Asia Strategy: Bet on the tortoise in the year of the horse

8/13/2019 Asia Strategy: Bet on the tortoise in the year of the horse

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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 ingood faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liabili ty is accepted for any director consequential loss resulting from reliance on this document. Changes may be made toopinions or information contained herein without notice.

2014 Asia Outlook: Bet on the Tortoise in the Year of the Horse TUESDAY7 JANUARY 2014

Happy New Year! What should you do now that you are back from the holidays? In this specialedition of Asia Strategy Focus, we introduce our 2014 Asia Outlook and top trades for 2014, whichare:

1. China Independence theme. Stay long CNY vs USD. KRW is due for correction and shortterm stay short. However, look to establish long KRW vs TWD on corrections.

2. Fixing Fiscal theme. Long MYR vs THB.3. Buy INR once hiking cycle restarts.4. IDR stay short but go long once inflation starts falling (we think Q2).

2014 is the year of the horse and we like to bet on economies who have been slowly working like atortoise to improve the quality of their economy. On the monetary front China has been tighteningin line with US yields and will do well despite tighter US policy. On the fiscal side, Malaysia isfinally turning around its finances while Thailand will remain in dead-lock from political instability.India and Indonesias high yields are attractive and they are slowly adjusting by hiking interestrates, reducing current account deficits and create opportunities this year. For India andIndonesia, we are waiting for trigger points. In India, wed like to see the hiking cycle restart and inIndonesia, we await for inflation to peak, which wedont see until Q2.

The main risk this year is CNY devaluation that can dampen our Asia forecasts on growth,currencies and interest rates as well as impact global financial markets. We dont believe this to bethe base case (our year end USD/CNY forecast is 5.90) but CNY devaluation means China joinsUS, Europe and Japan in currency debasing and will take us one step closer towards currencywars.

EDITORSean YokotaHead of Asia [email protected]+65 6505 0583
http://www.mb.seb.se/http://www.mb.seb.se/http://www.mb.seb.se/http://localhost/var/www/apps/conversion/tmp/[email protected]://localhost/var/www/apps/conversion/tmp/[email protected]://www.mb.seb.se/


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Summary of 2014 FX Trade Ideas

1. China Independence theme. Stay long CNY vs USD. KRW is due for correction and short term stay short. However, look toestablish long KRW vs TWD.

2. Fixing Fiscal theme. Long MYR vs THB.3. Buy INR once hiking cycle restarts.4. IDR stay short but go long once inflation starts falling in Q2.

We start with our economic outlook and drill down to two investment themes where we produce two trading ideas. Later, in theindividual country section, we see opportunities in India and Indonesia once trigger conditions are met.

Economic Outlook

Global recovery led by US; ECB to launch QE

Our Stockholm colleagues are forecasting a recovery in the global economy in 2014 led by the US (for details seeNordic Outlook,Nov 26, 2013 ). SEB is forecasting the US economy to accelerate to 3.3% in 2014 compared to 1.7% in 2013, led by diminishedfiscal headwind, stronger labor market, rising wealth and reduced household debt that will increase consumption. In the euro zone,growth will stabilize and rise 0.8% in 2014 compared to -0.4% in 2013. Euro zone will be growing but at below trend from continuedfiscal austerity, high unemployment and ailing banking system that cannot supply credit to businesses. Furthermore, we arepredicting acceleration in growth into 2015 where we expect US and Euro zone growth to accelerate to 3.7% and 1.6%,respectively, which means no slowdown in 2H 2014.

On monetary policy we see divergence where the US Fed will continue tapering and remain very accommodative until hiking interestrates only in late 2015. In Europe, we expect the ECB to launch quantitative easing in spring of 2014 with deflation gainingmomentum from continued credit market fragmentation. We see a re-start of Securities Market Programme (SMP) to buy public andprivate securities and launching new LTRO loans.

Asia recovery led by exports

With a positive US outlook and more stable Europe, Asian economies should benefit from stronger exports. In addition to the SEB

view,Taiwan manufacturers sentimentsurvey says that exports should recover in 2014 (Chart 1). Taiwanese manufacturers havebeen great forecasters of Asian exports for the past 20 years and they agree with the recovery story. Strong exports are importantfor domestic demand since it generates income for households and businesses who turn around and consume and investdomestically. We are forecasting a rebound in growth in all Asian economies for 2014 compared to 2013 with the exception ofChina and Indonesia where monetary tightening will outweigh the improvement in exports. With economic recovery, we are alsoforecasting a beginning of policy normalization with interest rate hikes starting in 2H 2014 for most of Asia (for those who haventstarted yet such as Korea, Malaysia, and Thailand).

Chart 1: Export recovery in the works 1H 2014 Chart 2: Exports help Asian economies

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China

Over the last several decades, China has followed the rest of Asia in using the high investment, export-led model to attain rapideconomic development. But, the downside to this growth model is the over-reliance on the US economy and policy. The globalfinancial crisis in 2008 has taught the Chinese authorities that they must reduce their reliance on the US. The buzz words we hearon reforms such as moving to consumer based economy, reducing over capacity, interest rate liberalization are all parts ofreforms to make China more independent from the US and have greater control of the direction and speed of its own economy.


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Asia Strategy Focus

In 2014, the general global macro backdrop is a better US and Europe (slightly) and that normally translates into higher exports andhigher growth in the Chinese economy. However, we are forecasting a slowdown in GDP growth to 7.4% this year compared to7.7% growth in 2013. There are two reasons why we think trajectory of US and Chinas growth will differ. First, we think the linkbetween exports and real GDP are declining. Export boom used to create a capital expenditure boom to build manufacturingcapacity but as China attempts to reduce over capacity and investment in heavy industry, the link will be weaker. Second, and moreimportantly, we think domestic demand will be facing bigger headwinds from monetary tightening. As Chart 4 shows, one weekinterest rates have increased on average from around 3.00-3.50% in early 2013 to 3.75-4.25% and even higher currently. To reignin bank credit growth and shadow bank lending, the authorities have hiked interest rates by about 75bps. China is also in theprocess of liberalizing deposit rates, which means interest rates will rise since authorities have kept deposit rates artificially low tofavor borrowers who spend and increase economic activity faster. Higher deposit rates will slowdown domestic demand activitiesthis year.

Chart 3: Export sensitivity to drop Chart 4: Tighter monetary conditions

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2 Investment Themes

Consensus investment themes for 2014 are straight forward this year. Most expect US recovery, higher US interest rates, USDstrength and EM and Asia currency weakness. As an Asia specialist, we prefer to move away from making directional US callssince that is not our comparative advantage. Wed like tomake investment and macroeconomic outlook decisions on ourspecialized knowledge of Asia. Therefore, we generally like to invest in themes we see arising in Asia for 2014 that are lessdependent on the US. We see two investment themes for 2014. They are 1) Independent China and 2) Fiscal Fixing.

Theme: Independent China; Trade idea #1: Stay long CNY vs USD. KRW is due for correction and short term stay short.However, look to establish long KRW vs TWD.

Chinas attempt to become less dependent on the US creates opportunities for China and for Asian economies who are moregeared towards the Chinese economy. Chinas move towards independence has several consequences.

For the currency, we still think CNY can appreciate despite a less accommodative Federal Reserve and USD strength. China differsfrom most parts of the world since it too is tightening monetary policy similar to the Fed and likely tightening at a fasterrate. Chinasshort term rates of over 4% with a low, volatile currency makes it a very attractive carry currency to hold in a world of still ultra-lowinterest rates.

What about for rest of Asia? Asian currencies have long been considered another USD semi-peg because of their close tie to theUS economy via exports. Typically, when an economy diverges with the US economic cycle, the currency adjusts for thedifferential. However, since Asian governments have largely kept their currencies close to the USD, there are no price (currency)adjustments and the economies move up and down with the US cycle. This is why you dont have any safe haven currencies in Asia. JPY and CHF can appreciate in times of stress since their economic cycles and monetary policies arent synchronized withUS monetary policy. Now, with China moving more independently, Asiasmonetary policy and currencies can also diverge from theUS.

So which way will it diverge? Consensus is calling for stronger USD versus Asian currencies but with CNY appreciation, we think Asian currencies will on average appreciate by year end. We think Asia will begin steps to normalize interest rates in 2H 2014 andsimilar to China, will tighten policy faster than the Fed and strengthen their currencies. And 2014 wont be the first year to see this.Chart 5 below shows how we have had steady USD strength since mid-2011 (DXY index, red line) but CNY (green) and Asia Dollar

Index excluding CNY, (ADXY ex CNY, blue) have strengthened versus the USD. ADXY ex CNY since mid-2010 appears to bemoving more in line with CNY than the DXY index.

We think the currencies, which will benefit the most from China independence are the economies China is running a trade deficit(Chart 5) since they are more geared towards Chinas demand and benefit from growth in Chinas imports. We like going longKorea and shorting Taiwan to best express this theme. Short term we think KRW is due for a correction but wed like to use thatopportunity to go long KRW. Taiwan benefits from CNY independence but the central bank is one of the most conservative when itcomes to currency volatility and will prevent rapid TWD appreciation. From Chart 5, it may appear that shorting SGD may be betterthan TWD but SGD gets influenced by other independent factors such as growth in ASEAN whereas the drivers of KRW and TWDare more similar. So wed like to build long KRW vs TWD on corrections this year.

Chart 5: USD strength started in 2011 and Asia ignores it Chart 6: China trade balance by destination, % of total

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Theme: Fiscal Fixing; Trade idea #2: Long MYR vs THB.

Economies that can reduce government debt will perform well. An important lesson we learned in 2013 was how vulnerable currentaccount deficit economies were to sudden capital outflow. Even Thailand and Malaysia who typically have hefty current accountsurpluses saw them deteriorate. Many economies ran into current account problems because domestic demand was too strongrelative to slowdown in exports. Strong domestic demand stemmed from either high credit growth or high government spending.High credit and government spending growth were reactions to the global financial crisis where governments attempted to keep highgrowth in the face of weaker exports. However, this reaction worked well in a low interest rate environment but with global interestrate bottoming out with the US Federal Reserve changing course, high credit growth and government spending are becomingheadwinds for currencies.

The star outperformer in 2013 and since 2005 has been the Philippines and the peso (PHP). As Chart 7 shows, Philippines used tohave a high government debt of over 90% of GDP in 2004 and ran current account deficits. However, since then the governmenthas been reducing spending and has almost halved its debt to 50% of GDP and currently runs a nice, steady current accountsurplus of about 4% of GDP. The reduction in government debt and improvement in the current account balance has led to a multi-year rerating in PHP and appreciation of over 20% versus USD since 2005. Even in the August sell-off in emerging markets, PHPoutperformed in Asia. Furthermore, as Chart 8shows Philippines didnt rely on fiscal spending to prop up growth and governmentdebt has fallen by 6.8 percentage points of GDP since December of 2008.

Malaysia and India are the two economies and currencies that have the most potential to mimic Philippines.

Malaysia has the highest probability of fiscal improvement since most of the rise in government debt was to give handouts going intothe general government election in May last year. With elections over, naturally, government spending will decrease. Furthermore,the government has already started to reduce subsidies and plans to reduce it to 2% of GDP from 3%. It also plans to introduce agoods and service tax starting in April 2015. There are still questions on how much this will reduce government debt sinceaccountability on government expenditures is questionable. However, directionally the government debt should fall and improve thecurrent account position and strengthen MYR.

We also see potential improvement in India, although we will not know until the general election takes place this year. From ourview, the outcome of the election does not matter. It is all dependent on what the new Finance Minister does. As long as the newFinance Minister comes in and reduces the fiscal deficit, India can follow a similar pattern to what we saw in the Philippines.

What about the Philippines going forward? Philippines government debt will continue to fall with President Aquino promising a 2%annual deficit target but the pace of improvement will be limited and markets have likely already priced this in since this has beenwell communicated and implemented successfully in his tenure.

The economy where we are most negative on the fiscal front is Thailand. As Chart 8 shows, Thailand has had an increase of over 8percentage point in government debt since the GFC.Koreas government debtmay be increasing faster than Thailand but it isoffset by slow or flat growth in private sector debt. However, in Thailands case the private sector and public sector debt are bothrising and public sector debt is unlikely to improve because of political deadlock. While the protests are taking place, new policieswill not be introduced and if anything, the ruling government may increase more fiscal handouts going into elections (if it takesplace) or post elections.

In conclusion, we like a long MYR vs. THB for potential fixing in fiscal position. Long INR also makes sense but wed like to wait forthe new appointment of the Finance Minister and his/her actions to confirm. For fixed income investors, you can perform the sametrade with going long the long end of the curve.

Chart 7: Government debt reduction and Strong PHP Chart 8: Government debt and change since GFC

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Top Risk

There are always plenty of risks. Politics is always a risk where we have elections in India and Indonesia this year and protests areescalating in Thailand. Its difficult to predict but North Korea is undergoing reshuffling in top leadership with the recent execution ofKim Jong-uns uncle Jang Song-thaek (top official), which increases the probability of military action for Kim Jong-un to reestablishhis domestic political base.

However, the biggest risk we see for Asia is if China starts to weaken CNY. G3 (US, EU and Japan) are all pursing aggressivemonetary policy and weakening their currencies. But, China as the second biggest economy in the world joins the currencydebasing race, it will lead to an escalation towards a global currency war. The current currency war is still in the primary stageswhere countries are just manipulating the price of their currencies. The next and more potent stage is when countries attempt todirectly change the volume of trade with sanctions and tariffs. Asia is heavily reliant on global trade and closely linked to each otherin supplying products to US and Europe. Frictions in trade tensions will hurt Asia more than the rest of the world.

What is the trigger for a weaker CNY? Deterioration in domestic economic conditions and weaker exports are obvious triggers butprobability appears low with the US economy recovering. The more likely trigger in your authors opinionis political tensionsescalating with Japan. Compared to late 2012 when Japan purchased the Senakaku/Diaoyu islands, relations were improving in2013. However, the recent change in Prime Minister Abe to visit the controversial Yasukuni shrine has taken another turn to

deterioration of relations. China can easily retaliate by weakening CNY, which will likely stall JPY depreciation and the rise in Nikkei.The two are closely linked to Prime Minster Abes approval ratings.

We dont believe this to be the base case (our year end USD/CNY forecast is 5.90) but we see CNY devaluation to be a risk thatcan clearly reverse our forecast on growth, currency and interest rate outlook as well as impact global financial markets.


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Asia Country Summary

India (INR) Trade idea #3: Buy INR once hiking cycle restarts.

Macro: Indias economy will recover to 5.2% compared to 4.7% in 2013. The economy will still face headwinds in early 2014 fromtight monetary policy and stubbornly high CPI inflation, which will stall investment and domestic demand. Also, the uncertainty fromthe upcoming general election will keep business decisions on hold. The good news is that fundamentals are improving. Thecurrent account deficit is slowly improving as the trade deficit narrows from policies that have reduced fuel imports (removal of somefuel subsidies) and gold imports (Chart 9). Inflation also looks to have peaked where WPI should fall as temporary rise in vegetableprices come down in 2014. The main issue is entrenched inflation expectations where CPI remains stubbornly high around 10%(Chart 10). The central bank under the new governor Rajan has placed more focus on CPI and will retain a hawkish bias unless thisfalls as well. Lastly, India should also benefit from stronger US economy and help export growth. A weaker currency should alsohelp on the competitive side on exports.

FX: INR has depreciated by almost 18% in 2013 but there have been some improvements from a hawkish RBI and sentimentimproving from potential change in the government to BJP, who are perceived to be more business friendly. We were long INR vsUSD in late 2013 but we have taken off the position short term since it is still early days in the election, the ruling Congress party stillhas room to make a come-back and RBI has surprisingly stopped hiking interest rates. We think RBI will have to continue hikinginterest rates and wait to re-establish the long INR trade until the hiking cycle resumes.

Chart 9: Reprieve in trade deficit Chart 10: WPI will ease but CPI still high

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Indonesia (IDR) Trade Idea #4: IDR stay short but go long once inflation starts falling towards Q2.

Macro: Indonesia and China are the only two economies in Asia where we see slower growth in 2014 compared to 2013. ForIndonesia will see growth slowing to 5.3% from 5.6% in 2013. The slowdown stems from tighter monetary conditions, which willslow credit growth and domestic demand. Indonesia benefited from a clean balance sheet allowing for credit growth that generateddomestic demand. However, credit growth will slow as the central bank is forced to hike interest rates to prevent capital outflowand rise in inflation from 44% fuel price hikes. This combination of tighter policy and higher fuel prices is positive long term but shortterm will crimp economic activity. Indonesia is likely taking the cue from India where combination of subsidized fuel and currentaccount deficit can lead to a sudden capital outflow and destabilize the economy. Furthermore, Indonesia will have a Presidentialelection mid-year, which will also slow investment as political uncertainty rises. We see 2014 as a year for a cyclical slowdown andfundamentally we think Indonesia will be one of the main outperformers in Asia over the next 5 year horizon.

FX: The spot market, which was stable from central bank intervention, is moving upwards with the NDF market. IDR NDFweakened due to risk aversion and investors hedging their FX exposure of their bond holdings. The NDF now provides attractiveyields to go long IDR but we remain sidelined sincewe still think inflation hasnt peaked and more bond selling needs to take placeand weaken IDR. The rise in fuel prices have been reflected in CPI but we think there are secondary effects coming as workersdemand higher wages from higher fuel prices. The good news is the BI has finally started weakening spot IDR to reflect marketprices, which can start attracting bargain hunters. Also, once the secondary inflation effects take place, we think inflation will startfalling in 2Q and that is when we like to go long IDR again. We advise investors to stay short IDR until 2Q.


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Chart 11: Inflation has not peaked yet Chart 12: IDR prices are reaching peak levels

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China (CNY, CNH) see above Economic and Independent China theme

Korea (KRW)Macro: If Mr. Bernanke is right and the US economy recovers, this should help Korea and exports.Koreas internal leadingindicators are also pointing to some recovery (Chart 13). Domestically, Korea can also get a small boost from the property market. As the chart 14 shows, Asia experienced strong domestic demand from resurgence in the property market except for Korea. Koreawent through a housing boom in 2000 and over leveraged households and SMEs prevented another boom. However, the worstmay be over for the housing market with authorities slowly relaxing measures and we are expecting a slow recovery, which will helpthe economy.

FX: A cyclical recovery in exports and small improvement in domestic activity should help KRW. The main issue with investing inKRW is that much of the good news is already in the price. KRW is one of the star performers of 2013 since it has benefited frombetter global manufacturing outlook and surge in the trade balance as domestic activity remained weak relative to the exportrecovery. Going forward, we think KRW is due for a correction as the domestic activity improves and narrows the trade surplus.But, we think that will be a good opportunity to establish long KRW position since KRW is one of the main beneficiaries of a stronger

CNY (see above theme on China Independence).Chart 13: Leading indicators point towards recovery Chart 14: Property can play some catch up

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Malaysia (MYR)Malaysias economy will go through a mild slowdown from fiscal contraction. Prime Minister Najib gave cash handouts to influencethe last election and now those impacts will weigh on growth. We would also watch for him to pass unfavourable but positive longterm economic measures. He raised the fuel prices by almost 10% this year, which is a start. Over the medium term, we expectNajib to continue with his liberalization plans and especially helpthe equity market. Malaysias equity market is often expensivesince domestic funds and public institutions buy and hold Malaysian stocks, which make foreigners reluctant to buy as it is over-priced and discourages Malaysian companies from aggressively increase profitability. With domestic institutions divesting, that willforce more foreign inflows and should lead to more efficient Malaysian companies.MYR has been hurt from USD strength and rising US yields. It has also been hit from rapid reduction in the current account surplus.However,with the export outlook improving, Chinas domestic demand recovering and fuel price hikes to limit imports, we think MYRcan outperform in Asia.


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Asia Strategy Focus

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, especially in consumer credit. The propertymarket that has been dormant since the Asian Financial Crisis in 1998 is again resurging. Philippines has also received a ratingupgrade to investment grade by S&P and Fitch and becomes another support for PHP. We see 2014 to be a year of consolidationsince much of the good news have been priced in and higher global interest rates will slowdown credit growth and domesticdemand. The central bank (BSP) will likely embark on a policy normalization hiking cycle in 2H 2014 and we are forecasting 50bpshike to 4.0% in the policy rate. The multi-year outlook on Philippines remains positive as it has clean balance sheet and a largeyoung population. The main risk to Philippines is continuity. President Aquino has improved the policy environment by reducinggovernment debt and opening to businesses. However, much of his policies have not been legislated and can be easily overturnedwith a change in government.

Singapore (SGD)Singapore looks to be turning better. Exports and growth have finally turned and we expect a small rebound to 4.0% growth in 2014compared to 3.2% in 2013. We dont expect a sharp rebound since Singapore is following China in improving the composition andquality of the growth. It is limiting immigration, to move away from low value added exports and a boost to low income residents.The consequences of this policy are higher core inflation from wage growth. Inflation has eased from over 5% in the middle of 2012but core and headline are again on the rise (Chart 15). Headline will remain subdued since it was mostly housing but more coolingmeasures have been introduced such as increasing stamp duty on home purchases by 5-7 percentage points. SGD NEER is trading

120bp above mid and looks too expensive (Chart 16). We are biased to use SGD as a funding currency on the long INR and IDRwe would like to establish in 2014.

Chart 15: Core is again on the rise Chart 16: SGD NEER strong

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Taiwan (TWD)Taiwan should benefit from an export recovery in the US and the tech heavy equity market should receive foreign inflow and theeconomy should continue to recover. Unlike Korea, Taipei property prices are still growing around 8%yoy and credit growth isabove 10%yoy. The domestic economy is strong considering exports are still at the early stages of a recovery.

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 as the effects of a one-time boost in energy prices in early 2012 wear off and reduce theneed for rapid currency appreciation. TWD will come under pressure to appreciate with a stronger CNY since the two economiesare closely linked but the central bank will keep the old policy of intervention and stall big moves in TWD. We are forecasting a3.3% appreciation vs USD by end 2014.

Thailand (THB)Thailands outlook will be determined by political developments. The economy will be strong since Thailand is a vital part of theglobal supply chain and many manufacturers continue to build capacity in Thailand. Thailand is also again attempting to invest ininfrastructure to better connect with its neighbors such as Cambodia, Vietnam and Myanmar. Foreign ownership of bonds are lowdue to regulation and should be immune to rapid capital outflow from rising global yields and should have a more stable currencyrelative to rest of Southeast Asia.

However, the economy will go nowhere as long as political tensions remain elevated. So far the protests have been led by theopposition party, Democrats (yellow shirts). Prime Minister YingluckShinawatras ruling party supporters, Pheu Thai Party (redshirts) have not participated in the protests since many are from the rural areas and rice harvesting is keeping them away from the


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protests. Once January arrives, the red shirt supporters will likely protest since their democratically elected leaders have beenforced out of office. Elections have been called for February 2 but the Democrats have boycotted the election and the election maybe delayed. Until we have an elected government acceptable by all sides, policy will be at a standstill and Thailands performance(equity, currency, bonds) will lag to rest of Asia.

Chart 17:Taiwan: lower inflation = less TWD appreciation Chart 18: Thailand: equity and currency hit by politics

-10

-5

0

5

10

15

20

25

30

06 07 08 09 10 11 12 13

Credit% yoy 3mma Taipei Property prices

28

30

32

34

36

38

40

42

44200

400

600

800

1,000

1,200

1,400

1,600

1,80006 07 08 09 10 11 12 13

SET equity index (LHS, inverted)

USD / THB (RHS)


Hong Kong (HKD)We dont like HKD and look to use it asa hedge for USD strength. USDHKD is trading at the very bottom of the peg at 7.75 and cannotget any stronger from a more positive macro environment. Hong Kong inherits US interest rate policy from the peg to the USD and lowrates have pushed up asset prices in Hong Kong. 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,Feds balance sheet can be reduced and US yieldsmay rise further. The rise in rates through the peg will pressure Hong Kong rates to rise and lower Hong Kong Dollar priced assets suchas property. Both of these will make HKD weaker. Furthermore, long USDHKD can act as hedge if China or general global risk re-emerges. Long USDHKD is also a small positive carry hedge.


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Asia FX Portfolio (as of Dec 30, 2013)

Open TradesDate of

EntryWeightin PF

Spot atEntry

Fwd atEntry Target Stop

CurrentPrice

Price atExit

Date ofExit

Profit(%)*

WeightedProfit(%)**

Long CNY vs USD 1M NDF 22-Jul-13 200% 6.172 6.188 6.08 6.130 6.1117 1.23 2.45

Closed Trade sLong MYR vs USD 1M NDF 11-Jan-13 17% 3.0165 3.021 3.06 28-Jan-13 -1.3 -0.2Long KRW vs USD 1M NDF 28-Jan-13 33% 1087.5 1089 1103.2 14-Mar-13 -1.3 -0.4Short JPY vs KRW 14-Mar-13 33% 11.532 12.11 4-Apr-13 -5.0 -1.7Short AUD vs USD 27-Mar-13 17% 1.0484 0.9985 13-May-13 4.8 0.8Short JPY vs USD 4-Apr-13 33% 92.91 98.58 26-Apr-13 6.1 2.0Long INR vs USD 1M NDF 16-Apr-13 33% 54.44 54.67 56.20 23-May-13 -2.8 -0.9Short MYR vs USD 1M NDF 8-May-13 50% 2.976 2.98 3.091 6-Jun-13 3.7 1.9Long INR vs USD 1M NDF 13-May-13 33% 54.94 55.20 56.17 23-May-13 -1.8 -0.6Short JPY vs USD 21-May-13 33% 102.45 95 13-Jun-13 -7.3 -2.4Long CNH vs USD 1M fwd 21-May-13 166% 6.1268 6.138 6.1348 19-Jun-13 0.1 0.1Short PHP vs USD 1M NDF 20-Aug-13 66% 43.95 44.008 43.58 16-Sep-13 -1.0 -0.6Short JPY vs USD 16-Sep-13 67% 98.86 98.75 19-Sep-13 -0.1 -0.1Long INR vs USD 1M NDF 18-Nov-13 67% 62.610 63.340 61.1 64.000 61.02 9-Dec-13 3.7 2.4

Year to Date Return 2013 2.72*Profit is calculated as spot at entry to current spot plus carry . We are assuming that carry is earned evenly, every day f or simplicity.

** Weighted Prof it is the profit of the trade multiplied by the w eight in the portfolio.

Performance (%)

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 0.10 1.58 -0.85 0.36 0.80 2.18 2.7


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ForecastsFX Spot 1Q 2Q 3Q 4Q2014 4Q2015USD/CNY 6.07 6.06 6.02 5.98 5.90 5.80USD/CNH 6.07 6.06 6.02 5.98 5.90 5.80USD/HKD 7.75 7.80 7.80 7.80 7.80 7.80

USD/IDR 12,275 12,500 12,200 12,000 11,500 10,000USD/INR 61.8 63.0 61.5 60.0 59.0 55.0USD/KRW 1056 1090 1070 1050 1020 990USD/MYR 3.29 3.35 3.30 3.20 3.17 3.15USD/PHP 44.4 45.0 44.5 44.0 43.5 42.0USD/SGD 1.27 1.30 1.26 1.24 1.21 1.18USD/THB 32.9 34.0 33.8 33.5 32.5 29.5USD/TWD 30.0 30.5 30.3 29.4 29.0 29.0EUR/USD 1.38 1.34 1.31 1.30 1.28 1.20USD/JPY 105 105 106 108 112 115EUR/SEK 8.96 8.85 8.80 8.65 8.50 8.20EUR/NOK 8.45 8.35 8.40 8.45 8.50 7.65

AUD/USD 0.89 0.88 0.88 0.87 0.85 0.85

Policy Rates Current 1Q 2Q 3Q 4Q2014CH lending 6.00 6.00 5.75 5.75 5.50CH deposit 3.00 3.00 3.25 3.25 3.50Korea 2.50 2.50 2.50 2.75 2.75India 7.75 8.25 8.25 8.25 8.00Indonesia 7.50 8.00 8.25 8.25 8.00Malaysia 3.00 3.00 3.25 3.50 3.75Philippines 3.50 3.75 4.00 4.00 4.00Thailand 2.25 2.25 2.25 2.50 2.50Taiwan 1.88 1.88 1.88 1.88 2.00

US 0.25 0.25 0.25 0.25 0.25EU 0.25 0.25 0.25 0.25 0.25SW 0.75 0.75 1.00 1.00 1.00NO 1.50 1.50 1.50 1.75 1.75

AU 2.50 2.50 2.50 2.50 2.50 Real GDP % yoy 2011 2012 2013 2014 2015China 9.3 7.7 7.7 7.4 7.0India 7.5 5.4 4.7 5.2 5.5Indonesia 6.5 6.2 5.6 5.3 5.5Korea 3.6 2.0 2.8 3.6 3.5Singapore 5.3 1.3 3.2 4.0 3.8

US 1.8 2.8 1.7 3.3 3.7Euro zone 1.6 -0.7 -0.4 0.8 1.6Sweden 3.7 1.0 0.7 2.5 3.2Norway 1.2 3.1 0.9 2.4 2.1

CPI % yoy 2011 2012 2013 2014 2015China 3.3 3.5 2.7 3.1 3.2India WPI 9.5 6.5 6.2 5.8 5.5Indonesia 5.1 4.3 7.2 6.8 5.5Korea 4.2 1.4 1.3 2.2 2.3Singapore 2.8 4.5 2.4 2.9 2.6

US 3.1 2.1 1.6 1.6 2.2

Euro zone 2.7 2.5 1.5 1.0 0.9Sweden 3.0 0.9 0.0 1.0 2.0Norway 1.2 0.8 2.2 2.1 2.3

Source: Bloomberg, CEIC, SEB.


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Asia Strategy: Bet on the tortoise in the year of the horse

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