Recently, I reviewed the recent interest rate hikes in the United States, and indeed, they have had a significant impact on us Taiwanese investors.

Let's start with the background. The U.S. began raising interest rates in March 2022, and by the end of 2023, they had increased by 20 basis points, with rates jumping from near 0% to over 5%. During that period, the Federal Reserve was very aggressive, raising rates by 75 basis points four consecutive months in 2022, aiming to curb inflation that had soared to a 40-year high.

What is the most direct impact of rate hikes on us? The depreciation of the Taiwanese dollar. After the U.S. raised interest rates, the dollar became more valuable, and foreign investors rushed to buy dollars to deposit in banks for interest, resulting in the Taiwanese dollar becoming cheaper and cheaper. In 2022, the Taiwanese dollar depreciated by 11% against the U.S. dollar, which is no small matter.

The depreciation of the Taiwanese dollar triggered a chain reaction. Imported goods are priced in U.S. dollars, and the dollar's appreciation directly pushes up prices. Taiwan imports 22.8% of its agricultural products from the U.S., so you'll notice that eggs and feed are all rising in price. The Central Bank of Taiwan also raised interest rates five times, but the magnitude was far less than the Federal Reserve, making it impossible to stop the Taiwanese dollar from falling.

The most painful part is capital outflow. Imagine you are a foreign investor, exchanging dollars for Taiwanese dollars to buy Taiwanese stocks, but then the Taiwanese dollar depreciates, and after calculations, you still lose money. Wouldn't you sell your stocks and exit? In 2022, Taiwan's stock market experienced capital outflows of $41.6 billion, ranking first in Asia, with the weighted index dropping 21%.

However, rate hikes are not all bad news. Financial stocks actually benefited because the interest margin widened, increasing bank profits. For example, Taiwan Cooperative Bank's interest income surged by 38% in 2022, and its stock price also rose by 20%.

So, what should ordinary investors do? My advice is threefold. First, invest directly in U.S. dollars. In a rising interest rate environment in the U.S., dollar appreciation is the most certain return. Contracts for Difference (CFDs) are a good option, allowing small-scale participation. Second, adjust your stock portfolio by reducing overvalued stocks and increasing holdings in financial stocks. Third, consider shorting the Nasdaq 100 index to hedge against the risks of the Taiwanese stock market, as Taiwan stocks and U.S. stocks are highly positively correlated.

Looking back, the U.S. interest rate hike cycle is nearing its end, and such times often see reversals. The key is to grasp the rhythm and not be scared by short-term fluctuations. If you're interested, you can check relevant asset trends on Gate and find investment opportunities that suit you.