asia strategy focus: investing through themes in 2013

7/30/2019 Asia Strategy Focus: Investing through themes in 2013

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You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are

given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changesmay be made to opinions or information contained herein without notice.

Escalator Up Part II Asia 2013 OutlookMONDAY

14 JANUARY 2013

EDITORSean Yokota

Head of Asia Strategy

[email protected]

+65 6505 0583

Focus: Asia 2013 Outlook - What should we do going forward in 2013? In our firstAsia StrategyFocus (22 Oct 2012), we titled it The Escalator Up Part, where we expected Asian currencies toslowly appreciate going into 2013. As the economic recovery becomes consensus and reflected inprices, we are advising investing through themes in 2013 whereas 4Q 2012 was a directional call.The three themes we see in 2013 are 1) Trend following (long KRW) 2) Event trades (long MYR) 3)

Shift away from fundamentals (long INR, IDR vs. SGD, HKD).Our CNY strategy is to be short USDCNH 12M and long USDCNY 12M NDF. We prefer CNH overNDF because a) CNH provides positive carry b) we are anticipating a widening in the daily tradingband, which will have a bigger impact on the spot referenced markets (CNY onshore and CNH) c)we think the move in fixing will be concentrated towards 2H when the economy and politicaltransition are on a firmer footing and signs of inflation and monetary tightening bias return.

The title of this publication has the phrase Escalator Up since making profit can be a slow grindbut can quickly be erased by elevator down. As we enter a more established upward trend andpositioning increases, the chances of elevator down builds. The US Debt Ceiling negations arecan be that catalyst. Hence, we will run with the above themes for the year but will introducetactical themes towards mid to late February to hedge the 12 month themes outlined above.

Asia FX Portfolio Last week we initiated an Asia FX Portfolio by going long MYR vs. USD. Wewill build the portfolio over the first quarter to reflect the 2013 themes mentioned above. Thetrades we are considering to add are 1) Long KRW vs. USD 2) Long INR vs. SGD 3) Long USDHKD 4)Long 12M CNH vs. CNY NDF. We will be publishing Currency Strategyat the end of January led byour Chief Currency Strategist Carl Hammer. From there we will look to diversify our funding awayfrom USD to other G10 currencies.

FX Tracker - A look at Asian across asset performance, FX forwards and volatility overthe last month. What stands out?

1) Performance Positive correlation between equity and currency markets continued for thesecond month lifting Asian assets. However, the G3 FX moves are dwarfing Asian FX movement.China related equity markets performed well and Philippines remains the star performer on equity,

bonds and currency. Hawkish Fed minutes have pushed rates higher in Asia and have steepenedthe curve. Growth related steepening will remain positive for Asia but yield increase from fiscalscare will hurt Asian performance and worth following going forward. Indonesian 5 year bondscontinued to fall from canceled bond auctions but yields will again rise in 2013.

2) Forwards Implied yields continue to fall following spot. Many markets such as CNY, PHP,TWD are pricing in appreciation. IDR and INR still offer attractive positive carry.

3) Volatility - Implied volatility continues to head lower with the exception of MYR, PHP and JPY.JPY remains on an upward trend while EUR vol drops.
http://../[email protected]://../[email protected]


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Focus: Escalator Up Part II Asia 2013 Outlook

Summary

What should we do going forward in 2013? In our firstAsia Strategy Focus (22 Oct 2012), we titled it The

Escalator Up Part, where we expected Asian currenciesto slowly appreciate going into 2013. We saw a cyclicalrecovery will favour Asian currencies but intervention bycentral banks will slow the pace of appreciation. Sincethen, the macro has turned better with improved exportsand domestic activity in China and the Asia Dollar Indexis up by 74bp or about 5.7% annualized. They areaverage moves but small compared to the 66%annualized move in USDJPY.

As the recovery becomes consensus and reflected inprices, we are advising investing through themes in 2013whereas 4Q 2012 was about a directional call. The three

themes we see in 2013 is 1) Trend following (long KRW)2) Event trades (long MYR) 3) Shift away fromfundamentals (long INR, IDR vs. SGD, HKD).

The title of this publication has the phrase Escalator Upsince making profit can be a slow grind but can quicklybe erased by elevator down. As we enter a moreestablished upward trend and positioning increases, thechances of elevator down builds. The US Debt Ceilingnegations are can be that catalyst. Hence, we will runwith the above themes for the year but will introducetactical themes towards mid to late February to hedgethe 12 month themes outlined above.

Macro backdrop positive but limited upsidesurprise

We remain positive on the macro outlook for Asia sincethe two biggest engines, exports and Chinas domesticdemand remain on a recovery path.

As Chart 1 shows, exports have been increasing sincelate last year after contracting for the first time since the2008 Global Financial Crisis. And going forward, ourfavourite leading indicator for Asian exports, Taiwansmanufacturing survey points to continued recovery in2013.

Chart 1: Asian exports to continue recovering

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TIER leading indicator, pushed fwd 6m (RHS)

Source: CEIC, Taiwan Institute of Economic Research, SEB

Taiwans manufacturing survey has been a reliableindicator for Asian exports since Taiwan manufacturershave small domestic markets and are very sensitive tochanges in global demand. For places like China, Korea

and Japan, an initial slowdown in US and Europeandemand can be buffered by selling their goods to theirlarge domestic markets and their production reaction isdelayed. On the other hand, Taiwan will have to cutproduction immediately and sentiment is downgradedimmediately.

An important item to notice on Chart 1 is that although theleading indicator points to a recovery in exports, thestrength of the recovery will be mild and hard to see itgrowing above 10% this year. Furthermore, exports pointto some moderation in the first half, which will impact howwe position for the shorter time horizon.

What about China? We dont think the new leadershipchange will lead to massive stimulus or new reforms.Instead, we focus on the construction cycle, which hasbeen the driver of the Chinese domestic economy in thepast. Our SEB China construction indicator has reliablyshowed the upturn in the domestic cycle starting in Juneof last year and continues to recover (Chart 2). Initially,pick up in infrastructure spending helped constructionactivity but what will keep the recovery going are smallupward rise in property prices and monetary stimulusfrom non-bank lending.

Chart 2: Chinas domestic activity also recovering

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SEB China construction indicator% yoy 3mma

Source: CEIC, SEB

The number of Chinese cities experiencing month onmonth price increases have been growing sinceSeptember, which implies that demand is outstrippingsupply and clearing out inventories. In addition, in placeslike China where deposit rates remain low (well belowinflation), households will again become attracted tomoving funds away from deposits to purchasing homes asthey see home prices rebounding.

Furthermore, as mentioned in our previous publications,

non-bank lending continues to grow and is providingmonetary stimulus. As Chart 3 shows, bank lending hasbeen lacklustre this year but total financing continues to


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grow from other financing channels such as corporatebond market and trust products. As we enter a new year,bank lending should also get its seasonal boost as banksget new annual calendar lending quota and points tofurther monetary stimulus.

Chart 3: Non bank lending is keeping total financing high

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New Total Financing New Bank Lending

RMB trn 3mma

Source: PBoC, CEIC, SEBAsia outside China

Similar to China, a big macro driver for rest of Asia hasbeen credit growth that has supported domestic demandin lieu of weak exports. The view going forward here is abit mixed based on location. Total credit growth hasbeen generally slowing (Chart 4, blue line) but theslowdown has been led mostly by North Asia (Korea,Taiwan, Hong Kong). On the other hand, South Asiasdomestic economy will be relatively better supported bycredit growth going forward. This makes sense since theless developed South Asia is financially less developed(smaller debt) and has room to increase credit growth.Also, a low global inflationary environment has allowedthe higher growth and inflation prone South Asianeconomies to continue to use credit growth to fuel thedomestic economy.

Chart 4: Credit growth is dispersed by location

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Credit growth % yoy averages

Source: CEIC, SEB

Inflation not a show stopper for domestic demand

What can stop the credit induced growth? Inflation willbe the show stopper since that will lead to higher interest

rates and raise the price for obtaining loans andfinancing. Chart 5 shows that currently, inflation isgenerally declining and isnt threatening to end the credit

story soon. Of course, directionally as we get deeper intorecovery, inflation will start rising. A more assured outlookwill also reignite investment and the capital expenditurecycle, increase the demand for loans at these low interestrates and lead to more inflationary pressures. But, at thisstage of the recovery with a soft patch expected in exportsin the first half of 2013, inflation in Asia shouldnt be an

issue for most of 2013.

Chart 5: Inflation is still declining generally

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TWD PHP INR US SGD IDR Avg MYR CNY HKD THB KRW VNDCP I % YoY 3m ppt c hange

Source: CEIC, Bloomberg, SEB

Intervention slowing down FX moves

Despite a growth recovery, Asian FX hasnt moved asmuch because of intervention. Chart 6 shows changes inFX reserves since September and every economy has beenintervening with the exception of Thailand. Furthermore,relatively stable USDCNY fixing since late October has alsolikely encouraged Asian central banks to intervene since

their biggest export competitor hasnt move. Lastly, withthe benign inflation backdrop, central banks dont see anyrush to tighten via an appreciating currency.

Chart 6: Intervention preventing faster appreciation

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HKD SGD PHP IDR M YR KR W TWD C NY IN R THB

% Change in FX reserv es from Sep 2012 to current

Source: CEIC, Bloomberg, SEB

How to position going forward?

Our view is that investors should retain long Asiancurrencies positioning. Export recovery will support thecurrent account and higher relative growth to G3 willencourage capital inflow.

However, 3 months ago the call was directional when arecovery was not consensus. Now, a continued recoveryscenario is largely consensus and prices have moved toreflect the view. Therefore, we think it is better to


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approach investing in Asian currencies throughthemes in 2013. We see 3 themes developing andrecommend the following trades.

Theme #1 - Trend following: expressed throughshort USDKRW. Sustained recovery means that weshould be breaking out from range trading and risk

on/off environment. Medium term trends should startforming. The best performing currency over the lastthree months and 2012 as a whole has been the KRWand we think KRW will continue to appreciate.

As discussed in our previous Asia Strategy Focus , Koreato leave ASEAN (5 Dec 2012), Korea will benefit fromforeign bond inflows. Koreas high private sector debtlimits borrowing and investing and will shift towards alower inflation and interest rates economy. Furthermore,the high debt is hurting property prices (Chart 7) andBank of Korea may join India to be the only 2 economiesin Asia that will cut interest rates in 2013. We think an

export soft patch in 2Q will lead to rate cut by BoK.

Chart 7: Korea, only one with declining house prices

708090

100110120130140150160170180190

Jan-09 Jan-10 Jan-11 Jan-12

Beijing HK Mumbai Kuala Lumpur

Singapore Taipei Bangkok Seoul

Property Prices 2009=100

Source: CEIC, SEB

Short USDPHP also fits this theme as another stellarperforming currency and equity market in 2012 and theonly economy in Asia with a potential credit ratingupgrade in 2013. However, seasonally PHP appreciationtends to be weaker in January and February asremittances slowdown but we would revisit in Marchafter the resolution of the debt ceiling conversations inthe US.

Theme #2 - Event trade: expressed through shortUSDMYR. To generate alpha in a sustained, gradualrecovery macro environment, picking out events will becrucial to outperform. Within Asia, Malaysia is the onlyeconomy that has top leadership election this year andelections must be called by June. Considering thedemographics, Prime Minister Najib will likely win theelection, but the question is by how much. With theeconomic cycle running relatively stable and inflationlow, the chances of a downside surprise to his popularityis low in our view and the election will likely movesmoothly. This will reduce the political event risk priced

into MYR and act as a catalyst. In addition, a strongmajority for Najib would allow him to continue with hisliberalization plans, especially in the equity market.

Malaysias equity market is often expensive sincedomestic funds and public institutions buy and holdMalaysian stocks, which make foreigners reluctant to buyMalaysia as it is over-priced and discourages Malaysiancompanies from aggressively increasing profitability. Withdomestic institutions divesting, that will force moreforeign inflows and should lead to more efficient

Malaysian companies. This is another positive for MYR.

Another event we foresee this year is for China to widenthe daily trading band from +/- 1% from USDCNY fixing to+/-1.5%. Exact timing is always difficult but, the nextmove in 1H 2013 is a very reasonable timeframe relative tohistory since it took about 22 months for the firstwidening of the trading band from 0.3% to 0.5% (July2005 to May 2007) and it has been about 21 months sincethe last widening from 0.5% to 1.0% (April 2011 to Jan2012, the 0.5% to 1.0% move took longer because of theGlobal Financial Crisis in 2008). The widening will bepositive for CNY but the move will be limited for USDCNYsince it already trades 1% stronger to the daily fixing (only50bp upside). We think it is better to position with moreflexible and the most correlated currency to CNY. Chart 8shows that MYR and PHP are the most correlated currencyto CNY. Hence we like being short USDMYR since it has itsown event catalyst from the election and the exposure toCNY band widening.

Chart 8: Correlation to USDCNY

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IDR INR SGD THB TWD KRW MYR PHP

3M Correlation to USDCNY as of Jan 10, 2013

Source: Bloomberg, SEB

Theme #3 - Rotating fundamentals: expressedthrough long IDR or INR and fund through SGD or

HKD. Fundamentals ruled during much of last year asglobal sovereign debt crisis loomed. Since Asianeconomies tend to have minimal fiscal debt issues, thefundamental focus was on the current account (Chart 9).The European crisis reduced global capital flows andIndonesia and India couldnt fund the current accountdeficit and led to depreciation in their currencies. AllAsian currencies appreciated last year with the exceptionof India and Indonesia.


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Chart 9: Asias current account

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INR IDR THB CNY PHP KRW MYR TWD SGD

Current Account % of GDP

Source: CEIC, SEB

In 2013, as recovery becomes more certain we thinkinvestors will move out the risk curve and start investingin under-performed and less fundamentally soundcurrencies, which are INR and IDR. We like IDR better

fundamentally since we expect improvements in thecurrent account from recovery in the trade deficit.Indonesia is a big commodity exporter and recovery inChinas domestic economy should see its exports recoverand help adjust the trade deficit. With that said, timing iskey in IDR and currently the central bank appears to becomfortable with a weaker IDR since it is not feedingthrough to inflation. We recommend trading IDRtactically where IDR NDFs should only be bought whenforward points spike and take profit when it resettlestowards spot. The trade to anticipate a movement lowerin IDR spot may not emerge until 2Q. We will keep aclose watch.

The alternative is INR and short term it can performbetter than IDR as a more stable global financialmarket attracts equity flow back into India. Thecarry is higher in India compared to Indonesia. We thinkthe bigger move lower in USDINR will take place oncethe central bank can start more aggressive interest ratecuts, which will be towards second half of the year.

On the funding side, we prefer to fund using SGD orHKD. USDSGD will continue to appreciate but we thinkthe pace will lag the region. SGD benefited from itsstrong fundamentals of double digit current account

surplus, minimal fiscal debt and liquid foreign exchangemarket (in Asian terms). However, performance shouldlag going forward as fundamentals start to matter lessand valuation caps big gains since SGD NEER still tradestowards the stronger side of the band. In addition,cyclically, inflation has eased from over 5% in the middleof 2012 to close to 3.5% recently. Inflation is mostlyhousing and autos (autos are inflated by increasedauction price to own a car) and at least for housing, morecooling measures have been introduced such asincreasing stamp duty on home purchases by 5-7percentage points. The measures will prevent a rebound

in inflation and greatly reduces the risk of MASaccelerating the pace of appreciation in Aprils policymeeting.

Long USDHKD is another alternative. USDHKD istrading at the very bottom of the peg at 7.75 and cannotget any stronger from a more positive macro environment.Hong Kong inherits US interest rate policy from the peg tothe USD and low rates have pushed up asset prices inHong Kong. Rebound in Chinas growth and return of CNYappreciation has also helped Hong Kong.

However, there are risks that HKD will weaken. One risk isthat as the US economys recovers, expectations ofincrease in Feds balance sheet can be curtailed andlonger term yields may start to rise. The rise in ratesthrough the peg will pressure Hong Kong rates to rise andlower Hong Kong priced assets. Both of these will pushUSDHKD higher. Furthermore, long USDHKD can act ashedge if China or general global risk re-emerges. LongUSDHKD is also a small positive carry hedge.

Of course the main risk is if the USDHKD peg breaks.However, in that scenario we think China and Asias

outlook needs to be significantly strong and our generallong Asia trades will have already performed well.

CNY Strategy We will run a separate strategy for CNY.Our view is that USDCNY will appreciate at the 1-2%annualized pace this year and we prefer to play thisdirectional theme through other Asian currencies such asthe MYR mentioned above. We see USDCNY spot endingthe year at 6.10.

Our CNY specific strategy remains to be short USDCNH12M and long USDCNY 12M NDF (see Whats cooking inCNY for 2013? 26 Nov 2012). We prefer CNH over NDF

because a) CNH provides positive carry whereas NDF nolonger does (Chart 10) b) we are anticipating a widening inthe daily trading band, which will have a bigger impact onspot referenced markets (CNY onshore and CNH) c) wethink the move in fixing will be more concentratedtowards 2H when the economy and political transition areon a firmer footing and signs of inflation and monetarytightening bias return.

On timing, we would wait for better entry. This trade hasworked extremely well since end of December and 12month outright NDF and CNH have converged. We wouldlike to see this spread widen in the coming months to put

the trade on.

Chart 10: NDF no longer pricing in depreciation

12M Implied yield %

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USDCNY NDF USDCNH



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Event Risk and Timing - Temporarily reduce risk inlate February for Debt Ceiling talks. We suggestpositioning for long Asian currencies but we are worriedabout the US debt ceiling talks that will likely commencein February. Asian markets will probably resort to theFiscal Cliff trading style where risks will only be priced in

at the last minute. Risk assets like equities can have ahealthy 10% correction and typically Asian currencies gethit also. Our suggestion is to run with the above themesfor the year but will introduce tactical themes towards midto late February to hedge the 12 month themes outlinedabove.


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Asia FX Portfolio

Last week we initiated an Asia FX Portfolio by going Long MYR vs. USD. We will build the portfolio over the first quarter to reflect the2013 themes mentioned above. The trades we are considering to add are 1) Long KRW vs. USD 2) Long INR vs. SGD 3) LongUSDHKD 4) Long 12M CNH vs. 12M CNY NDF. We will be publishing Currency Strategyat the end of the month led by our ChiefCurrency Strategist Carl Hammer. From there we will look to diversify our funding away from USD to other G10 currencies.

Current Trades

Date of

Entry

Weight in

PF

Spot at

Entry

Fwd at

Entry Target Stop

Current

Spot

Price

Price at

Exit

Date of

Exit Profit*

Weighted

Profit**

Long MYR vs USD 1M NDF 11-Jan-13 16.66% 3.0165 3.021 2.94 3.061 3.0198 -0.09% -0.02%

Closed Trades

Year to Date Returns 2013 -0.02%

*Profit is calculated as spot at entry to current spot plus carry earned from date of entry. We are assuming that carry is earned evenly, every day for simplicity.

** Weighted Profit is the profit of the trade multiplied by the weight in the portfolio.

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FX Tracker

Performance

What stands out? Positive correlation between equity and currency markets continued for the second month lifting Asian assets.

However, G3 FX moves are dwarfing Asian FX movements. China related equity markets performed well and Philippines remains thestar performer on equity, bonds and currency. Hawkish Fed minutes have pushed rates higher in Asia and have steepened the curve.Growth related steepening will remain positive for Asia but yield increase from fiscal scare will hurt Asian performance and worthfollowing going forward. Indonesian 5 year bonds continued to fall from canceled bond auctions but yields will again rise in 2013.

Chart 15: Currencies Chart 16: Equity markets

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ADXY

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1M change from 10/12 to 10/01(% vs USD)

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1M return from 10/12 to 10/01(%)

Chart 17: 5 year rates Chart 18: 2 year rates

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Chart 19: 2 year 5 year slope Chart 20: Commodities

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ForwardsChart 21: 3 month implied yield annualized vs. 1 month ago

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What stands out? Implied yields continueto fall following spot. Many markets such asCNY NDF, PHP, TWD are pricing inappreciation and carry continues todiminish. IDR and INR still offer attractive

positive carry.

CNY NDFs are pricing in appreciation acrossthe curve. We prefer going long CNYonshore the most followed by CNH.

IDR one month forwards rise is overdoneand are good times to go short USDIDR 1M.

Chart 22-1: CNH Outright Chart 22-2: CNH forward yield curve Chart 22-3: CNH forward yield curve ann.

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Current (10-Jan )

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Current (10-Jan )

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Current (10-Jan )

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Chart 23-1: CNY NDF Outright Chart 23-2: CNY NDF yield curve Chart 23-3: CNY NDF yield curve ann.

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Chart 24-1: CNY Onshore Outright Chart 24-2: CNY onshore fwd yield curve Chart 24-3: CNY onshore yield curve ann.

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Current (10-Jan )

1-mth ago (10-Dec )

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Current (10-Jan )

1-mth ago (10-Dec )

(%)

1.641.621.631.81

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2.322.452.74

3.473.99

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1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)


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Chart 25-1: HKD Outright Chart 25-2: HKD forward yield curve Chart 25-3: HKD forward yield curve ann.

7.7457.7447.747

7.7497.750

7.751

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7.7497.7507.750

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Current (10-Jan )

1-mth ago (10-Dec )

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-0.01

0.00

1M 3M 6M 9M 12M

Current (04-Dec )

1-mth ago (05-Nov )

(%)

-0.17 -0.11-0.14

-0.10 -0.09

-0.04

-0.04

-0.04-0.03 -0.04

-0.20

-0.15

-0.10

-0.05

0.00

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 26-1: IDR Outright Chart 26-2: IDR forward yield curve Chart 26-3: IDR forward yield curve ann.

10,36510,133

10,0259,948

9,867

10,254

10,15510,0349,9409,8129,752

9,633

9,200

9,400

9,600

9,800

10,000

10,200

10,400

10,600


Current (10-Jan )

1-mth ago (10-Dec )

4.222.97

0.170.69

1.780.20

5.06

3.62

2.20

1.11

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1M 3M 6M 9M 12M

Current (04-Dec )

1-mth ago (05-Nov )

(%)

10.31

5.055.265.466.56

7.64

6.48 5.59 5.42

15.87

0.0

5.0

10.0

15.0

20.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 27-1: INR Outright Chart 27-2: INR forward yield curve Chart 27-3: INR forward yield curve ann.

55.24

57.61

56.8756.11

54.6854.58

57.5756.7956.03

55.19

54.6854.51

52

53

54

55

56

57

58


Current (10-Jan )

1-mth ago (10-Dec )

1.22

2.81

4.21

0.19

5.564.19

2.80

1.26

0.32

5.62

0

1

23

4

5

6

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

5.565.645.70

4.96

2.33

5.625.635.675.12

3.92

0

1

2

3

4

5

6

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 28-1: KRW Outright Chart 28-2: KRW forward yield curve Chart 28-3: KRW forward yield curve ann.

1073

1077

1069106510601060

1,0821,0801,079

1,0941,0911,087

1,040

1,050

1,060

1,070

1,080

1,090

1,100


Current (10-Jan )

1-mth ago (10-Dec )

0.83

-0.01

0.41

1.58

1.21

1.391.06

0.700.28

0.06

-0.50

0.00

0.50

1.00

1.50

2.00

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)1.67 1.61 1.581.67

-0.11

0.691.14

1.41 1.41 1.39

-0.5

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)


10


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Asia Strategy Focus

Chart 29-1: MYR Outright Chart 29-2: MYR forward yield curve Chart 29-3: MYR forward yield curve ann.

3.03

3.03

3.04

3.05

3.07

3.08

3.06 3.073.07

3.09

3.10

3.11

3.02

3.04

3.06

3.08

3.10

3.12


Current (10-Jan )

1-mth ago (10-Dec )

1.58

1.17

0.730.21

-0.10

1.701.31

0.870.41

0.12

-0.5

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

-1.14

0.86

1.46

1.561.58

1.46

1.67 1.75 1.75 1.70

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 30-1: PHP Outright Chart 30-2: PHP forward yield curve Chart 30-3: PHP forward yield curve ann.

40.2740.3040.3140.35

40.68

40.47

40.9040.8740.8940.9040.9340.95

39.8

40.0

40.2

40.4

40.6

40.8

41.0

41.2


Current (10-Jan )

1-mth ago (10-Dec )

-1.00-0.92-0.90

-0.80

-0.50

-0.12-0.20-0.15-0.12

-0.05

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

-5.88

-3.16

-1.79-1.23 -1.00

-0.58 -0.49-0.29 -0.26 -0.12

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 31-1: SGD Outright Chart 31-2: SGD forward yield curve Chart 31-3: SGD forward yield curve ann.

1.222

1.222 1.222 1.222 1.222 1.222

1.2211.2211.221

1.2211.2211.222

1.218

1.221

1.224


Current (10-Jan )

1-mth ago (10-Dec )

0.00 0.01

-0.05

-0.02

0.00

0.00

-0.07

-0.05

-0.03-0.01

-0.08

-0.06

-0.04

-0.02

0.00

0.02

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

0.05

0.00 -0.03

-0.05

0.02

-0.03

-0.07-0.07-0.05

-0.05

-0.10

-0.05

0.00

0.05

0.10

1M 3M 6M 9M 12M

Current (10-Jan )1-mth ago (10-Dec )

(%)

Chart 32-1: THB Outright Chart 32-2: THB forward yield curve Chart 32-3: THB forward yield curve ann.

30.7930.69

30.40 30.5230.31

30.26

31.2031.0830.94

30.7930.6930.64

29.5

30.0

30.5

31.0

31.5


Current (10-Jan )

1-mth ago (10-Dec )

0.460.15

0.86

1.40

1.75

1.44

0.50

0.17

0.96

1.83

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M

Current (10-Jan )1-mth ago (10-Dec )

(%)

1.85

1.82

1.731.88

1.75

1.922.01

2.12

1.93

1.83

1.5

1.7

1.9

2.1

2.3

2.5

2.7

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)


11


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Asia Strategy Focus

Chart 33-1: EUR Outright Chart 33-2: EUR forward yield curve Chart 33-3: EUR forward yield curve ann.

1.3311.3301.3291.3281.3281.327

1.3001.2981.2971.2951.2951.294

1.270

1.280

1.290

1.300

1.310

1.320

1.330

1.340


Current (10-Jan )

1-mth ago (10-Dec )

-0.02

-0.14-0.22

-0.31

-0.07

-0.04

-0.09

-0.44

-0.32

-0.20

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

-0.29

-0.29

-0.29 -0.30 -0.31

-0.39-0.42

-0.42

-0.37 -0.44

-0.50

-0.45

-0.40

-0.35

-0.30

-0.25

-0.20

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 34-1: JPY Outright Chart 34-2: JPY forward yield curve Chart 34-3: JPY forward yield curve ann.

88.488.688.688.788.888.8

82.082.182.282.382.382.4

78.0

80.0

82.0

84.0

86.0

88.0

90.0


Current (10-Jan )

1-mth ago (10-Dec )

-0.02-0.07

-0.39

-0.26

-0.15

-0.18

-0.04-0.09

-0.30

-0.44-0.5

-0.4

-0.3

-0.2

-0.1

0.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

-0.27 -0.28-0.30

-0.34

-0.39

-0.50

-0.36 -0.36-0.40

-0.44

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)

Chart 35-1: AUD Outright Chart 35-2: AUD forward yield curve Chart 35-3: AUD forward yield curve ann.

1.0461.053

1.0571.060

1.0391.032

1.0221.028

1.035

1.0421.0461.049

1.00

1.01

1.021.03

1.04

1.05

1.06

1.07


Current (10-Jan )

1-mth ago (10-Dec )

0.24

2.04

1.35

0.69

2.73

0.26

2.67

2.02

1.37

0.69

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)2.89

2.732.73

2.732.78

2.802.75

2.712.67

3.11

2.0

2.2

2.4

2.6

2.8

3.0

3.2

1M 3M 6M 9M 12M

Current (10-Jan )

1-mth ago (10-Dec )

(%)


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Asia Strategy Focus

Volatility

Chart 40: 3 month annualized implied volatility

0

2

4

6

8

10

12

14

JPY

INR

AUD

EUR

THB

KRW

IDR

MYR

PHP

SGD

TWD

CNH

CNY

(3)

(2)

(1)

0

1

2

3

41/10/13

12/10/12

change over the last 1mth, (rhs)

(%) (ppts)

What stands out? Implied volatilitycontinues to be low with the exception ofMYR, PHP and JPY. JPY remains on anupward trend while EUR vol drops.

Sharp rise in realized IDR vol is concerning(Chart 44).

SGD and MYR vols are rising and KRW, TWDand PHP implied vol remain the only onesretaining a down trend.

Chart 41: CNH Chart 42: CNY NDF Chart 43: HKD

0

2

4

6

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

Implied Realized

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Implied Realized

0.0

0.2

0.4

0.6

0.8

1.0


Implied Realized

Chart 44: IDR Chart 45: INR Chart 46: KRW

0

5

10

15

20


Implied Realized

0

5

10

15


Implied Realized

0

4

8

12

16


Implied Realized

Chart 47: MYR Chart 48: PHP Chart 49: SGD

0

3

6

9

12


Implied Realized

0

2

4

6

8

10


Implied Realized

0

3

6

9

12


Implied Realized


13


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Asia Strategy Focus

Chart 50: THB Chart 51: TWD Chart 52: EUR

0

2

4

6

8


Implied Realized

0

2

4

6

8


Implied Realized

0

3

6

9

12

15

18


Implied Realized

Chart 53: JPY Chart 54: AUD

0

24

6

8

10

12


Implied Realized

0

3

6

9

12

15

18


Implied Realized


14


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Asia Strategy Focus

Forecasts

FX Spot 1Q13 2Q13 3Q13 4Q13

USD/CNY 6.22 6.19 6.17 6.15 6.10

USD/CNH 6.18 6.19 6.17 6.15 6.10

USD/HKD 7.75 7.80 7.80 7.80 7.80

USD/IDR 9866 9800 9750 9700 9650USD/INR 54.8 54.0 53.5 52.0 51.0

USD/KRW 1056 1045 1030 1020 1000

USD/MYR 3.02 2.95 2.90 2.87 2.85

USD/PHP 40.6 40.3 40.1 39.5 39.0

USD/SGD 1.23 1.21 1.20 1.19 1.18

USD/THB 30.3 30.1 30.0 29.7 29.3

USD/TWD 29.0 28.5 28.4 28.3 28.0

EUR/USD 1.31 1.33 1.30 1.25 1.22

USD/JPY 87.5 88 90 92 94

Policy Rates Current 1Q13 2Q13 3Q13 4Q13CH 6.00 6.00 6.00 6.00 6.25

CH RRR 20.00 20.00 20.00 20.00 20.00

KR 2.75 2.75 2.50 2.50 2.50

IN 8.00 7.75 7.50 7.00 7.00

ID 5.75 5.75 5.75 5.75 6.00

MA 3.00 3.00 3.00 3.00 3.25

PH 3.50 3.50 3.50 3.50 3.75

TH 2.75 2.75 2.75 2.75 3.00

TW 1.88 1.88 1.88 1.88 2.00

Real GDP % yoy 2012 2013 2014

China 7.7 8.1 7.7

India 5.5 5.9 6.2

Indonesia 6.2 6.4 6.1

Korea 2.5 3.9 3.6

Singapore 2.2 4.5 4.1

US 2.2 2.4 2.7

Euro zone -0.4 -0.2 0.8

Source: Bloomberg, SEB. Spot is referenced to time of forecast.

15


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Asia Strategy Focus

DISCLAIMER

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asia strategy focus: investing through themes in 2013

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