March 2017 Asia FX Outlook Trump trade vs. the Fed, which ... · Jan-15 Jan-16 Jan-17 US - JP 10yr...
Transcript of March 2017 Asia FX Outlook Trump trade vs. the Fed, which ... · Jan-15 Jan-16 Jan-17 US - JP 10yr...
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, LEGAL ENTITY DISCLOSURE AND ANALYST CERTIFICATIONS.
Asia FX Outlook Trump trade vs. the Fed, which will drive FX?
March 2017
Fixed Income Analyst + 65 6212 3412, [email protected]
Ray Farris, Head of Fixed Income Research and Economics, Asia Pacific
USD-ASIA outlook
More Asian FX strength near term
− USD rangebound rather than trending
− Asian growth momentum solid, even if peaking
Higher US yields and changes in US fiscal policy to drive broad USD strength
later this year and into 2018
INR, IDR more resilient thanks to real rate support
KRW, TWD better now, but vulnerable later if risk pulls back
CNY likely stable through political transition
2
Credit Suisse FX Forecasts
3
Spot 3-Month 12-Month Spot 3-Month 12-Month
G10 EURUSD 1.079 1.03 1.00 LATAM USDBRL 3.088 3.200 3.500
USDJPY 111.39 115 112 USDCLP 662.8 670.0 680.0
EURCHF 1.071 1.06 1.06 USDCOP 2,921 3,100 3,150
USDCHF 0.993 1.02 1.06 USDMXN 19.00 19.00 22.00
GBPUSD 1.248 1.20 1.20 ASIA USDCNY 6.8856 6.980 7.180
USDCAD 1.333 1.35 1.37 USDCNH 6.8738 6.990 7.190
AUDUSD 0.766 0.72 0.70 USDIDR 13,331 13,100 13,600
NZDUSD 0.704 0.66 0.67 USDINR 65.40 64.80 67.00
USDNOK 8.469 9.03 9.50 USDKRW 1,120 1,100 1,170
USDSEK 8.799 9.03 9.15 USDMYR 4.431 4.350 4.500
EMEA USDRUB 57.73 58.0 60.0 USDPHP 50.35 50.80 51.80
USDTRY 3.616 3.80 4.10 USDSGD 1.400 1.410 1.445
USDZAR 12.561 13.50 14.25 USDTHB 34.66 34.60 35.50
USDTWD 30.50 30.00 32.00
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
USD-Asia historically tracks USD-G10
It is a historical regularity through past cycles that USD-Asia follows USD-G10 directionally
80
85
90
95
100
105
110
11570
75
80
85
90
95
100
105
Jan-03 Jan-07 Jan-11 Jan-15
DXY
Asia USD basket, inverted (RHS)
85
86
87
88
89
90
91
9292
94
96
98
100
102
104
Sep-15 Jan-16 May-16 Sep-16 Jan-17
DXY
Asia USD basket, inverted (RHS)
4
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
USD: Border tax adjustment risk
Corporate tax change could also be a major driver in H2 2017 or 2018 on two
fronts:
− Possible lower tax rate for one-off repatriation of overseas profits
− Shift to border tax adjustment: theory argues for the USD to rise by t/(1-t)
immediately in response to the imposition of a border tax regime
A 20% tax rate would imply a 25% rally in the USD in theory
Perfect, immediate adjustment is of course unlikely, but meaningful upward
pressure on the USD is a clear risk
5
USD: But reasons to curb enthusiasm also exist
The two previous bouts of structural USD strength coincided with a wider current account deficit in the US
A similar dynamic might create a potential “home” for investment outflows from surplus economies such as Japan and Germany
6
0
20
40
60
80
100
120
140
160
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
1973 1976 1979 1982 1985 1989 1992 1995 1998 2001 2004 2008 2011 2014
Current account bal, % of GDP
Goods balance, % of GDP
Services balance, % of GDP
Income balance, % of GDP
DXY (right)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
USD: Long-term limits to dollar strength persist
The US has a net international investment deficit
− The deficit is primarily a consequence of portfolio investments
A stronger USD implies that, ceteris paribus, assets are likely to grow at a slower speed than liabilities
− The NIIP deficit is therefore likely to widen as the USD strengthens
− This represents a natural long-term circuit breaker against the USD strength
7
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
FDI Portfolio Derivatives Other Reserveassets
Total
US NIIP: Gross Breakdown (%GDP)Assets % GDPLiabilities % GDP
-50%
-40%
-30%
-20%
-10%
0%
10%
FDI Portfolio Derivatives Other Reserveassets
Total
US NIIP: Net Breakdown (%GDP) Net % GDP
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
EUR: Bearish
EURUSD forecast: 1.03 in 3m, 1.00 in 12m
Some positives exist
− Growth is improving and current account surplus is supportive
But we expect monetary policy to remain easy
− Output gap remains large, depressing wages and core inflation
− Nonetheless, bouts of market fear of ECB taper may occur; we think these will
be false alarms
Politics is the key problem and should be EUR bearish, in our view
8
EUR: Monetary divergence – not yet
Euroarea real yields have kept pace with US real yields
We think the market is underpricing the Fed relative to the ECB
But this may have to wait until H2 to eventuate
9
31-Dec-15 30-Jun-16 30-Dec-16
-1.75
-1.50
-1.25
-1.00
-0.75
-0.50
-0.25
US 1y2yr real yield, % EU 1y2yr real yield, %
Source: Credit Suisse Locus
31-Dec-15 30-Jun-16 30-Dec-16-1.75
-1.50
-1.25
-1.00
-0.75
1.050
1.075
1.100
1.125
1.150
EU - US 1y2yr real yield, % EURUSD (RHS)
Source: Credit Suisse Locus
JPY: Neutral
USDJPY forecast: 115 in 3m, 112 in 12m
However, two factors lead us to expect JPY recovery later this year:
− Risk off, either because of market unfriendly European political developments
or higher US yields challenging US equity valuations
Not forecasts per se, but high enough probabilities to incorporate into our USDJPY outlook
− BoJ may hike or taper asset purchase earlier than expected
10
JPY: Real yields are driving the yen
As with the EUR, JPY real yields have kept pace with USD yields
For the JPY to weaken the Fed needs to turn more aggressive
11
99
104
109
114
119
124
1.3
1.5
1.7
1.9
2.1
2.3
2.5
Jan-15 Jan-16 Jan-17
US - JP 10yr govt, %
USDJPY (RHS)
100
105
110
115
120
125
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Jan-15 Jan-16 Jan-17
US-JPY real 10y yield,%
USDJPY (RHS)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
AUD: Bearish
AUDUSD forecasts: 0.72 in 3m and 0.70 in 12m
Market pricing for rates may be too complacent
− Core inflation is structurally weak
− Continued weaknesses in the labor market, housing investment and domestic
consumption remain key domestic risks going forward
Political pressure to maintain AAA rating rules out fiscal stimulus
The case for further macro prudential measures on the housing market is
strengthening
12
AUD: Disinflation forced the RBA’s hand
13
Measures of core inflation have been decelerating since last year, putting pressure on the RBA to cut
– versus pricing for no change
Real yield differential risks being dragged lower by RBA-Fed policy divergence
AUD core inflation measures
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, RBA
CNY: Stability the main focus
We forecast CNY to be stable against its basket through 4Q, before
weakening to 92.5 in 1Q 2018
USDCNY spot forecasts: 6.98 and 7.18 in 3m and 12m
− USDCNH forecasts: 6.99 in 3m and 7.19 in 12m
The government seems focused on stability into political transition
The CNY’s problem is monetary conditions are too easy
− Expansionary monetary/credit policy vs. US tightening
− Real deposit rates are too low for an economy growing 6.5-6.8%
A weak USD can allow for opportunistic devaluation against the basket, but should reverse when USD regains strength
14
CNY: What is the government trying to accomplish?
Clear shift to managing CNY vs. a basket, but with what target?
We think they are trying to transition to allowing CNY flexibility driven by the
direction of BoP flows, but…
…subject to the constraint that the pace of change in USDCNY doesn’t spur
self-reinforcing speculative flows
Implies bouts of a CNY trend followed by periods of reversal
− Easy to allow the CNY to trend vs. the basket when USD-G10 is sideways
− Need to halt or reverse the CNY trend when USD-G10 is on the move
15
CNY: What is the government trying to avoid?
Many like to discuss and even recommend CNY devaluation, particularly as a “weapon” in retaliation to US protectionism
A key problem with this is that almost everything the government has done recently shows that it does not want CNY instability or devaluation:
− Increased intervention to support the CNY
− Reversed CNY depreciation vs. the basket
− Tightened implementation of capital controls and reversed internationalization of the CNY
The message we see is that the government believes that devaluation comes with costs, not just benefits
16
CNY: Opportunistic devaluation?
The PBoC has resumed basket depreciation since mid-March
Likely opportunistic as DXY falls, and should reverse if DXY strengthens
6.60
6.65
6.70
6.75
6.80
6.85
6.90
6.95
7.00
Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
USDCNY fix
92.5
93.0
93.5
94.0
94.5
95.0
95.5
96.0
96.5
97.0
Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
CNY CFETS
Source: Credit Suisse, CEIC
17
Monetary policy has begun to tighten
The PBoC has increased the level and volatility of the repo rate
The move seems to be to targeting leveraged speculation in bonds, not slow broad credit and GDP
growth
18
2.20
2.40
2.60
2.80
3.00
3.20
3.40
Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
7-day, vol weighted, 20 day avg
7-day fixing, 20 day avg
5.9
6.1
6.3
6.5
6.7
6.9
-6.0
-5.5
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
Jun-12 Jun-14 Jun-16
US-CH rate spread (1y US swaprate vs. weighted average ChinaWMP rate, %
USDCNY (RHS)
Source: Credit Suisse, CEIC
CNY: Capital outflows seem to have slowed
Capital outflows stopped in February, but likely in part thanks to supportive seasonality
Fundamentally, government’s tighter implementation of controls, PBoC tightening, and a more
subdued USD should allow outflows to moderate
19
-300
-250
-200
-150
-100
-50
0
50
100
Jan-13 May-14 Sep-15 Jan-17
From FX reserves
From PBoC foreign assets
From PBoC FX assets
From FX settlement
Capital flow estimated, excluding trade balance, $bn
-200
-150
-100
-50
0
50
100
Jun-13 Apr-14 Feb-15 Dec-15 Oct-16
Capital flows, $bn
Trade balance, $bn
Net change in PBoC FX assets, $bn
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
CNY: Monetary conditions – the fundamental problem
Real deposit rates are too low for an economy growing 6.5–6.8%
Problem will worsen if inflation continues to rise
20
CNY rates are household deposit rates including Wealth Management products
-6
-4
-2
0
2
4
6
8
08 09 10 11 12 13 14 15 16
Household real deposit rate ( including WMP,deflated by CPI, %p.a)
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
6.0
6.2
6.4
6.6
6.8
7.0
7.2
7.4
Jan-09 Jan-11 Jan-13 Jan-15
USDCNY
US-CN interest rate, % (RHS)
US-CN real rate, % (RHS)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
CNY: Hard to hold a parity with this monetary policy
The PBOC has more than offset the monetary impact of its FX reserve losses through OMO and
lending to banks
Narrow money is growing rapidly even as FX reserve backing for this shrinks
21
-20
-10
0
10
20
30
40
50
12 13 14 15 16
Domestic contribution
FX contribution
Reserve money growth (RRR adjusted, %yoy, 3mma)
15
20
25
30
35
40
45
50
Jan-10 Apr-12 Jul-14 Oct-16
PBOC foreign assets,RMB tn
M1, RMBtn
Source: Credit Suisse, CEIC
CNY: Credit and broad money excesses likely to rise
We expect the government to continue targeting 12–13% credit growth in support of 6.5%+ GDP
growth
Actual credit growth is likely to be stronger
22
90%
130%
170%
210%
250%
97 99 01 03 05 07 09 11 13 15 17
Credit to GDP (%)
Linear (Credit to GDP (%) )
Source: Credit Suisse, CEIC
IDR: Outperformance of market pricing
USDIDR forecasts: 13,100 in 3m and 13,600 in 12m
Growth should rise to about 5.2% in 2017
− May generate some bounce in equity flows in H1 2017
− Current account deficit should narrow on improving exports
Monetary policy has turned defensive of the IDR
− BI doesn't want IDR weakness while removal of electricity subsidies is increasing inflation
− BI has stopped cutting rates, holding real rates historically high
We expect S&P to upgrade Indonesia this year
23
IDR: C/A deficit should improve
Stronger hard commodity prices and improving exports are boosting the trade balance
We expect the current account deficit to narrow to 1.5% of GDP in 2017 from 1.8% in 2016.
24
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-10 Jul-11 Jan-13 Jul-14 Jan-16
Non-oil trade balance, US$bn, 3m avg
Oil trade balance, US$bn, 3m avg
Trade balance, US$bn, 3m avg
25
35
45
55
65
75
85
95
105
115
125-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Jan-09 May-10 Sep-11 Jan-13 May-14 Sep-15 Jan-17
Oil trade balance, US$bn, 3m avg
Brent, 1st future, 3m avg (RHS)
Source for all: Credit Suisse, CEIC
IDR: Interest rate support remains robust
Indonesian real yields are historically high
10yr yield of 7.85% is high relative to US yields, but Fed hikes should erode this as 2017 progresses
25
-4
-2
0
2
4
6
8
Jan-08 Mar-10 May-12 Jul-14 Sep-16
Real 10y, %
Real 3m depo rate, %
2
4
6
8
10
12
14
16
18
Jan-08 Mar-10 May-12 Jul-14 Sep-16
ID - US 10yr, %
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
INR: Support from improving governance and growth
USDINR forecasts: 64.8 in 3m and 67.0 in 12m
Monetary policy is proving hawkish
− Growth – inflation balance should turn INR supportive
Current account deficit should widen somewhat on trend
− Q2 seasonality is negative and may partly offset improvement in portfolio flows
Policy desire for REER moderation, in our view
− Intervention is likely to continue restricting USDINR downside
26
INR: Seasonality, not the current account per se
India’s current account is likely to deteriorate slightly: the trade surplus should weaken as growth
improves and the services and income surpluses are trending weaker
But seasonality is probably more important now than the level
27
-60
-50
-40
-30
-20
-10
0
10
20
30
Jan-10 Aug-11 Mar-13 Oct-14 May-16
Current account, $bnGoods, $bnServices & income, $bn
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Q1 Q2 Q3 Q4
INR average quarterly change incurrent account balance, $bn
Source: Credit Suisse, CEIC Source: Credit Suisse, CEIC, average monthly change from 2005 to 2016 excluding 2008 and 2009
INR: Monetary policy has surprised hawkish
The RBI failed to cut rates as expected and shifted from an easing to a neutral bias in February
Real interest rates should remain historically high even after GST, oil, and the pay commission one-off
boosts to inflation this year
Monetary/credit background points to lower inflation on trend
28
-10
-8
-6
-4
-2
0
2
4
6
Jan-06 Jan-10 Jan-14
Real 1y deposit rate, CPI, %
fcst
3
5
7
9
11
13
15
10
12
14
16
18
20
22
24
Mar-05 Jul-07 Nov-09 Mar-12 Jul-14 Nov-16
M4, yoy %, 2y lag
CPI, yoy %, 3m avg
Source: Credit Suisse, CEIC
INR: Growth-inflation balance is becoming supportive
Our forecasts point to economic growth rising faster than inflation; historically this has supported the
INR
May not overwhelm the effect of the Fed rate hikes we expect, but should allow the INR to
outperform the current NDFs
29
-6
-4
-2
0
2
4
6
8
10
12
14
-25
-20
-15
-10
-5
0
5
10
15
20
Dec-2005 Dec-2008 Dec-2011 Dec-2014 Dec-2017
INR/USD (%yoy)
Nominal GDP growth less CPI inflation (%yoy, rhs)
fcst
Source: Credit Suisse, CEIC
INR: REER richness is a key risk to policy
Despite the hawkish policy shift, the authorities seem to have been intervening to limit INR strength
We believe they would prefer the INR REER to weaken; creates rate cut risk if inflation surprises to
the downside, in our view
30
-10
-5
0
5
10
15-40
-30
-20
-10
0
10
20
30
40
50
60
Mar-04 May-07 Jul-10 Sep-13 Nov-16
Exports, yoy% (LHS)
REER, yoy%, 2y lag
82
87
92
97
102
Jan-94 Sep-99 May-05 Jan-11 Sep-16
BIS INR real exchange rate
Source: Credit Suisse, CEIC
KRW: High beta FX play on equities
USDKRW forecasts: 1100 in 3m and 1170 in 12m
DXY weakness is allowing KRW recoupling with equities
Balance of payments likely to weaken on trend
− Current account surplus is weakening and rising tension with China hurts tourism
− Capital outflow pressure is rising structurally
Longer-term risks are rising
− Korea is exposed to the US via processing trade with China and its FTA with the US
− Structural problems are likely to constrain growth
31
KRW: Back to equities
Stall in US rates has allowed the KRW to recouple with equities
But equities are at risk of stalling if global growth momentum slows as we expect while rate spreads
are gradually moving against the KRW
32
1080
1100
1120
1140
1160
1180
1200
1220
1240
1800
1850
1900
1950
2000
2050
2100
2150
2200
Aug-15 Feb-16 Aug-16 Feb-17
KOSPI
USDKRW (RHS)
1000
1050
1100
1150
1200
1250
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
Mar-12 Nov-13 Jul-15 Mar-17
SK vs. US 1s5s yldcurve, bps
USDKRW (RHS)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service,
KRW: Current account surplus is falling
The current account surplus has begun to roll over – we expect surplus to narrow to 6.1% of GDP
from 7.2%
Capital outflow pressure is rising structurally
33
-40
-20
0
20
40
60
80
100
120
Jan-11 Jun-12 Nov-13 Apr-15 Sep-16
Current account, US$bn, 12m sum
Basic balance, US$bn, 12m sum
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
Jan-12 Jun-13 Nov-14 Apr-16
Net portfolio equity, $bn, 12m sum
Net portfolio debt, $bn, 12m sum
Source: Credit Suisse, CEIC
MYR: More positive equity sentiment
USDMYR forecast: 4.35 in 3m, 4.50 in 12m
Growth to rebound, FX flows more supportive
− Equity inflows have picked up strongly
− FX inflows from trade has increased
− April tends to see a rise in dividend repatriation
BNM intervention to limit MYR rally
− BNM needs to accumulate reserves against rising forward liability
A resumption higher in US yields would drive USDMYR higher
NDF restrictions may structurally hurt foreign participation
34
MYR: Better macro outlook supports FX
Infrastructure investment should drive growth recovery to 4.5% this year from 4.2% in 2016
Current account surplus should rise to 2.5% of GDP from 2%, thanks to both commodity prices and
better global demand
China investment and tourism have picked up strongly
35
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
USD mn Foreign Direct Investment into Malaysia
US China + HK
0
5
10
15
20
25
30
35
40
45
Mar-00 Nov-03 Jul-07 Mar-11 Nov-14
Current account, $bn, 12m sum
Basic balance, $bn, 12m sum
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
MYR: Equity inflows are rising
Our EM equity strategist has recently upgraded Malaysia to 10% above benchmark
Bond outflows should slow after investors sharply cut positions
36
190
200
210
220
230
240
250
260
270
Jan-13 Mar-14 May-15 Jul-16
Total foreign holdings of debtsecurities, MYRbn
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
Aug-16 Oct-16 Dec-16 Feb-17
MYR equity flow, $bn, 1m sum
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
MYR: BNM need to accumulate reserves
FX forward liability has grown to $9.6bn at the end of January
37
-10
-5
0
5
10
15
20
25
Dec-99 Oct-03 Aug-07 Jun-11 Apr-15
BNM FX forward position, US$bn
-12
-10
-8
-6
-4
-2
0
2
Jan-13 Mar-14 May-15 Jul-16
Forward
Cash
Malaysia net change in FX reserves position, $bn
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
SGD: Better 1H, weaker 2H
USDSGD forecasts: 1.410 in 3m, 1.445 in 12m
Rising inflation and improving global growth support NEER in 1H
− We expect MAS to hold policy unchanged in April
Pressures should return in 2H
− Singapore has a competitiveness problem
− REER overvaluation is driving market share losses and suppressing growth
− We expect inflation to fall back below 0
− GDP growth is likely to be disappointing, labor market deterioration an additional source of concern
38
SGD: Singapore has a competitiveness problem Goods and services market share is falling
Would take about five years to bring REER to
trend through deflation
39
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%Singapore Services Exports Market Share (%)
1.8%
1.9%
2.0%
2.1%
2.2%
2.3%
2.4%
1995 1998 2001 2004 2007 2010 2013
Singapore Global Goods Market Share (%)
70
80
90
100
110
120
130
Jan-75 Apr-85 Jul-95 Oct-05 Jan-16
SGD REER, CPI based
SGD REER, ULC based
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC 2015 estimated from IFS data
SGD: Inflation pressure on the NEER – up now, down later
The inflation path implies stronger NEER through H1, but lower levels in H2
Rising resident unemployment rate should also add to pressure on policy
40
-4
-2
0
2
4
6
8
10
Jan-00 Mar-04 May-08 Jul-12 Sep-16
CPI inflation, %yoy
SGD NEER, %yoy, assuming unchanged atcurrent levels
CS inflation fcst
Eurozone crisis
SARS outbreak 112
114
116
118
120
122
124
126
128
Jan-12 Jan-14 Jan-16 Jan-18
SGD NEER
Forecast assuming yoy
path tracking inflation
Policy bands
Slope
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
TWD: Equities and more tolerant policy
USDTWD forecasts: 30.0 in 3m, 32.0 in 12m
TWD has recoupled with equities and diverged from rate spreads
− Positive tech cycle has driven net foreign buying of Taiwanese equity
− Exports have surprised to the upside, boosting the trade surplus
− Policy is allowing REER appreciation
BoP strength should moderate somewhat as 2017 progresses
− Allowing USDTWD to catch up with interest rate spreads
41
TWD: Shifting back to equities
Strong tech cycle is driving export outperformance and inflows into equities
And allows USDTWD to decouple from rate spreads
42
28
29
30
31
32
33
34
356500
7000
7500
8000
8500
9000
9500
10000
10500
Jan-11 May-13 Sep-15
TWSE
USDTWD (RHS)
28
29
30
31
32
33
34
35
36
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Jan-10 May-12 Sep-14 Jan-17
US-TW 2y swap, %
USDTWD (RHS)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
TWD: More policy tolerant to REER appreciation
Multi-year breaks stronger on a REER basis
and vs. the CNY
Threatening to break recent ranges vs. the
KRW
…but intervention has been modest
43
25.0
30.0
35.0
40.0
45.0
Jan-06 Jan-09 Jan-12 Jan-15
TWDKRW
3.9
4.1
4.3
4.5
4.7
4.9
5.1
5.3
Jan-06 Jan-09 Jan-12 Jan-15
CNYTWD
9698
100102104106108110112114116
Jan-06 Nov-08 Sep-11 Jul-14
TWD REER
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
TWD: BoP strength should moderate, but only gradually
Taiwan’s trade surplus has peaked and we expect its current account surplus to ease to 12.5% of
GDP in 2017 vs. 13.4% in 2016
However, portfolio outflows are also likely to slow as domestic financial institutions approach their
overseas investment limit
44
0
10
20
30
40
50
60
70
80
90
Jan-11 Sep-12 May-14 Jan-16
Taiwan portfolio investmentabroad, US$bn, 12msum
Current account, US$bn,12msum
50%
57%
60%
Increase of 1%-2%
40%
45%
50%
55%
60%
65%
4Q 2104 4Q 2015 4Q 2016(estimate)
2017guidance
Overseas investment as %of total portfolio of majorTaiwan's insurancecompanies
Source: Credit Suisse equity research, CEIC
THB: Strength limit by BoT intervention
USDTHB forecasts: 34.6 in 3m, and 35.5 in 12m
BoT intervention to limit THB strength
− Seasonally weaker current account balance makes BoT’s task easier in the next two
months
− Equity sentiment is weakening on disappointing earning outlook
But growth to recover and current account surplus should strengthen
− Exports and tourism driving current account improvement
− Growth to broaden to investment and private consumption
Domestic sector outflows are rising, albeit only slowly
− Net FDI outflow was about 2.5% of GDP in 2016, while net portfolio outflows
stabilised to a mere 0.5%
45
THB: BoT intervention the main drag
BoT bought $8.4bn in 2017 YTD, the most in Asia
Intervention seems to aim at slowing THB REER appreciation
46
95
97
99
101
103
105
107
109
111
Jan-10 Nov-11 Sep-13 Jul-15
THB REERCash Forward Net cash & forward
FX
reserves,
$bn, latest
Change
latest,
val
YTD,
$bn
YTD, %
of FX
reserve
Change
latest,
$bn
YTD,
$bn YTD, $bn
CNY 3005 7.0 -30.8 -0.9% 0.0 0.0 -30.8
INR 340 0.5 0.5 0.2% -0.1 -0.1 0.4
IDR 120 3.0 2.8 2.7% 1.1 1.1 3.9
KRW 374 0.0 0.6 0.2% 0.2 0.2 0.7
MYR 92 0.0 -0.1 -0.1% -1.2 -1.2 -1.4
PHP 81 -0.2 0.0 0.0% 0.1 0.1 0.1
SGD 253 0.4 3.7 1.5% 3.1 3.1 6.8
TWD 438 1.0 -0.6 -0.1% n/a n/a n/a
THB 175 3.7 9.7 6.5% 0.9 -1.3 8.4
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
THB: Flow less supportive in the coming months
Negative current account seasonality to drive surplus down by $3bn by April
Recent equity inflows have started to reverse
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Average monthly change from 2006 to 2016, excluding 2008 and 2009
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Thailand current account monthlychange, $bn
-4
-3
-2
-1
0
1
2
3
4
Feb-11 Feb-13 Feb-15 Feb-17
THB equity flow, $bn, 1msum
THB equity flow, $bn, 3msum
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
THB: Structural strength from rising current account surplus
Current account surplus is likely to rise to 12.5% of GDP from 11.4%
Net FDI outflow was about 2.5% of GDP in 2016, while net portfolio outflows stabilised to a mere
0.5%
Institutional capacity appears to be constraining domestic outward investment
48
-30
-20
-10
0
10
20
30
40
50
60
Jan-06 Sep-08 May-11 Jan-14 Sep-16
Current account balance, $bn, 12msum
Financial account and errors &omissions, $bn, 12m sum (positive= outflows)
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Jan-06 May-08 Sep-10 Jan-13 May-15
Financial account assets, $bn, 12msum
Direct Investment assets
Portfolio investment assets, $bn, 12msum
Other Investment assets, $bn, 12msum
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
Disclosure Appendix Analyst Certification
I, Ray Farris, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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