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02.28.2013 / FLASH / CHINA - HONG KONG - INDIA - SINGAPORE


Fixed Income Markets Research team presents "Asia Outlook and Strategy 2013"

The Fixed Income Markets Asia ex-Japan Research roadshow on Asia Outlook and Strategy for 2013 was successfully held from 14th January to 25th January 2013 in 7 Asian cities: Hong Kong, Shanghai, Beijing, Seoul, Singapore, Taipei and Mumbai. This year's theme was "Sigh of relief".


During the roadshow, the Fixed Income Markets Research representatives shared their views with over 600 clients and 35 journalists on the following topics:
  • Do we face another year of directional paralysis or will event risk finally begin to dissipate? 
  • Global recovery in sight but will policymakers end the impasse? 
  • Risk appetite, yield, and/or economic fundamentals. What will drive markets in 2013? 
  • How fast will China grow this year and what structural reforms will be pursued? 
  • What does Asia's 'new normal' growth mean for regional FX? 
  • Asian rates: how will the low-interest rate environment come to an end? 
  • What are the triggers for steeper rate curves?
















Mitul Kotecha
, Head of Fixed Income Markets Research Asia and Head of Global Foreign Exchange Strategy, said:
The US will lead the way. Growth will remain below trend but assuming only a limited fiscal drag, 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 around 1.9% in the US is expected. 

The Eurozone economy will remain weak registering no growth over 2013, although lessening austerity pressures and easy monetary policy will help limit downside risks.

Japan will benefit from a more aggressive policy stance but growth will still only register a paltry pace of 0.6%.

The monetary levers will be in fully open position. While the efficacy of further QE remains questionable we do not see the Fed deviating from its policy stance.

The ECB is set to lower policy interest rates early in the year in the wake of sharp downward revisions to growth and inflation forecasts. After a prolonged period of lagging other central banks the BoJ is set to step up the pace of its monetary expansion.

Relatively favourable growth and higher yields will imply that the USD will perform well against the currencies of underperforming economies, namely the Eurozone and Japan. Although the USD will strengthen versus CHF, EUR, JPY and GBP we expect the USD to lose ground against most emerging market and commodity currencies.  Our top picks are the ‘turbo dollar’ currencies, namely CAD and MXN
.”
















Dariusz Kowalczyk
, Senior Economist and Strategist for Asia ex-Japan, said:
Asian growth should modestly pick up in 2013 to 7.0% from 6.1% in 2012. The firmer performance will reflect an improvement in the G3 growth cycle, a reduction in uncertainty in financial markets and faster expansion in China. 

China should grow at 8.5%, versus 7.7% last year, on the back of stimulus measures introduced in 2012. India will do better as well, gradually improving its fundamental profile and expanding by 6.5% versus 5.7% in 2012.

Korea should grow by 4.0%, versus 2.3% in 2012, as it is among the key beneficiaries of China’s acceleration, while Indonesia will likely expand 6.0%, almost unchanged from last year. Stronger growth will be coupled with faster inflation, whose regional average will rise to 4.2%, from 3.8% previously. To address price pressures, central banks will modestly hike rates in H213.

Only India will cut in a delayed easing cycle. We expect regional FX to appreciate. Gains will be driven by improved growth and interest rate differentials, which will attract portfolio inflows, and by foreign direct investment. Appreciation of the CNY, partly policy-driven, will help, as regional currencies are increasingly correlated with the Chinese unit. Our top picks are: the KRW - a key beneficiary of China’s recovery and a relatively undervalued currency; the INR - given gradually improving fundamentals; and the CNY - whose gains will be smaller but less volatile
.”
















Frances Cheung
, Senior Strategist for Asia ex-Japan, said:
We expect Asian rates to go up in a steepening manner, in 2013. The triggers for a more decisive upward move in rates would be a sustained return of risk appetite and a better growth outlook - these are in the making, in our view. We look for steeper HKD IRS, SGD IRS, KRW IRS and INR OIS curves. 

Most Asian sovereign bonds will still attract foreign inflows on yield pick-up and FX appreciation, but investors should not look for further meaningful capital gains from bonds after the stellar performance in 2012. In a rising interest rate environment, bond yields are likely to rise at a slower pace than rates do - or bonds will outperform IRS. As such, going long bonds and paying fixed rates could be a popular strategy. We see such opportunities in the CNY and KRW spaces, and possibly in the INR market as well if investor confidence returns
.”



Download the presentation 'Sigh of relief'

Download the presentation 'Sigh of relief'

Download the presentation 'Asia Outlook and Strategy 2013'

Download the presentation 'Asia Outlook and Strategy 2013'