Taiwan & HK: Butterfly Wings & Chaos?
Investment Conclusion.
The Taiwanese dollar (TWD) and the Hong Kong dollar (HKD) are under upward pressure. There are idiosyncratic reasons for this delved into below. But the real culprit is the fall of confidence in the USD.
We need to monitor systemic risk from over exposure to USD assets and asset/liability currency mismatches as much as hard data for the “real” economy. There are plenty of loops for asset damage to flow to the “real” economy instead of the other way around.
Most important for the longer term is that we are experiencing the first credible challenge to the USD as both global reserve currency and as a safe haven currency. The reasons are as much the mechanical result of shrinking the US current account deficit as of geopolitics and domestic policies. But they all go in the same direction. While you are waiting for that to happen stay short USD currency and US assets!