What do Taiwan Insurers and Klaus* have in Common?
*If you don’t know who Klaus is, please refer to “End of American Exceptionalism - Part IV”.
The Taiwanese Dollar (TWD) is stronger by 7% in two sessions and >10% since April.
Normally I wouldn’t care about the Taiwanese Dollar, but this is quite relevant to our central thesis of “The End of American Exceptionalism”, which in a nutshell, calls for International Investors to rebalance their portfolios away from “All-in US Stocks” to a more balanced portfolio that includes the Rest of the World.
We were early on this Mega-theme of “The End of American Exceptionalism” and, as tempting as it is to call for the “End of the End of American Exceptionalism”, when I see Taiwanese Insurers getting caught in the middle of it, I wonder in which inning we are actually in…
Here’s the quick summary of the Taiwan situation from my buddy
:Taiwan amassed $1.7 trillion in FX reserves and overseas fixed income securities (mostly US Treasuries), which is about >200% of Taiwan GDP
$1 trillion is held privately and $700bln is owned by Insurance companies
The FX mismatch for these lifers is ~$450 billion or 60% of GDP
~$200bln of that $450bln fixed income exposure is UNHEDGED USD or ~25% of GDP
Ooooooooohhhhh…..
So you are telling me, that the Taiwanese Insurance Companies were buying US Assets without fully hedging their currency exposure?! I wonder where I saw that before…. that’s just KLAUS innit!
There is one important difference though: