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.”