said Erik Lueth, a senior Hong Kong economist at Royal Bank of Scotland Group Plc, which forecasts the Taiwan dollar will be at NT $ 29.5 in late 2010. "The product mix of China and Taiwan are much more similar to other Asian economies."

Investment Limits

China has foreign exchange controls in place that have deterred foreign investment funds yuan in debt, allowing the currency to trade only within a certain range and majority foreign investment in their markets through quotas. The central bank said it would raise the reserve ratio requirement for banks in the nation by 50 basis points, or 0.05 percentage points, from 29 November, following its purchases of foreign money flooded the economy with cash.

Taiwan has also acted with the failure of regulators on 9 November that offshore funds can only invest up to 30 percent of its debt portfolio in the island. The central bank said Oct. 19 it will step in when the currency market "overshoot." The Taiwan dollar has risen more than 1 percent on the day of the last 14 days, only to lose most of their profits in the last minutes of trade. Spencer Lin, head of foreign central bank of Taiwan, declined comment.

"A little more liquidity and less regulation would make me consider adding the Chinese yuan and the Taiwan dollar to my bond portfolio," said Kei Katayama, who helps oversee the equivalent of 55.7 billion U.S. dollars as group leader foreign debt in Tokyo at Daiwa SB Investments Ltd., a brokerage unit of Japan's second largest.