Recently, I've been pondering a question: what does the U.S. interest rate hike really mean for us Taiwanese investors? I’ve noticed that many people actually don’t have a clear understanding.

First, let’s talk about the situation in the U.S. The Federal Reserve started a aggressive rate hike cycle in 2022, and the pace was really fast and fierce. In just over a year, interest rates jumped from near zero directly to over 5%, a cumulative increase of 500 basis points. In 2022, they even unprecedentedly raised rates by 75 basis points four months in a row, which is very rare in history. At that time, inflation hit a 40-year high, forcing the Fed’s hand.

So, how big is the impact of U.S. rate hikes on Taiwan? I think this is a question every Taiwanese investor should seriously consider.

The most direct effect is on the exchange rate. The U.S. dollar appreciates, and the New Taiwan dollar depreciates—that’s an inevitable result of rate hikes. Why? Because when U.S. interest rates are high, capital worldwide wants to buy U.S. dollars and deposit them in American banks to earn interest, causing the dollar to appreciate. In 2022, the U.S. dollar index rose by 8.5%, while the Taiwan dollar depreciated by 11% against the dollar. The numbers may seem small, but the impact on import and export trade is huge.

The most immediate consequence of the NT dollar’s depreciation is rising import prices. Taiwan imports 22.8% of its agricultural products from the U.S., and commodities like corn and feed are bought with dollars. When the dollar appreciates, prices go up directly. In 2022, Taiwan’s food CPI rose by 6%, with eggs soaring by 26%. Ordinary people feel this inflation pain most acutely.

Looking at the stock market, U.S. rate hikes have a tangible impact on Taiwan’s stock market. In 2022, Taiwan experienced a capital outflow of $41.6 billion, ranking first in Asia. The Taiwan Weighted Index fell by 21%, making it the sixth worst performer globally. Why? On one hand, the NT dollar’s depreciation caused foreign investors to withdraw; on the other hand, Taiwan’s central bank was forced to follow suit and raise rates, pushing up local interest rates, which naturally lowered stock valuations.

But there are also opportunities here. In a rising interest rate environment, financial stocks tend to perform well. Banks’ interest spread widens, boosting profits significantly. For example, Taiwan Cooperative Bank’s interest income grew by 38% in 2022, and its stock price also increased by 20%. So, U.S. rate hikes aren’t entirely negative for Taiwan—key is how you respond.

As an investor, my advice is this: first, investing in U.S. dollars is the most straightforward way to benefit. The logic of dollar appreciation is clear, and the risks are relatively controllable. Second, adjust your stock portfolio—reduce holdings in overvalued stocks and increase positions in financial stocks with high dividend yields. Third, consider shorting indices to hedge risks; Taiwan stocks and the Nasdaq are highly correlated, so shorting U.S. stock indices can offset losses from Taiwan stocks.

Finally, I want to say that the rate hike cycle will eventually end. The end of a rate hike cycle is often a good opportunity for a stock market rebound—this is a historical pattern. So, although U.S. rate hikes are short-term negative for Taiwan, if you understand the logic behind it and adopt the right strategies, you can actually profit from it. The key is to stay in sync with the market rhythm and not be scared by short-term volatility.