The Fixed Income Markets (FIM) Asia ex-Japan Research Roadshow on Asia Outlook and Strategy 2010 was successfully held from 7th to 14th July 2010 in six Asian cities, including Hong Kong, Singapore, Shanghai, Yantai, Seoul and Taipei. This year’s theme was "Storm Before the Calm". During the roadshow, FIM Research representatives shared their views with a total of 570 clients on the following topics: Economic upswing underway, but will it last? - Europe on the ropes. What dangers lie ahead? - EUR the weak link, but should we worry about the USD too? - Can Asia shine if Europe fails? - China: a bubble waiting to burst?

Mitul Kotecha, Head of Global Foreign Exchange Strategy, said "We do not expect to see a double dip for major economies although we do forecast a growing divergence in growth. G3 economic recovery will likely be led by the United States but, even here, the recovery will be below-average. We look for an annualised pace of 3.3% of growth in the United States in 2010 and 3.4% in 2011 whilst in Japan GDP is set to grow by 3.3% in 2010 and 1.6% in 2011. Eurozone growth will lag at 0.9% in 2010 and 1.2% in 2011. We maintain our view that the G3 central banks will be in no rush to hike interest rates. We expect the Fed to be on hold until the second quarter of 2011. The ECB is similarly likely to wait until the second quarter of 2011 before its first rate hike and we expect Japan’s central bank to maintain the call money rate at 0.1% throughout 2011. We see further USD strength for much of the forecast horizon but with risks towards the end of 2011 as focus returns to US budget/debt worries. Attention on fiscal/debt problems in Europe will likely keep the EUR under pressure and we forecast EUR/USD at 1.12 by end-2010. The JPY is also likely to weaken over the forecast horizon and we see USD/JPY moving to around 100 by the end of 2010."

Sébastien Barbé, Head of Emerging Markets Research and Strategy, said "Asian asset prices may remain under pressure as fears of a global deceleration seems to be growing in the market, and as European sovereign fears remain alive in the second half of 2010. However, it must be noted that Asia, including China, enjoys significant fiscal flexibility, compared with developed economies, in particular. China itself will likely decelerate, but gradually. Still, rising uncertainty should incite policymakers to tighten monetary conditions only gradually. We expect Asian asset prices and currencies to rally eventually, as the global situation stabilises, and as Asia’s strong fundamentals, rising interest rates and stronger growth prospects, will attract global money."

Frances Cheung, Senior Strategist for Asia ex-Japan, said "We expect central banks in Asia to turn more hawkish in coming months, as markets stabilise and demand-pull inflation gradually kicks in. This would push up IRS rates, especially at the front-end. Meanwhile, rises in long-end rates could be tempered by a favourable bond supply outlook, with another wave of major fiscal stimulus measures unlikely given the better fundamentals this year. This will result in a bear flattening trend. While some rate hikes are already priced in by the markets, we still see potential value from pay positions, especially at the front end, to ride on the general uptrend in rates. Markets that are relatively dovish compared with our policy rate calls include China, Korea and India."