seb report: buy or sell dollars vs asia?

7/28/2019 SEB report: Buy or Sell dollars vs Asia?

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You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are

given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changesmay be made to opinions or information contained herein without notice.

Buy or Sell USD vs Asia?WEDNESDAY

26 JUNE 2013

EDITORSean Yokota

Head of Asia Strategy

[email protected]

+65 6505 0583

Focus: Buy or Sell USD vs Asia? Were all US bond traders. Going into and after Mr. Bernankenoted that the bond purchases would moderate later this year and end around mid 2014, US yieldshave dictated the sell-off in Asian assets. At this juncture, do we join the trend? What should wedo going forward? We are biased for a stronger USD but short term we like relative value tradessince we dont have a huge edge in forecasting US Treasuries. In currencies, we like CNY, TWD and

dislike THB and KRW. For Asian currencies to start outperforming USD, we need to see Asiangrowth reaccelerating or Asia putting up higher real yields. Were not there yet.

Asia FX Portfolio We have had a tough month in June and are down -1.4% for the year. All ofour losses came in the JPY short correction where we lost 2.4% in the portfolio (see Asia StrategyComment: Japan: The Silent Treatment; June 13, 2013). On other Asian currencies, we made gainsbeing long USDMYR (+3.7%) and gained carry in being short USDCNH (+6bp). We will look to buildpositions in long CNY and TWD vs KRW and THB.

On JPY, we still prefer to be short but the driver is more focused on USD strength. We thinkAbenomics is mostly monetary stimulus and BoJ has gone against market expectations of furthereasing, which signals that they are comfortable with current policy and market prices. Wed like toshort JPY going into the upper house election in late July but prefer to enter at lower levels. Theupside target in JPY has diminished and we need to be more careful with the entry.

FX Tracker - A look at Asian across asset performance, FX forwards and volatility overthe last month. What stands out?

1) Performance The rise in yields is leading to deleveraging. What stands out is 1) the weaknessin MYR despite the equity market outperforming S&P and only a mild sell-off in the bond market. Itlooks like there was a considerable shift on ownership from foreigners to locals in the bond marketfor it to see such a currency shift and stable bond market. 2) The flattening of the curve inIndonesia and China despite steepening in the US and rest of Asia. These two are the only two

economies hiking short term rates amidst the sell-off and their currencies can become more stableover time CNY, IDR.

2) Forwards Carry has surprisingly not changed much with the exception of IDR, PHP andCNY/CNH. IDR 1M is offering over 50% annualized carry and looks attractive. 1M onshore CNY isalso providing 24% ann. carry. The increase in CNY carry also makes it a top candidate to go longversus other Asian currencies, especially in the 1-6M.

3) Volatility - Vol has obviously jumped but MYR vol has increased more than usual as with thenegative performance. JPY vol is starting to stabilize on a relative basis. The rise in CNH and CNY

ol is still small.v
http://../[email protected]://../[email protected]


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Asia Strategy Focus

Focus: Buy or sell USD vs Asia?

Were all US bond traders. Going into and after Mr. Bernanke noted that the bond purchases would moderate later this yearand end around mid 2014, US yields have dictated the sell-off in Asian assets. At this juncture, do we join the trend? Whatshould we do going forward? We are biased for a stronger USD but short term we like relative value trades since we dont havea huge edge in forecasting US Treasuries. In currencies, we like CNY, TWD and dislike THB and KRW. For Asian currencies to

start outperforming USD, we need to see Asian growth reaccelerating or Asia putting up higher real yields. Were not there yet.

Distinguishing the rise in US yields

The composition of US long end Treasury yields can be broadly divided into three components: expected inflation, short termreal interest rates and term premium (extra return expected from holding longer term bonds compared to rolling over shortterm bonds over the same period). We can roughly strip out inflation expectation from long end yields by looking at the TIPSmarket (Treasury Inflation Indexed Securities). As shown in Chart 1, the recent moves are largely a change in the real yield andlittle to do with inflation expectations.

Within real yield, the change in short term real interest rate outlook is likely the main driver since the increase happened goinginto the FOMC meeting and post the non-dovish comments by Mr. Bernanke. Chart 2 shows how the US treasury yield curve

has shifted upwards since early May and now markets are pricing in interest rate hikes by end 2014.

The third component, term premium has also likely increased since volatility has jumped across assets. Before, when marketvolatility increased, investors bought US Treasuries as a safe haven and diminished the volatility in rates and the termpremium. But this time, the change in Feds policy requires selling US Treasuries and US yield volatility increases with stockssince investors cant escape into US Treasuries.

Chart 1: Rise in US 10yr yield is change in real yield Chart 2: Short and long end rising

Composition of US 10yr yield %

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Inflation expectations

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12M 2Y 5Y 10Y

Current (26-Jun )

(01-May )

Source: Bloomberg, CEIC, SEB

Drivers of Asian currencies

To simplify, two factors drive Asian currencies versus USD: 1) relative growth (profitability) and 2) relativecarry/yield. To hold more unpredictable developing market assets, you need to be compensated by higher growth or yield.Growth is higher in Asia but it has been slowing due to the export slowdown and now we have China decelerating. The growthdriver is negative Asia. However, the focus and the biggest recent change, written above is the second driver, relative realyields. Mr. Bernanke has pushed up US real rates and strengthening the USD vs Asia.

Going forward

Backward looking storytelling is always easy. What about going forward? First, we look at the relative growth outlook. Isnt astronger US economy usually positive for higher beta, export oriented Asian economies? Yes, but we think the relative growthdifferential matters less short term. The stronger currency adjustment through the real economy via better exports andgrowth and higher current account surplus takes longer than capital flows. We dont have evidence of a recovery in Asian

exports yet. Also, we dont think markets have even bought the recovery in US growth and hence, the resulting impact of apotential rise in Asian growth. If markets think that US recovery was certain, we think all three components of the US yield,including inflation expectations would be rising.

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Asia Strategy Focus

Second, within real yield, the relative short term real interest rate outlook is also uncertain. We need to take into considerationthat US yields have been adjusting and the combination with incoming data may sway the Fed to temper marketsexpectations. Weve had some of that already this week. Mr. Bernanke clearly did say in the press conference on June 19 thatI would like to emphasize once more the point that our policy is in no way predetermined and will depend on the incomingdata and the evolution of the outlook. If we get bad payrolls on July 5, US yields can again fall. Furthermore, Bernanke maynot like the impact that rising rates are having on the economy and may lower the 6.5% unemployment rate threshold for ratehikes to push yields lower. Positioning for outcome in US incoming data is a 50/50 bet short term.

Third, the one factor that keeps us biased for stronger USD in the next 6 months is the outlook on US term premium. Mr.Bernanke has clearly removed his put from the markets and has left the markets with more uncertainty with a willingness toexit quantitative easing. We now have a two-way bet in US yields, which we think has increased US term premium. So if we doget weaker US data in the coming months, we dont think rates wont fall as much and keep USD supported.

So all in all, we have a small USD strength bias going forward.

How to position in Asia

We prefer relative value trades with a focus on real yields since market prices have been adjusting and we want to compete in

Asia rather than trading the ups and down in US Treasuries.

Chart 3 shows the real short term market rates in Asia and by design or by accident China, is the winner. Chinas short terminterest rates have jumped on a liquidity squeeze and the government is stating that they want the banks to learn to live withless liquidity and learn to manage risk more prudently (please see Is China risk on the rise?, China Tracker, 20 June 2013).Short term interest rates have come down from over 10% towards 6-7% but it will likely remain above the previous range of 3-4%. China is making up for slower growth by putting up yield and that supports the currency. On the short side, we thinkTHB will be the loser. Thailand has real rates of just 23bps and the central bank has no intentions of hiking interest rates. Inaddition, the government has been pressuring the central bank to cut rates to weaken the currency so they are morecomfortable with a weaker currency.

We also double check this with the underlying fundamentals of Asian economies current account and capital flows. Chart 4

shows, which economies have strong current account positions (that can withstand capital outflow attracted to real yields)relative to positioning measured by the amount of capital inflows received since QE started in 2009. Thailand is vulnerablesince it has lost its current account surplus and had hefty capital inflows. We like to be long CNY and short THB. Along similarlines, we like TWD versus KRW. Taiwan hasnt received any capital inflows and deleveraging wont be an issue whereas Koreahas had good inflow in the bond market. In addition, Koreas relative weak economy will lead to little change in real yields.Lastly, we think KRW will have difficulties since a stronger USD weakens the Japanese Yen and takes growth away in Koreanindustries such as autos, construction services and shipbuilding. We will build these positions over the next several weeks.

What about other currencies? India provides high real yield and high carry in NDF markets. Indonesia also started reactingpositively by hiking interest rates and 1M NDF forward give carry over 30% annualized at one time and looks attractive.However, these two have weak fundamentals as shown in Chart 4 and they are more binary trades or same as trading USTreasuries. Philippines has high growth but we are worried that much of it came from global liquidity and credit growth.

Rising yields can lead to quick deceleration in the economy.

Chart 1: Short term real rates in Asia ranking Chart 2: Current account vs accumulated capital inflow*

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CNY SGD TWD INR PHP THB KRW MYR IDR

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TWD MYR

CNYKRW

PHP

THB

IDR

INRCurrentAccount%o

fGD

Capital and other inflows since June 2009 % of GDP

Safer ones

Source: Bloomberg, CEIC, SEB; *Note SGD is off the scale and safest with current account surplus of 17.5% of GDP and received capital inflow over 50%

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Asia Strategy Focus

To summarize, relative growth and real yield favors USD over Asian currencies. However, markets have moved and withpotential for US data and Fed officials comments changing the USD move short term, we look for relative value trades. We likeplaces with strong current account surplus, low capital inflow positioning and increasing real yields to offset the rise in USyields. We like CNY, TWD and dislike THB and KRW.


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Asia Strategy Focus

Asia FX View Summary

China (CNY, CNH)Macro: The economy is slowing and we expect flat growth with 7.5% growth in 2013 and 2014. We see 3 drivers to the Chineseeconomy a) external demand through exports b) domestic demand measured through construction and c) monetary policy.They are all turning lower. First, exports have and will decelerate since they were elevated from likely over billing to takeadvantage of RMB appreciation. Authorities have clamped this down and exports will decelerate. Also, PMIs remain weakwhere the Markit flash PMI has been below 50 for two straight months. Second, the biggest change well likely see is indomestic demand where our SEB China Construction Indicator has turned down (Chart 10), signalling a slowdown to come.Floor space completed and sold are slowing, which means that inventory is beginning to rise and activity to slow. Lastly, welllikely get a monetary contraction from rise in short term interest rates where the growth rate in bank credit and total socialfinancing will slow (Chart 11). The authorities are scrutinizing corporate bond issuances and limiting certain wealthmanagement products and this in midst of rising yields will slowdown growth (please see our China Trackerpublication formore details).

FX: USDCNY fixing, set by the policymakers have finally started shifting higher with USD strength and Asian currency weakness. Hotmoney inflows have slowed and will likely remain benign as the monetary tightening slowdown the rise in RMB denominated assetslike property. However, as noted above, Chinas real rates have risen with US real rates and CNY should outperform in Asia. The

authorities are still keen on capital account opening and foreign exchange liberalization and we still see a widening of the dailytrading band to +/-1.5% from current 1%. We think NDF will outperform CNH in a period of USD strength and global deleveragingfrom higher US Treasury yields. CNH underlying performance such as bonds is weakening and with an open capital account for CNHproducts, it will sell-off more than the fixing sensitive NDF market.

Chart 10: Construction rolling over Chart 11: Monetary tightening

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Hong Kong (HKD)We dont like HKD and look to use it as a hedge for long Asian currency exposure. USDHKD is trading at the very bottom of the pegat 7.75 and cannot get any stronger from a more positive macro environment. Hong Kong inherits US interest rate policy from thepeg to the USD and low rates have pushed up asset prices in Hong Kong. Rebound in Chinas growth and return of CNY appreciation

has also helped Hong Kong.However, there are risks that HKD can weaken. One, as the US economy recovers, expectations of increase in Feds balance sheetcan be curtailed and longer term yields may start to rise. The rise in rates through the peg will pressure Hong Kong rates to rise andlower Hong Kong priced assets. Both of these will make HKD weaker. Furthermore, long USDHKD can act as hedge if China orgeneral global risk re-emerges. Long USDHKD is also a small positive carry hedge.

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Asia Strategy Focus

India (INR)Macro: India is and has been about the current account deficit and inflation. Despite a slowdown in the domestic economy, importshave not slowed enough and the current account deficit remains. Imports and the trade deficit remain high from populist policiessuch as subsidize fuel prices that have prevent price responses on demand. In a world of volatile capital flows from troubles inEurope and uncertainty in US monetary policy, current account deficit economies like India become vulnerable. That is the badnews. The good news is that inflation has been coming down and with a steady monsoon season, WPI can fall further. RBI hasinstalled series of rate cuts, which can add some fuel to the economy. The trouble now is that with rising US yields, RBI may have todelay rate cuts to relative yields steady. This is important since INR continues to make new highs.

FX: RBI has started to intervene to slow the momentum in INR weakness. If the rise in US yields continues, we think RBI willhave to reverse course and hike interest rates to prevent further INR weakness (or have inflation drop significantly to increasereal yields). The FX interventions are done to buy time. The government enforced import tariffs on gold imports and arehoping that will slow gold imports and improve the trade deficit. Overall, this creates a good opportunity to go long INR butwe stay sidelined until we see US Treasury yields settling.

Chart 12: No reprieve in trade deficit Chart 13: Indias inflation easing

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Trade Balance

ex oil

bn USD

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US PPI WPI India

3mma yoy %


Indonesia (IDR)Macro: The cyclical growth has likely peaked. Indonesia benefited from a clean balance sheet allowing for credit growth that

generated domestic demand (Chart 14). However, credit growth will slow as the central bank is forced to hike interest rates toprevent capital outflow and rise in inflation from fuel price hikes by 44%. This combination of tighter policy and higher fuel prices ispositive long term but short term will crimp economic activity. Indonesia is likely taking the cue from India where combination ofsubsidized fuel and current account deficit can lead to a sudden capital outflow and destabilize the economy. The second slowdownwill come in form of exports since China is going through monetary tightening. As a commodity exporter, the fall in prices andquantity demanded will slow exports and the domestic investments that went into infrastructure associated with mining.

FX: The spot market remains stable from central bank intervention but the NDF market has sold off due to risk aversion andinvestors hedging their FX exposure of their bond holdings. The NDF now provides attractive yields to go long IDR but we remainsidelined because of Chart 15. EM local currency bond index shows that year to date as turned negative and almost erasing the gainsfrom 2012. Redemption pressures are on the rise and investors may have sell the underlying bonds than just hedge their FXexposure, which can hurt the spot market and lead to further sell-off in the NDF market.

Chart 14: Strong loan growth Chart 15: EM bond redemption pressures very low

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Citi Rafi local c urrency bond index


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Asia Strategy Focus

Korea (KRW)Macro: If Mr. Bernanke is right and the US economy recovers, this should help Korea and exports. However, the domestic recoverywill be slower because of Koreas high private debt. As Chart 16 shows, Korea has one of the highest private debt levels in the world.The high debt is the result of relying on credit to sustain a high growth level. With everyone leveraged up, trend domestic growth willlikely fall since Korea has limited room to borrow and grow. In addition, Korea will likely have lower inflation. Korea is the only placein Asia, aside from India where we see interest rate cuts. With less investment, demand for funding will decrease and creates

excess savings, which will drive interest rates lower. By identity, this should also keep the current account surplus stable.FX: KRW will face headwinds from relative rise in US yields. First, the bond inflows will slow since US yields are catching up to Koreanbonds. Second, Korea is also the most impacted by JPY weakness (from USD strength) since it competes head on in autos,construction and ship building with the Japanese. Also, Bank of Korea wont mind having a weaker currency since thecompetitiveness with JPY wont erode. The central bank as usual will be intervening in the markets to prevent rapid weakness inKRW but it will not stop the general direction.

Chart 16: High private debt level Chart 17: Yield differential will weaken KRW

debt % of GDP

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Source: CEIC, SEB

Malaysia (MYR)Malaysias economy will go through a mild slowdown from fiscal contraction. PM Najib gave cash handouts to influence the latestelection and now those impacts will weigh on growth. We would also watch for him to pass unfavourable but positive long term

economic measures such as increase fuel prices, which are also negative short term. Over the medium term, we expect Najib tocontinue with his liberalization plans and especially help the equity market. Malaysias equity market is often expensive sincedomestic funds and public institutions buy and hold Malaysian stocks, which make foreigners reluctant to buy as it is over-priced anddiscourages Malaysian companies from aggressively increase profitability. With domestic institutions divesting, that will force moreforeign inflows and should lead to more efficient Malaysian companies.

MYR will weaken with USD strength but the sell-off should be limited since it runs a steady and large current account surplus and ithas some positive yield to cushion the outflow. However, we are a bit worried if things like fuel price hikes are not passed since thatcan lead to a sell-off in the bond market and foreign bond positioning in Malaysia is relatively high and can lead to foreigners selling.

Philippines (PHP)Philippines had grabbed the attention of many investors from strong performance in the equity, bond and currency market. Lowinflation, abundant global liquidity and credit growth was helping domestic demand. Philippines has also recently received a rating

upgrade to investment grade by S&P and Fitch and becomes another support for PHP. We are worried short term about PHP sinceinterest rates are very low and unlike Indonesia, the central bank is not turning hawkish to prevent capital outflow.

Singapore (SGD)Last year we liked SGD the best but this year we think itll start to underperform. First, cyclically, inflation has eased from over 5% inthe middle of 2012 to below 2%. Inflation is mostly housing and autos (autos are inflated by increased auction price to own a car)and for housing, more cooling measures have been introduced such as increasing stamp duty on home purchases by 5-7 percentagepoints. The measures are preventing a rebound in inflation and greatly reduce the risk of MAS accelerating the pace of appreciationin Octobers policy meeting. Singapores inflation was outpacing its trading partners but it has converged (Chart 20). However,price-wise SGD NEER has corrected and it is trading 20bp below mid. Once it starts to dip to -50bp to -100bp cheaper to mid, wethink there is value to enter into long SGD. Currently, it is still too early.

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Asia Strategy Focus

8

Chart 20: Singapores high inflation easing towards Asia avg Chart 21: SGD NEER has corrected but still strong

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Source: CEIC, Bloomberg, SEB

Taiwan (TWD)Taiwan should benefit from an export recovery in the US heading into year end and the tech heavy equity market should receiveforeign inflow and the economy should continue to recover. Unlike Seoul, Korea, Taipei property prices are still growing around8%yoy and credit growth is at 9.3%yoy. The domestic economy is strong considering exports are growing less than 1%yoy.

TWD has a two step appreciation process in a cycle. Appreciation at the beginning of the cycle is slow while inflation is low andaccelerates towards the end of the cycle once interest rate hikes are well underway. We think the approach will be similar this timearound. Inflation is currently running low (Chart 22) as the effects of a one time boost in energy prices in early 2012 wear off andreduce the need for currency appreciation. In this environment of USD strength and capital outflow, TWD will weaken but relative toother currencies such as KRW, we think TWD can outperform.

Thailand (THB)Similar to Philippines, Thailand has caught investor interest from a stellar equity performance in 2013. This made sense sinceThailand was experiencing a) a V shaped recovery early in the year post the floods b) fiscal boost from a minimum wage hike andreduction in the corporate tax rate to 23% from 30% and c) light foreign positioning since Thailand only started receiving flows postthe election of Prime Minister Yingluck Shinawatra in July 2011 that that removed the political uncertainty. However, the currency

has lagged the equity performance since the floods required increase in imports for reconstruction and hurt the trade balance andperiodically put Thailand in a current account deficit (Chart 23). Going forward, we think THB will be the more vulnerable currency inthe region since it has very little support from the current account and deleveraging can lead to capital outflow. We would changeour minds if the central bank started to sound more hawkish but that has yet to happen.

Chart 22: Taiwan: lower inflation = less TWD appreciation Chart 23: Thailand: trade balance will improve

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Asia Strategy Focus

Asia FX Portfolio 2013

We have had a tough month in June and are down -1.4% for the year. All of our losses came in the JPY short correction where welost 2.4% in the portfolio (seeAsia Strategy Comment: Japan: The Silent Treatment; June 13, 2013). On other Asian currencies, wemade gains being long USDMYR (+3.7%) and gained carry in being short USDCNH (+6bp). We will look to build positions in longCNY and TWD vs KRW and THB.

On JPY, we still prefer to be short but the driver is more focused on USD strength. We think Abenomics is mostly monetary stimulusand BoJ has gone against market expectations of further easing, which signals that they are comfortable with current policy andmarket prices. Wed like to short JPY going into the upper house election in late July but prefer to enter at lower levels. The upsidetarget in JPY has diminished and we need to be more careful with the entry.

Open Trades

Date of

Entry

Weight

in PF

Spot at

Entry

Fwd at

Entry Target Stop

Current

Spot Price

Price at

Exit

Date of

Exit Profit*

Weighted

Profit**

Closed Trades

Long MYR vs USD 1M NDF 11-J an-13 17% 3.0165 3.021 3.06 28-J an-13 -1.29% -0.2%

Long KRW vs USD 1M NDF 28-J an-13 33% 1087.5 1089 1103.2 14-Mar-13 -1.30% -0.4%Short J PYKRW 14-Mar-13 33% 11.532 12.11 4-Apr-13 -5.01% -1.7%

Long USDJ PY 4-Apr-13 33% 92.91 98.58 26-Apr-13 6.10% 2.0%

Short AUDUSD 27-Mar-13 17% 1.0484 0.9985 13-May-13 4.76% 0.8%Short USDINR 1M NDF 13-May-13 33% 54.94 55.20 56.17 23-May-13 -1.77% -0.6%

Short USDINR 1M NDF 16-Apr-13 33% 54.44 54.67 56.20 23-May-13 -2.79% -0.9%

Long USDMYR 1M NDF 8-May-13 50% 2.976 2.98 3.091 6-J un-13 3.70% 1.9%

Long USDJ PY 21-May-13 33% 102.45 95 13-J un-13 -7.27% -2.4%

Short USDCNH 1M fwd 21-May-13 166% 6.1268 6.138 6.1348 19-J un-13 0.06% 0.1%

Year to Date Return 2013 -1.45%*Profit is calculated as spot at entry to current spot plus carry. We are assuming that carry is earned evenly, every day for simplicity.

** Weighted Profit is the profit of the trade multiplied by the weight in the portfolio.

Monthly performancePerformance (%)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2013 -0.19 0.17 -0.99 1.29 -0.87 -0.86 -1.45%

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Asia Strategy Focus

FX Tracker

Performance

What stands out? The rise in yields is leading to deleveraging. What stands out is 1) the weakness in MYR despite the equitymarket outperforming S&P and only a mild sell-off in the bond market. It looks like there was a considerable shift on ownership fromforeigners to locals in the bond market for it to see such a currency shift and stable bond market. 2) The flattening of the curve inIndonesia and China despite steepening in the US and rest of Asia. These two are the only two economies hiking short term ratesamidst the sell-off and their currencies can become more stable over time CNY, IDR.

Chart 30: Currencies Chart 31: Equity markets

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Chart 32: 5 year rates Chart 33: 2 year rates

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Chart 34: 2 year 5 year slope Chart 35: Commodities

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JPY

CNY

IDR


3.9

-1.7

-6.3 -6.5

-9.9(12)

(10)

(8)

(6)

(4)

(2)

0

2

4

6

Palm oil Oil brent Nat gas Gold Copper

1M change from 24/05 to 21/06(%)

Source: Bloomberg, SEB

10


11/18

Asia Strategy Focus

ForwardsChart 41: 3 month implied carry annualized vs. 1 month ago vs USD

(2)02

46

810

121416

18

2022

24

IDR

INR

PHP

MYR

CNH

THB

CNY

AUD

KRW

EUR

SGD

TWD

HKD

JPY

-2

0

2

4

6

8

1012

14

16

18

6/21/13 5/24/13 change over the last 1mth, (rhs)

(%) (ppts)

What stands out? Carry has surprisinglynot changed much with the exception ofIDR, PHP and CNY/CNH.

IDR 1M is offering over 50% annualized

carry and looks attractive. 1M onshore CNYis also providing 24% ann. carry.

The increase in CNY carry also makes it atop candidate to go long versus other Asiancurrencies, especially in the 1-6M.

Chart 42-1: CNH Outright Chart 42-2: CNH forward fwd curve Chart 42-3: CNH forward fwd curve ann.

6.12

6.17

6.22

6.27

6.32

Spot 1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.5

1.5

2.5

3.5

4.5

5.5

6.5

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 43-1: CNY NDF Outright Chart 43-2: CNY NDF fwd curve Chart 43-3: CNY NDF fwd curve ann.

6.10

6.15

6.20

6.25

6.30

6.35


Current (21-Jun )

1-mth ago (24-May )

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 44-1: CNY Onshore Outright Chart 44-2: CNY onshore fwd curve Chart 44-3: CNY onshore fwd curve ann.

6.126.146.166.186.206.226.246.266.286.306.32

6.34


Current (21-Jun )

1-mth ago (24-May )

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)


11


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Asia Strategy Focus

Chart 45-1: HKD Outright Chart 45-2: HKD forward fwd curve Chart 45-3: HKD forward fwd curve ann.

7.74

7.75

7.76

7.77


Current (21-Jun )

1-mth ago (24-May )

-0.16

-0.14

-0.12

-0.10-0.08

-0.06

-0.04

-0.02

0.00

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

-0.25

-0.20

-0.15

-0.10

-0.05

0.00

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 46-1: IDR Outright Chart 46-2: IDR forward fwd curve Chart 46-3: IDR forward fwd curve ann.

9,000

9,500

10,000

10,500

11,000

11,500


Current (21-Jun )

1-mth ago (24-May )

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 47-1: INR Outright Chart 47-2: INR forward fwd curve Chart 47-3: INR forward fwd curve ann.

53

55

57

59

61

63

65


Current (21-Jun )

1-mth ago (24-May )

0

1

2

3

4

5

6

7

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0

5

10

15

20

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 48-1: KRW Outright Chart 48-2: KRW forward fwd curve Chart 48-3: KRW forward fwd curve ann.

1,100

1,110

1,1201,130

1,140

1,150

1,160

1,170


Current (21-Jun )

1-mth ago (24-May )

0.00

0.20

0.400.60

0.80

1.00

1.20

1.40

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.0

1.0

2.0

3.0

4.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)


12


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Asia Strategy Focus

Chart 49-1: MYR Outright Chart 49-2: MYR forward fwd curve Chart 49-3: MYR forward fwd curve ann.

3.02

3.07

3.12

3.17

3.22

3.27

3.32


Current (21-Jun )

1-mth ago (24-May )

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.0

2.0

4.0

6.0

8.0

10.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 50-1: PHP Outright Chart 50-2: PHP forward fwd curve Chart 50-3: PHP forward fwd curve ann.

40.0

41.0

42.0

43.0

44.0

45.0


Current (21-Jun )

1-mth ago (24-May )

0.0

0.5

1.0

1.5

2.0

2.5

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart51-1: SGD Outright Chart 51-2: SGD forward fwd curve Chart 51-3: SGD forward fwd curve ann.

1.255

1.260

1.265

1.270

1.275

1.280


Current (21-Jun )

1-mth ago (24-May )

-0.05

-0.04

-0.03

-0.02

-0.01

0.00

0.01

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

-0.06

-0.04-0.02

0.00

0.02

0.04

0.06

0.08

1M 3M 6M 9M 12M

Current (21-Jun )1-mth ago (24-May )

(%)

Chart 52-1: THB Outright Chart 52-2: THB forward fwd curve Chart 52-3: THB forward fwd curve ann.

29.0

29.5

30.0

30.5

31.0

31.5

32.0


Current (21-Jun )

1-mth ago (24-May )

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M


(%)

1.5

2.0

2.5

3.0

3.5

4.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)


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14/18

Asia Strategy Focus

Chart 53-1: TWD Outright Chart 53-2: TWD forward fwd curve Chart 53-3: TWD forward fwd curve ann.

28.5

29.0

29.5

30.0

30.5



-0.80

-0.60

-0.40

-0.20

0.00

0.20

1M 3M 6M 9M 12M


(%)

-1.0

-0.5

0.0

0.5

1.0

1.5

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 54-1: EUR Outright Chart 54-2: EUR forward fwd curve Chart 54-3: EUR forward fwd curve ann.

1.280

1.285

1.290

1.295

1.300

1.305

1.310

1.315

1.320


Current (21-Jun )

1-mth ago (24-May )

-0.35

-0.30

-0.25-0.20

-0.15

-0.10

-0.05

0.00

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

-0.35

-0.30

-0.25

-0.20

-0.15

-0.10

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 55-1: JPY Outright Chart 55-2: JPY forward fwd curve Chart 55-3: JPY forward fwd curve ann.

95.0

96.0

97.098.0

99.0

100.0

101.0

102.0


Current (21-Jun )

1-mth ago (24-May )

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

-0.5

-0.4

-0.4-0.3

-0.3

-0.2

-0.2

-0.1

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

Chart 55-1: AUD Outright Chart 55-2: AUD forward fwd curve Chart 56-3: AUD forward fwd curve ann.

0.86

0.88

0.90

0.92

0.94

0.96

0.98


Current (21-Jun )

1-mth ago (24-May )

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)

2.0

2.2

2.4

2.6

2.8

1M 3M 6M 9M 12M

Current (21-Jun )

1-mth ago (24-May )

(%)


14


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Asia Strategy Focus

Volatility

Chart 60: 3 month annualized implied volatility

0

2

4

6

8

10

12

14

IDR

JPY

AUD

KRW

INR

MYR

PHP

EUR

SGD

THB

TWD

CNH

CNY

(1)

0

1

2

3

4

5

6

7

8

96/21/13

5/24/13

change over the last 1mth, (rhs)

(%) (ppts)

What stands out? Vol has obviouslyjumped but MYR vol has increased morethan usual as with the negativeperformance.

JPY vol is starting to stabilize on a relativebasis.

The rise in CNH and CNY vol is still small.

Chart 61: CNH Chart 62: CNY NDF Chart 63: HKD

0.0

0.5

1.0

1.5

2.0

2.5

Jun-12 Sep-12 Dec-12 Mar-13 Jun-13

Implied Realized

0.0

0.5

1.0

1.5

2.0

2.5


Implied Realized

0.0

0.2

0.4

0.6

0.8

1.0


Implied Realized

Chart 64: IDR Chart 65: INR Chart 66: KRW

0

5

10

15

20


Implied Realized

0

2

4

6

8

10

12

14


Implied Realized

0

4

8

12

16


Implied Realized

Chart 67: MYR Chart 68: PHP Chart 69: SGD

0

3

6

9

12


Implied Realized

0

2

4

6

8

10


Implied Realized

0

3

6

9


Implied Realized


15


16/18

Asia Strategy Focus

Chart 70: THB Chart 71: TWD Chart 72: EUR

0

2

4

6

8

10


Implied Realized

0

2

4

6

8


Implied Realized

0

3

6

9

12

15


Implied Realized

Chart 73: JPY Chart 74: AUD

0

5

10

15

20


Implied Realized

0

3

6

9

12

15


Implied Realized


16


17/18

Asia Strategy Focus

ForecastsFX Spot 3M 6M 9M 12M

USD/CNY 6.14 6.11 6.10 6.08 6.07

USD/CNH 6.14 6.11 6.10 6.08 6.07

USD/HKD 7.76 7.80 7.80 7.80 7.80

USD/IDR 9933 10150 10200 10200 10200

USD/INR 59.7 60.0 61.5 61.5 61.0

USD/KRW 1158 1175 1200 1200 1200

USD/MYR 3.22 3.28 3.30 3.30 3.30

USD/PHP 43.7 44.5 45.3 45.3 45.3

USD/SGD 1.28 1.29 1.30 1.30 1.30

USD/THB 31.1 32.0 32.5 32.5 32.5

USD/TWD 30.1 30.4 30.8 30.8 30.8

EUR/USD 1.31 1.29 1.26 1.23 1.22

USD/J PY 98.51 103.00 108.00 112.00 115.00

EUR/SEK 8.77 8.43 8.34 8.27 8.21

EUR/NOK 7.94 7.53 7.45 7.42 7.40

USD/SEK 6.69 6.51 6.61 6.73 6.74

USD/NOK 6.06 5.82 5.91 6.04 6.06

AUD/USD 0.92 0.98 0.97 0.96 0.94

Policy Rates Current 3M 6M 9M 12M

CH lending 6.00 6.00 6.00 6.25 6.25

CH deposit 3.00 3.00 3.00 3.25 3.25

KR 2.50 2.50 2.25 2.25 2.25

IN 7.25 7.00 6.75 6.50 6.50

ID 6.00 6.00 6.25 6.25 6.25

MA 3.00 3.00 3.00 3.25 3.25

PH 3.50 3.50 3.75 3.75 3.75

TH 2.50 2.75 2.75 3.00 3.00

TW 1.88 1.88 1.88 1.88 2.00

US 0.25 0.25 0.25 0.25 0.25

EU 0.50 0.25 0.25 0.25 0.25SW 1.00 1.00 1.00 1.00 1.00

NO 1.50 1.50 1.50 1.50 1.75

AU 2.75 2.75 2.75 2.75 2.75

Real GDP % yoy 2011 2012 2013 2014

China 9.3 7.8 7.5 7.5

India 7.5 5.4 5.7 6.0

Indonesia 6.5 6.2 6.0 6.0

Korea 3.6 2.0 2.8 3.6

Singapore 5.3 1.3 2.6 4.1

US 1.8 2.2 2.0 3.2

Euro zone 1.6 -0.6 -0.7 0.7Sweden 3.7 0.8 1.3 2.5

Norway 1.2 3.1 1.7 2.4

CPI % yoy 2011 2012 2013 2014

China 3.3 3.5 3.3 3.5

India WPI 9.5 6.5 5.9 6.5

Indonesia 5.1 4.3 6.0 5.5

Korea 2.9 2.2 2.6 2.6

Singapore 2.8 4.5 3.3 3.5

US 3.1 2.1 1.6 1.6

Euro zone 2.7 2.5 1.4 0.9

Sweden 3.0 0.9 -0.1 0.8

Norway 1.2 0.8 1.5 1.7

Source: Bloomberg, CEIC, SEB.

17


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Asia Strategy Focus

DISCLAIMER

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