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01/25/2012 / FLASH / CHINA - HONG KONG - KOREA, REPUBLIC OF - SINGAPORE - TAIWAN / FOREIGN EXCHANGE
Fixed Income Markets Research Team presents "Asia Outlook and Strategy 2012"
The Fixed Income Markets (FIM) Asia ex-Japan Research Roadshow on Asia Outlook and Strategy 2012 was successfully held from 10th to 18th January 2012 in six Asian cities: Taipei, Singapore, Seoul, Hong Kong, Shanghai and Beijing. This year's theme was "Toughing it Out".
During the roadshow, FIM Research representatives shared their views with 564 clients and 44 journalists on the following topics:
. Is the global economy heading for a lost decade?
. Eurozone crisis - Where will the silver bullet come from?
. Safe haven or high beta currencies? Top FX trades for 2012
. Is real estate market posing hard landing risks for China?
. Can emerging Asia save the world's economy?
. CNH outlook: what is the future of CNY internationalisation?
. Asian rates curves to steepen under no-recession scenario.
Mitul Kotecha, Head of Global Foreign Exchange Strategy, said, “The backdrop to 2012 is very difficult. Even with a resolution to Eurozone problems, economic growth globally will slow. While the United States will likely avoid recession, Europe will at least fall into a ‘mild’ recession, if not a deep one. Japanese growth will be supported by stimulus but will not escape the slowdown in external activity. We look for GDPGross Domestic Product (GDP) is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). GDP is one of the key measures of national income and output for a given country's economy. growth of 1.9%, 2.5%, and 0.0% for the United States, Japan and Eurozone respectively, over 2012. Monetary policy will remain very accommodative. The Fed will maintain the Fed Funds target rate at 0.00-0.25% into 2013, with an expansion of its balance sheet in H112 likely. In the Eurozone, we expect the ECB policy refi rate to be cut to 0.5% by March 2012. The ECB will also further strengthen its ‘enhanced credit support’ measures. Ongoing deflation in Japan will maintain the pressure on the BoJ to keep policy accommodative. Following a rocky Q1 2012 we expect a recovery in high-beta currencies. Conversely, major currencies including CHF, JPY, EUR and GBP are all expected to weaken. Although we ultimately expect the crisis in the Eurozone to be resolved, the EUR will be constrained by relatively slower growth and overvaluation and will weaken gradually over 2012 to around 1.26 versus USD.”
Dariusz Kowalczyk, Mitul Kotecha and Frances Cheung
Dariusz Kowalczyk, Senior Economist and Strategist for Asia ex-Japan, added, “Emerging Asian growth will remain solid in 2012, at 6.5%, although this represents another year of slowdown. Deceleration will reflect past monetary and fiscal tightening, weak demand from the Eurozone, and attempts by Chinese policy makers to bring down home prices. Downside risks will prevail until a convincing solution to the Eurozone crisis is put in place. Still, the region’s exposure to the Eurozone is manageable - only 15.9% of exports are destined there. Moreover, policy can cushion economies from negative external developments as falling inflation means large scope for stimulus. Main policy rates will be lowered by an average of 60 bpsThe basis point (bps) corresponds to a unit of measurement of interest rates. Widely used on the financial markets, this unit is equivalent to a hundredth of point. The variation of interest rates is most of time too small to be stated as points. Therefore, those variations are presented in hundredth of points. (Source: Optim Finance) in Q1 - Q3 2012, and fiscal policy will be eased as well. Initially, Asian currencies will be vulnerable to downward pressure, especially those from countries where there is a lot of foreign capital that could leave - the KRW and the SGD - or where current accounts are in deficit - the INR and the VND. The CNY, the CNH and the HKD will be safe havens. After Europe sorts out its problems, Asian FX will recover as fundamentals will become the focus of markets again. We see the biggest upside for the KRW, the SGD and the INR.”
The conference in
Toughing it out - Presentation by Mitul Kotecha, Frances Cheung and Dariusz Kowalczyk
Toughing it out - Report by Mitul Kotecha, Frances Cheung and Dariusz Kowalczyk