mean s kbank mult i asset strategies strategies · 6 would the fed risk an event of default? like a...

1

.Mean S

Strategic Thesis The FOMC maintained the Fed fund rate unchanged at 0.00%-0.25% with a hawkish bias in the October’s meeting, while also downplaying the global and international headwinds in the statement. We believe that the Fed’s first move would take place in December as the US economic recovery is deemed sufficiently strong to withstand the first rate hike. The Fed is set for the first interest rate lift-off in almost a decade, but the ECB will remain on easing bias. Three motivation behind the need to act is growth risk stemming from EM, increased deflationary risk and the recent strength of the EUR. The EUR is likely to see limited reaction if the ECB only choose to extend the duration of QE program while the largest impact on EUR will be seen if it decide to further cut interest rate. We think the case for EUR/USD parity will be postponed in the near-term; it will take “two to tango” i.e. the combination of Fed and ECB move to get there. External forces should depress yield levels for the rest of the year. Domestic economic backdrop should remain bond-positive well into Q1/2016. LB25DA is trading very rich on the curve. The spread between LB236A and LB25DA has tightened during the bear market rallies to 5bps, compared to a 15bps average over 2014-2015. We prefer switching out of LB25DA to LB236A, targeting 20bps normalization in spread. The SET Index at 1,350-1,370 is an attractive entry level for long-term investment as this is equivalent to 13x PER 2016 based on our 2016 SET Index EPS estimate of Bt104. Our top picks are ADVANC, AOT, BH, CENTEL, CK, CPALL, ERW, INTUCH, and MTLS.

Kobsidthi Silpachai, CFA –Kasikornbank [email protected] KResearch [email protected] KSecurities

[email protected]

� Like a virgin, HIKING for the very first time?

� Changes in technology has shuffled the oil supply demand

balance and thus altering global inflation dynamics

� Anyhow, US Phillips curve is still intact, if measured by core

inflation…we expect the first lift-off in December 2015

� While the Fed is on course to raise rate, the ECB signaled to ‘re-

examine’ the possibility of stimulus in December

� We expect a combination of increasing asset purchase and

duration expansion; the EUR will weaken further but not to the

point of parity

� For Thai monetary policy, we see little benefit of adding more

demand management accommodation to a supply side problem

� Although we expect the FOMC to hike its Fed funds rate by

25bps in 2015 and 50bps in 2016, the BoT is unlikely to follow

� The recent rebound in EM currencies should be unsustainable

due to weaker fundamentals. For THB, we continue to see

USD/THB at 38.00 by end 2016

KBank Multi Asset Strategies

Like a virgin, HIKING for the very first time

Strategies

Macro / Multi Asset

November 2015

Volume 101

“KBank Multi Asset

Strategies”

can now be accessed on

Bloomberg: KBCM <GO>

Disclaimer: This report

must be read with the

Disclaimer on page 43

that forms part of it

2

Key Parameters & Forecasts at Year-end

2007 2008 2009 2010 2011 2012 2013 2014 2015E

GDP, % YoY 5.4 1.7 -0.7 7.5 0.8 7.3 2.8 0.9 2.8

Consumption, % YoY 1.2 2.8 -1.3 5.0 1.8 6.3 0.8 0.6 2.1

Government spending, %YoY 8.6 4.9 10.3 9.3 3.4 7.5 4.7 1.7 4.0

Investment Spending, % YoY 1.8 2.3 -10.9 11.6 4.9 10.2 -0.8 -2.6 4.8

Export (USD term), % YoY 18.2 15.9 -13.9 27.1 14.3 3.0 -0.1 -0.3 -5.0

Import (USD term), % YoY 9.1 26.7 -25.1 37.0 24.9 8.4 -0.1 -8.5 -8.5

Current Account (USD bn) 15.6 0.9 20.7 10.0 8.9 -1.5 -5.2 15.4 26.4

CPI % YoY, average 2.3 5.5 -0.9 3.3 3.8 3.0 2.2 1.9 -0.9

Fed Funds, % year-end 4.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.25-0.50

BOT repo, % year-end 3.25 2.75 1.25 2.00 3.25 2.75 2.25 2.00 1.50

Bond Yields

2yr, % year-end 3.91 1.98 2.17 2.35 3.10 2.88 2.62 2.11 1.65

5yr, % year-end 4.5 2.2 3.6 2.75 3.15 3.15 3.41 2.48 2.50

10yr, % year-end 4.9 2.7 4.3 3.25 3.30 3.52 3.98 2.83 2.90

USD/THB 33.7 34.8 33.3 31.4 31.54 30.60 32.68 32.91 36.75

USD/JPY 111.8 90.7 93.0 82.0 76.9 85.8 104.9 119.7 122.0

EUR/USD 1.46 1.40 1.43 1.40 1.29 1.32 1.38 1.21 1.09

SET Index 858.1 450.0 734.5 1,032.8 1,025.3 1,391.9 1,299.0 1,498 1,460

Source: Bloomberg, CEIC, KBank, KResearch, KSecurities

KBank Thai Government Bond Rich / Cheap model

-30

-20

-10

0

10

20

30

LB15

DA

LB16

7A

LB16

NA

LB17

6A

LB18

3A

LB18

3B

LB19

3A

LB19

6A

LB19

8A

LB21

3A

LB21

DA

LB23

3A

LB23

6A

LB24

DA

LB25

DA

LB26

7A

LB27

DA

LB29

6A

LB32

6A

LB38

3A

LB39

6A

LB40

6A

LB41

6A

LB44

6A

3 mth avg Now

bps (actual YTM vs. model)

Source: Bloomberg, KBank

3

KBank THB NEER Index KBank USD/THB – FX Reserves / USD Majors model

KBank THB Trade Weighted Index

106.1

75

80

85

90

95

100

105

110

115

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Jan 1995 = 100

+ 1 std dev

-1 std

dev

average

28.029.030.031.032.033.034.035.036.037.038.039.0

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

actual model -2SE +2SE

KBank USD/THB model

Source: Bloomberg, KBank Source: Bloomberg, KBank

FX reserves – USD/THB model DXY – USD/THB model

y = -6.6102Ln(x) + 65.888

R2 = 0.8805

27

29

31

33

3537

39

41

43

45

47

25 50 75 100 125 150 175 200 225

FX reserves to USD/THB mapping current 2015 est. 2016 est.

USD/THB

FX reserves, USD bn

y = 30.901Ln(x) - 102.03

R2 = 0.6592

272931333537394143454749

70 75 80 85 90 95 100 105 110 115 120 125

DXY to USD/THB mapping current

USD/THB

DXY

since 2001


KBank BOT repo model SET forward dividend yield vs. bond yields

0.00.51.01.52.02.53.03.54.04.55.05.5

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

actual model

%

2.5

3.0

3.5

4.0

4.5

5.0

10 11 12 13 14 1510yr yields SET forward dividend yields

%


Thailand’s GDP growth, year-over-year Thailand’s GDP growth, quarter-over-quarter

-5

0

5

10

15

20

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

%YoY

-8

-6

-4

-2

0

2

4

6

8

10

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

%QoQ SA

Source: NESDB, KBank Source: Bloomberg, CEIC, KBank

4

Thai inflation parameters Thai government bond, yield to duration ratio

-3%

-2%

-1%

0%

1%

2%

3%

4%

Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15

Core CPI Raw food Energy Headline CPI

YoY

30

40

50

60

70

80

90

100

110

120

130

05 06 07 08 09 10 11 12 13 14 15

yield to duration, bps -1sd average +1sd

Source: Bloomberg, KBank Source: CEIC, KBank

Implied forward curve: swaps Implied forward curve: TGBs

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

0 1 2 3 4 5 6 7 8 9 10

06/11/2015

next 3 months

next 6 months

next 12 months

tenor, yrs

%Thai swaps implied curve shifts

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

0 1 2 3 4 5 6 7 8 9 10

05/11/2015

next 3 months

next 6 months

next 12 months

tenor, yrs

% Thai govt bond implied curve shifts


Foreign holding of Thai fixed income and stock Mapping BOT repo vs. 2-10 spreads

604 585

32

229.0

-102.1

237

-110-60-104090

140190240290340390440490540590640

07 08 09 10 11 12 13 14 15 16

TGB, exc. BOT bond BOT bond Thai stocks, est since 1999

THB bn

2, 108

y = -60.268x + 286.83

R2 = 0.4899

-50

0

50

100

150

200

250

300

350

400

1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75 5.00

BOT repo - policy rate, %

2 - 10 spreads, bps

Source: Bloomberg,ThaiBMA, KBank Source: Bloomberg, KBank

5

KBank EUR/THB model KBank JPY/THB model

34

36

38

40

42

44

46

48

50

52

09 10 11 12 13 14 15 16

actual model

EUR/THB

25

27

29

31

33

35

37

39

41

43

09 10 11 12 13 14 15 16

actual model

JPY/THB


KBank GBP/THB model KBank CNY/THB model

4042

4446

4850

5254

5658

60

09 10 11 12 13 14 15 16

actual model

GBP/THB

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

09 10 11 12 13 14 15 16

actual model

CNY/THB


KBank SGD/THB model KBank AUD/THB model

22

23

23

24

24

25

25

26

26

27

27

09 10 11 12 13 14 15 16

actual model

SGD/THB

21.0

23.0

25.0

27.0

29.0

31.0

33.0

35.0

09 10 11 12 13 14 15 16

actual model

AUD/THB


6

Would the Fed risk an event of default?

Like a virgin, HIKING for the very first time In 1984, Madonna released a great album as most Gen X would and should know. The album’s title was “Like a Virgin”. The reason why we bring this up is a nontraditional analysis as to why the Federal Open Market Committee is so reluctant to raise its policy rate. Let’s compare the actual lyrics and a hypothetical one of this FOMC: Fig 1. Snippets from “Like a Virgin” Fig 2. This FOMC’s hypothetical lyrics

� …Like a virgin

� …touched for the very first time….

� ….like a virgin…..

� ….when your heart beats…

� ….next to mine….

� …Like a virgin

� …hiking for the very first time….

� ….like a virgin…..

� ….when your heart beats…

� ….next to mine….

Source: http://www.lyricsfreak.com/m/madonna/like+a+virgin_20086923.html

Source: Bloomberg, CEIC, Reuters Eikon, KBank

Fig 3. Madonna Fig 4. Janet Yellen

Source: http://blog.tiqiq.com/wp-content/uploads/2015/09/Madonna_blog_2.jpg Source: http://newshour-tc.pbs.org/newshour/wp-content/uploads/2014/03/Janet-Yellen.jpg

To be fair to the members of the Federal Open Market Committee (FOMC), not all are virgin hawks. The last time the FOMC raised policy rates was in June 2006, nearly a decade ago. Janet Yellen and Jeffery Lacker were part of that FOMC. Meanwhile the rest seem to fall into the camp of “virgin hawks” and the upcoming December FOMC move would be their “very first time”. While we were disappointed that the FOMC didn’t pull the trigger in October, we remain in the hawkish camp and look for the December 2015 meeting for the “very first time” 25 bps move. Let’s review the October FOMC statement.

Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in

Kobsidthi Silpachai, CFA - Kasikornbank [email protected] Pareena Phuangsiri - Kasikornbank [email protected] Nattariya Wittayatanaseth –Kasikornbank [email protected] Pornwalee Pilavun – Kasikornbank [email protected]

7

prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Several things jump out at us. This phrase: “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.” Never before in recent memory has the FOMC been explicit and specific of a date i.e. “at its next meeting”. While the Fed has tried (in vain) to get the market away from being fixated about the “timing” of the first move, there is the long standing adage…. “timing is everything”. Hence, it seems that the Fed is giving into this struggle to shift the focus from the timing of the first move to the path of future interest rates. A physicist would argue otherwise that both can not be separated due to the fact that space (path of interest rates moves) and time are interconnected i.e. space-time. But back to a more imprecise social science of economics, speaking of which, one reason the

8

Fed seems reluctant to move rates is the breakdown of the Phillips curve. No, we are not talking about light bulbs but the relationship between the jobs market and inflation. The saying is this. As the unemployment rate goes lower, workers should start to have more clout and can demand more wages. More wages should equate to more spending. More spending should equate to higher inflation. Fig 5 shows the theoretical Phillips curve, showing an inverse relationship between the unemployment rate and inflation. We have, over the years tried to replicate such a theoretical relationship but to no avail. We posit that the dimensions between the unemployment rate and inflation rates are inconsistent. Fig 5. the theoretical Phillips curve Fig 6. Our variation of the Phillips curve

y = 0.0011x - 57.457

R2 = 0.9834

y = 0.0009x - 22.24

R2 = 0.7695

0

10

20

30

40

50

60

70

80

90

100

110

120

60,000 70,000 80,000 90,000 100,00

0

110,00

0

120,00

0

130,00

0

140,00

0

150,00

0

US PCE deflator index , prox y for inflation

US total employ ment, k, prox y for jobs market

Source: https://upload.wikimedia.org/wikipedia/commons/e/e3/NAIRU-SR-and-LR.svg Source: Bloomberg, CEIC, Reuters Eikon, KBank

The unemployment rate is today’s number of people looking for work but can not find work divided by today’s total labor force. Inflation is today’s price of goods and services versus yesterday’s price of goods and services. So as to filter these inconsistent dimensions, we use the basic index instead. Before 2009, the coefficient of determination between US total employment and US PCE (Personal Consumption Expenditure) index as a proxy for the Fed’s preferred gauge of inflation is about 98%. Post 2009 that coefficient of determination has dropped to 77% suggesting that increased employment does not readily translate into higher inflation. Technology reforms economics. Oil going the way of salt? Ever wonder where the word “salary” comes from? The root “sal” comes from Latin for “salt” since a long time ago salt was literally worth its wait in gold. Roman soldiers were often paid in salt for their services. Because of technology, the more efficient production and extraction of salt increased its supply and eventually reduced its price. Enter today. Fracking is a new process in which natural gas and oil are extracted from shale by using high amounts of water and pressure to cause the shale to “crack” open its content of natural gas / oil. The drawback is that the water, post-fracking becomes excessively salty and is likely to contain remnants of other toxic chemicals related to the fracking process.

9

Fig 7. New technology means now econ dynamics Fig 8. US oil supply market share surges to 15% of

global supply

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

9%

10%

11%

12%

13%

14%

15%

16%

US oil supply, mn bbl / day

as % of world supply, right

Source: http://www.bbc.com/news/uk-14432401 Source: Bloomberg, CEIC, Reuters Eikon, KBank

Still, what this new process technology has done is to help the US become more energy independent, especially from the Middle East. Theories abound as to why OPEC has responded with a “competitive devaluation” of oil by not curtailing supply. Possibly, OPEC wants to thwart the new US oil producers out of business and then OPEC producers can acquire these assets to continue the US dependency on Middle East oil. Fig 9. Oil markets’ supply / demand balance…or lack

there of Fig 10. Larger supply / demand imbalance in oil market

causes prices to crash…taking food prices along with it

2.4

-4

-3

-2

-1

0

1

2

3

4

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

65

70

75

80

85

90

95

100

supply - demand, left global oil supply, mn barrels per day demand

0

20

40

60

80

100

120

140

160

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

70

90

110

130

150

170

190

210

230

250

crude oil, USD per barrel, left FAO food price index, right

Source: Bloomberg, CEIC, Reuters Eikon, KBank Source: Bloomberg, CEIC, Reuters Eikon, KBank

The outcome of this “game theory”…. if you will…. is a supply demand imbalance in the oil markets. Since the days of the industrial revolution, oil has become so pervasive in our everyday life, its influence has become inescapable. Many economic crashes are attributed to the spike in oil prices whether it is the 1970s, 80s, 90s. Oil is basically pressurized plants and animals of yesteryears. Plants and animals grown / raised today are food. Due to the substitution effects, food can feed both humans and machines i.e. grow corn to make ethanol to substitute oil based energy. Vice versa oil based synthetic

10

rubber can substitute natural rubber. Therefore, fig 9 should be no surprise that because of fracking technology, the oil supply / demand becomes more imbalanced which puts pressure on the prices of commodities, be it oil or food. This now causes a headache for monetary policy makers as to why deflationary pressure is becoming more entrenched. Fig 11. ASEAN CPI % YoY Fig 12. Thai domestic demand and inflation

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10 11 12 13 14 15

TH ID MA SG PH

85%

87%

89%

91%

93%

95%

97%

99%

101%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-3

-2

-1

0

1

2

3

4

5

6

7

8

(C+G+I)/Y TH CPI % YoY, right


Fig 11 shows consumer price inflation for ASEAN 5 on a declining trend, maybe with the exception of Indonesia. For Thailand, we would want to link the changes of our economic structure and its effect on inflation. Fig 12 shows the proportion of Thailand’s domestic demand / market (the sum of consumption, government spending and private investment) as a percentage of GDP. The swings in the proportion can be explained by political events / policies. It makes political sense for an elected government to appease its voter base in order to stay in power. Such appeasement came in the form of tax breaks e.g. LTF / RMF or social programs e.g. THB 30 medical service. Such programs freed more money for consumption…tax saved were deployed as consumption….money no longer needed to be saved to seek medical attention was also deployed as consumption. During those days, “Mega Projects” were the buzz words hoping to stoke private investment so that Thailand doesn’t fall into the shadows of Chindia (China + India). Domestic demand / GDP started to decline from about 100% of GDP as political tensions flared and followed by a change in government. Then political reforms were pursued, which prompted economic agents to “wait and see” causing domestic demand / GDP to fall to 90%ish. Consequently, so did inflation i.e. fall. During 2008, oil prices peaked at USD 140 a barrel resulting in cost push inflation only to be followed by the Lehman Brothers’ collapse. Another elected government came in 2011 and sought to solidify its voter base with appeasement policies e.g. higher minimum wages, way above market subsidies for rice, tax breaks for homes and autos. As a result, domestic demand / GDP started to rise again as well as inflation. Then in late 2013, political tensions flared up once more leading to a change in government in 2014. Again political reforms are being pursued and again, it has prompted economic agents to “wait and see”. This encouraged the domestic demand / GDP to fall again along with inflation. Such developments will pose as major challenges to monetary policy. The challenges appear to be structural while monetary policy is to manage cyclical issues. For the Fed, will deferring moving its policy rates in nearly a decade change the lack of inflation attributed to a shift in technology? For the Bank of Thailand, will adding further policy accommodation prompt economic agents to overlook the ongoing political / economic reforms and cancel the “wait and see” attitude?

11

Fig 13. US total employment vs. PCE - core Fig 14. Thai domestic demand / GDP vs. policy rates

y = 0.0011x - 57.568

R2 = 0.9827

y = 0.0009x - 23.599

R2 = 0.8732

0102030405060708090

100110120

60,000 70,000 80,000 90,000 100,000 110,000 120,000 130,000 140,000 150,000

US PCE CORE index, proxy for inflation

US total employment, k, proxy for jobs market

89%

91%

93%

95%

97%

99%

101%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

(C + G + I) / Y Thai policy rate, % , right


Fig 13, we again present our version of the Phillips Curve, but now comparing US total employment against PCE core (excluding food and energy). Remember in fig 6 that the post 2009 coefficient of determination was 77%ish. Removing the influence of fracking technology and oil price swing, it would suggest that the Phillips curve relationship is intact as the coefficient of determination is much higher at 87% ish. So our advice for the Fed would be to “get on with the show”. The shifting between “forward guidance” and “data dependent” does no one any favors, except volatility. Pursuing both is a paradox since “forward guidance” implies Fed Leadership while being “data dependent” implied Fed Follow-ship. For Thailand’s central bank, domestic demand / GDP seems to have stabilized at 91%. We see little benefit of adding more demand management accommodation to a supply side problem. We view that during this structural reform period the focus should be given to the external demand i.e. exports and tourism via the FX channel. If things transpire according to our analysis and imagination, the Fed will move its policy rates by Christmas 2015, setting expectations for tighter interest rates differential between THB and USD short rates. Since interest is the price of money versus time, this should reset the expectation of the price of one country’s money versus and another country’s i.e. foreign exchange rates. A higher USD/THB will add liquidity and some growth to the external sector in a time where domestic demand continues to “wait and see”. We continue to see USD/THB at 38.00 by end 2016. Fig 15. Thai US interest rates differentials to narrow Fig 16. ….leading to expectations of higher USD/THB

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

THB 1yr swap, % USD est est

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

12 13 14 15 16 17

28

2930

31

32

3334

35

36

3738

39

40

US 1yr swap - TH 1yr swap, % , left implied USDTHB, right


12

Dollar bull trend is coming back for the throne

� The FOMC held the Fed fund rate unchanged with a hawkish bias in

the October’s meeting

� They opened the door more explicitly to raising rates at the final

2015 meeting, still citing the positive outlook for the U.S economy

despite slowing job gains, and noticeably, they have become less

concerned on the external development

� While China is on course for soft-landing, we do not think such

slowdown would deter the Fed’s interest rate hike in December

since an increase of 25bps is viewed as a symbolic rise that is

unlikely to derail the U.S. economy

� We have maintained our bearish view on Asian currencies as

growth prospect remains loom, largely driven by the rundown of

commodity prices and China’s development

� The MYR and IDR are set to be the weaklings with their significant

reliance on commodity exports

A hawkish hold signals a December hike is on the table

The FOMC maintained the Fed fund rate unchanged at 0.00%-0.25% with a hawkish bias in the October’s meeting as they opened the door more explicitly to raising rates at the final 2015 meeting. Given a mixed bag of U.S. data recently, the Fed underlined that U.S. economic activity has developed at a “moderate pace” with improving housing sector as well as solid private spending. Though, they acknowledged the slower pace of job gains while the unemployment rate held steady. The Fed downplayed the global and international hea dwinds in the statement. In the September’s statement, they pointed to the concerns on the bleak global economy and financial market volatility, as it may derail the U.S. economic recovery and put further downward pressure on inflation in the near term. In the October’s statement, however, the Fed registered less concerns over the global market. The international development seems to have calmed in recent weeks after the European Central bank suggested the extension of bond-purchase program. In addition, the People’s Bank of China cut short-term lending interest rate to support growth. This sparked stock-market rally and helped boost global growth in the foreseeable future. The dollar bull should persist well in the medium- to long-term

The statement suggested the December hike is kept i n play, pointing that the last 2015 meeting in December is a time the U.S. policym akers will consider raising rates. We expect the Fed to remain data-dependent and they still have slightly more than a month evaluating the “realized and expected” progress of the economy whether it justifies the first liftoff. With the Fed’s emphasis, the factor to closely eye on going forward is the slew of U.S. data, i.e. consumer spending, retail sales, and particularly, the non-farm payrolls (one more report to come before the meeting on 15th – 16th December). The

13

Chinese economic indicators should not also be ignored as well to assure the global risks not feeding back into the U.S. economy. The dollar, which on a trade-weighted basis, gained broadly 9% in 2014 and 7.5%YTD in 2015. After taking a pause following the September’s FOMC meeting, the reassessment of the U.S. interest rate outlook should prompt the dollar bull to regain momentum. The most noticeable move has been spotted in the U.S. dollar index, which gauges the value of the dollar against major currencies, rose 3.5% to 97.86 from the level seen after the Fed’s dovish hold in September at 94.55. After investors consistently reduced their net long USD positions in recent weeks, they have turned to rebuild USD long positions again. Net long USD positions reverted to enhance to 34.7 thousand contracts following three consecutive week of decline. As a result, this should feed into further dollar strength amidst the divergence of the monetary policy between the U.S. central bank and others (i.e. the European Central Bank and the Bank of Japan). Participants in the Fed fund future market have factored in the probability of the December hike to attach 58% (up from 50 % before the October’s FOMC statement) and 78% for an increase in March 2016. Fig 17. U.S. dollar on a broad trade-weight basis and

net long dollar positions

Fig 18. The dollar index and the Asia dollar index

-20,000

0

20,000

40,000

60,000

80,000

100,000

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

90

95

100

105

110

115

120

125

Net USD long positions (Non-commercial future contracts), LeftU.S. trade-weighted basis, Right

contracts Index

75

80

85

90

95

100

105


106

108

110

112

114

116

118

Dollar index Asia dollar index

Appreciate

Depreciate

Source: CEIC, KBank Source: CEIC, KBank

We are also in the camp believing that the Fed’s fi rst move would take place in December as the U.S. economic recovery is deemed su fficiently strong to withstand the first rate hike. Although the recent job gains slowed with 142K jobs being added in September after the downwardly revised in August’s print of 136K, the cumulative progress in the job market has proven consistent since 2014. An increase of employment in non-farm sector was averagely at 260K in 2014 and 215K in for the first seven months in 2015. This suggests U.S. labor market slack has diminished somewhat so that the unemployment rate drifted lower towards 5.1%, having already hit the Fed’s long-term target of 4.9%-5.2%. The unemployed persons in total labor force plunged to the trough of 7.6 million persons since the global financial crisis. Hence, the job market could find it harder to add more than 200K from now on, yet a slightly lower-than-200K job gains could also be acceptable, in our view.

14

Fig 19. An increase in U.S. non-farm payrolls has proven

consistent since 2014

Fig 20. U.S. labor market slack has diminished

-20 10 40 70 100 130 160 190 220 250 280

Total

Mining

Construction

Manufacturing

Trading

Transportation

Utility

Financial service business

Avg 2014 Avg 9M15 Avg Aug-Sep 15

2

4

6

8

10

12

14

16

18

57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14

3

4

5

6

7

8

9

10

11

12

Unemployment in total labour force (mn persons), Left Unemployment rate (% ), Right

mn persons %


Subdued inflation is likely to be a hurdle for the Fed to raise interest rates as the Fed’s preferred gauge of core inflation edged higher only 1.3% in October, still well below the 2% target rate. But solid consumer spending -which is on track to increase more than 3% in 2015- would continue to propel the economy and boost inflation in the near future. However, inflation could be softer than targeted but as long as it does not feed through to deflationary expectation. The 5-year inflation expectation (the so-call inflation compensation) remained on a higher trajectory. Moreover, we observe a positive sign for further wage gains (wage inflation) in the coming months. This reflects in the compensations among U.S. small businesses, despite average hourly earnings having been stagnant at around 2.0%-2.2%YoY for several months. Fig 21. U.S. inflation expectation tends to be on an

upward trend

Fig 22. There is a positive sign for further wage gains in

the coming months

0.5

1.0

1.5

2.0

2.5

3.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

5yr UST - TIPS, %

%

higher inflation expectations

lower inflation expectations

0

2

4

6

8

10

12

14

16

18

20

07 08 09 10 11 12 13 14 15

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

NFIB Small Business Compensation plans, left Average hourly earnings, right

Index


For now, external development, particularly in Chin a, would unlikely be the major concern for the Fed. In the September’s meeting, we pointed that the Fed’s decision to hold rate was largely reflected the concerns over the slowdown of China’s economy. As the world’s second largest economy, a structural deceleration in China has put further downward pressure on the global commodity prices which in turn contributes low inflation. More importantly, it adds to weak economic performance in trading partners including Japan and the Euro Area. Such weaknesses have boosted the value of dollar and could hurt the U.S. exports.

15

Given that China’s economic rebalancing is underway , the slowdown does not seem to deteriorate sharply. Chinese economy has been fuelled by investment but it is currently shifting towards a more resilient domestic consumption. The authority’s attempt to rely on consumption is starting to bear fruit as contribution from consumption to China’s GDP remains constant at ~4% since 2014, but the that of investment has declined with 2% contributing to GDP growth, down from almost 4% in 2013. In addition, while we see China’s manufacturing sector is contracting, the service industry would help cushion the slowdown. The figure below shows that GDP growth in manufacturing sector slowed to 5.8%YoY in 3Q/15 from 7.0%YoY in 4Q/14, while that of service sector inched higher to 8.6%YoY in 3Q/15 from 8.4%YoY at the end of last year. Moreover, total fixed asset investment (FAI) in service-related industry has been quite resilient, in contrast to the investment in industrial and real estate sector that have collapsed since 2013.

Fig 23. China’s economic rebalancing is underway Fig 24. China’s service industry should help cushion the

slowdown

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

Agicultural sector (9%)Manfacturing and Contruction (46%)Service sector (44%)

% YoY

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

IT (0.9% ) Wholesale and Retail trade (3.6% )Accommodation&catering trade (1.4% ) Finanicial service (0.3% )Transportation (9.8% ) Educatio and healthcare (2.3% )

Fixed Asset Investment by industry


Investment in the property sector (22% of total GDP) has been a major drag to growth, but leading indicators suggest the turnaround could be anticipated in the coming months. Property new starts contracted at a decelerating pace at 12.6%YoY fall in September from 16.8% drop in August. The property sales climbed 15%YoY in August and September after rising 13% in the prior month. In the meantime, house prices are set to start rising; this should bode well for re-investment in real estate sector. With such evidence, we therefore expect China to be on course for soft -landing, as widely expected, rather than hard-landing. Fig 25. Property new starts signaled a pickup in

property sector

Fig 26. Rising housing price is expected to bode well

for real estate sector investment

-40%

-20%

0%

20%

40%

60%

80%

100%

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Total property new starts Residential Office Commercial

% YoY

0%

5%

10%

15%

20%

25%

30%

35%

40%

07 08 09 10 11 12 13 14 15

-15%

-10%

-5%

0%

5%

10%

15%

20%

Reat estate investment, left China property price, right

YoY YoY


16

In conclusion, given the U.S. economic conditions - which already set the stage for the rate hike- and the expectation of soft-landing in China, an increase of 25bps is viewed as a symbolic rise that is unlikely to derai l the U.S. economy. This is because the still-low interest rate should be able to maintain the accommodative environment, while fears of external vulnerability outside the U.S. should subside amidst the prospect of further stimulus measures of major central banks. The rally in Asian Emerging Market (EM) currencies is unsustainable

We have advocated that the Fed should start the normalization within this year to lessen global financial market volatility, stemming from the uncertainty regarding the Fed’s rate hike. Apart from the suitability of the current U.S. economic conditions, it is also about the creditability issue of the Fed as they have signaled the interest rate hikes since the QE was ended in October 2014. We have maintained our bearish view on Asian curren cies as growth prospect remains loom, largely driven by the rundown of comm odity prices and China’s development. Oil prices drifted higher towards USD50/barrel in early October and temporarily eased concerns over the commodity-export countries such as Malaysia’s palm oil and Indonesia’s coal. MYR and IDR thus outperformed other regional currencies with 10.5% and 7.1% appreciation against the dollar respectively in mid-October. Meanwhile, modest capital flows were observed in broad Asian countries, including India, South Korea, Taiwan and Thailand. In large part, this was due to the speculation on a possible delay in the Fed’s hiking rates towards next year. Nonetheless, once the Fed starts the normalization, which we expect to take place in December, those fund flows should reverse course to the U.S. in order to catch the higher rate of returns in the U.S. Investors’ portfolio reallocation should exert downward pressure on Asian EM currencies, as a result. Fig 27. Capital flows to EM bond markets Fig 28. Capital flows to EM equity markets

2.40.4

-0.8

0.6 0.63.1

8.55.4

2.7 1.3

28.9

0.1

-5

0

5

10

15

20

25

30

India Indonesia Malaysia Philipines South Korea Thailand

MTD YTD

USD bn

0.8

-0.4

-0.1 0.0 0.0

2.1

4.3

-1.2 -0.9

0.7

-3.1

6.5

-4

-2

0

2

4

6

8

India Indonesia Philipines South Korea Thailand Taiwan

MTD YTD

USD bn


As for global oil price outlook, we do not expect oil price rally to be long-lasting due to still-weak fundamentals. The lingering supply glut concerns would continue to dampen on oil price well into next year. Brent future curve suggests that oil price would hover around USD50/barrel at year-end 2015 and USD57/barrel at year-end 2016 (as of 4th November). Furthermore, as iterated in our previous issue, the linkage between China’s economy and Asia’s regional trade was relatively high (13% share of total exports to China). Thereby, the structural slowdown in China would remain the key pressure on EM currencies as well. After having gained since the disappointing U.S. job reports in September, Asian emerging market currencies should revert back to the downward trajectory in the medium- to long-term. The MYR and IDR are set to be the weaklings with the significant reliance of commodity exports as the lower countries’ revenue from

17

exports poses risk for domestic stability and dampens the value of the respective currencies. As for THB, in tandem with the weakening bias of the regional currencies, we hold our view on the structural depreciation of THB against USD. USD/THB is expected to trend higher towards 36.75 for year-end 2015 fol lowing the Fed’s move. Further hikes in the Fed fund rates in 2016 should push USD /THB higher towards 38.00 by year-end 2016. Fig 29. Abundant oil supply tends to keep a lid on oil

prices to stay low for longer

Fig 30. Market consensus also foresees oil price to

rebound slowly

75

80

85

90

95

100

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-3

-2

-1

0

1

2

3

Supply - Demand, Right Supply Demand

mn barrels per day

20

40

60

80

100

120

140

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

WTI Brent

USD/barrel


18

How could Draghi “surprise” us?:

ECB’s option and possible impact on EUR

� While the Fed is set for the first interest rate lift-off in almost a

decade, we still have at least the ECB who will remain on easing

bias

� After October meeting, the ECB signaled the markets that it will ‘re-

examine’ the possibility of stimulus at December meeting

� Three motivation behind the need to act is growth risk stemming

from EM, increased deflationary risk and the recent strength of the

EUR

� Will we see large reaction on EUR/USD like the previous rounds? It

depends on what kind of policy tools will be implementing

� We think the most likely scenario would be a combination of

increasing the size of current QE program beyond EUR60bn per

month and expanding duration beyond the end of 2017

� Our baseline expectation suggests that the euro will weaken

further but not to the point of parity

� The EUR is likely to see limited reaction if the ECB only choose to

extend the duration of QE program while the largest impact on EUR

will be seen if it decide to further cut interest rate

� We think the case for EUR/USD parity will be postponed in the near-

term; it will take “two to tango” i.e. the combination of Fed and ECB

move to get there

� The current cushion for the EUR is improvement in economic

momentum such as bank lending and PMI. Markets also have cut

bearish position on EUR/USD

� We see higher probability of EUR/USD reaching parity in mid 2016

� We expect the EUR/USD to hover around 1.05-1.10 for the next

couple of months

ECB to ‘re-examine’ stimulus at December meeting

While the Fed is set for the first interest rate lift-off in almost a decade, we still have central banks like the ECB and BOJ who probably cannot avoid adding more stimulus in the near future. But the FX game may not be as easy to read like it was in June 2014 and April 2015, when both central banks launched the new round of easing which caused both the EUR and JPY tumbled significantly. Why things could be different this time is because markets have priced in substantial weaknesses in these two currencies while the dollar rise also added indirect pressure. It could be difficult to see substantial move without the surprised element from policy announcement or significant changes in the

19

fundamentals. In this report, we explore ECB options and assess how each option could shift market expectation at the upcoming meeting in December 3rd, 2015. After October meeting, the ECB signaled the markets about the possibility of further easing with the following statement: "the degree of monetary policy accommodation will need to be re-examined at our December meeting." In fact, the ECB President, Mario Draghi, had mentioned about possible easing since September when Draghi said that the central bank stands ready to ease more both in terms of size and duration of QE program. The bar for easing policy was raised “higher” at October meeting with the talks about further interest rate cut to more negative territory, while such a possibility was not discussed in September. What urges the ECB to act now? In the latest statement, there seems to be about three reasons that worry the ECB about the Eurozone’s outlook, including 1) the downside risk to growth stemming from a slowdown in emerging markets 2) low inflation expectation which heightens deflation risk and (probably but not explicitly stated) 3) the recent euro’s appreciation even on a trade-weighted basis. On the first issue, the linkage between the Eurozone and emerging markets has increased considerably over the past years especially via trade channel. The share of exports for the four biggest economies ranges between 27-32% of total exports for the country over the past 12 months, particularly the exposure to China which accounts for 2-7% in export basket. This suggests that an economic slowdown in EM would create risk to growth especially when exports seem to be the key growth driver for the region. In fact, exports to EM show an accelerated decline even with weaker EUR to support trade competitiveness.

On inflation risk, the central bank suggested that there is high correlation between expectation on price and headline rather core inflation. This implies that further fall in oil price would increase risk for deflation. From our back of envelope calculation in gauging the relative impact between subdued oil price and weaker EUR, we found that a slump in oil price largely outweighs the potential effect of import inflation through weaker EUR. The pressure coming from oil price slide seems to be declining, yet headline inflation still does not follow. On a more positive note, inflation seems to hold up well from core prices perspective. Large slack in labor market (as reflected by persistently high unemployment rate of 10.8%) suggests that economic conditions may still be too weak to push core inflation higher and thus market expectation about price will play a larger role in driving inflation dynamics.

Fig 31. Eurozone’s export exposure to emerging

markets is high especially to China Fig 32. Exports to emerging markets decline at

accelerated pace

25%

30%27%

32%

27%

4%7%

4% 4%2%

0%

5%

10%

15%

20%

25%

30%

35%

European Union Germany France Italy Spain

Share of export to emerging markets Share of export to China

Share to total exports

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

08 09 10 11 12 13 14 15

European Union Germany France Italy Spain


20

On the last point which we believe is the key for ECB’s easing is the recent appreciation in the EUR. The euro has seen substantial depreciation pressure since the second half of 2014 (after the introduction of negative interest rate at June 2014 policy meeting). EUR/USD dropped from the peak to trough (1.40 in May 2014 to 1.05 April 2015) by 24% while on the trade-weighted basis, the EUR declined by 15%. Anyhow, the currency performance this year has been unexpected as the EUR has reversed and gained by about 4% this year. Such movement adds the challenges to the recovery which relies more heavily on external demand. The structure of the economy which can be reflected through domestic demand to GDP is declining from the peak of 99% of GDP in early 2011 to currently about 95% whereas net export to GDP inversely rises to almost 5% to GDP from less than a percent. Such picture implies that the economy is relying on external demand which requires the EUR to stay competitive.

Fig 33. Eurozone’s inflation expectation largely

correlates with headline inflation figure

Fig 34. Inflation dynamics have been largely influenced

by oil price slump, while EUR decline only helps import

inflation by certain degree

-1

0

1

2

3

4

5

08 09 10 11 12 13 14 15

Core inflation Headline inflation Inflation expectation (as reflected by 5y5y forward rate)

%

ρ with core = 0.35

ρ with headline = 0.87

-80%

-60%

-40%

-20%

0%

20%

40%

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

-1%

-1%

0%

1%

1%

2%

2%

3%Change in oil price (- = add to deflation pressure)

Change in EUR NEER (- = add to imported inflation)

Headline inflation, right



Note: Change in EUR NEER and oil price is calculated from last year price change. The sum of two parts should reflect the inflation momentum.

Fig 35. EUR/USD and EUR NEER movement Fig 36. The structure of Eurozone’s economy requires

competitive euro

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45


85

90

95

100

105

110

EUR/USD EUR NEER, right

24% decline in EUR/USD &

15% decline in EUR NEER

3% r ebound in

EUR/USD & EUR NEER

94%

95%

96%

97%

98%

99%

100%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

(C+G+I) / Y (X-M) / Y, right, inverted


21

What are the options for ECB?

With the three motivations and explicit statement to “re-examined” in December, by not walking the talk in December, markets could see significant reversal through higher EUR and interest rates. While there seems to be big possibility for December easing, we think the impact on the EUR from different policy action could vary. From the latest round of Bloomberg survey (conducting during October 9-15th), analysts see several possibilities while in our view, below are the ECB’s available tools:

In our view, if the ECB chooses to expand on only the duration of QE program, the impact on the euro is likely to be limited. Such expectation has already been priced into the EUR as ECB has for some time signaled via its forecast on inflation which would not reach 2% target even until 2017. On the other hand, a further cut in interest rate should have the most significant impact on the euro. We think the move would reflect the true policy divergence between the U.S. and Eurozone and thus likely to depress the euro quite well. No one knows what could be the new floor on interest rate but there seems to be enough gaps for the ECB in relative to other central bank’s peers including Switzerland, Demark and Sweden. In our view, we think the most likely scenario would be increasing the size of current QE program beyond EUR60bn per month and expanding duration beyond the end of 2017.

Fig 37. Will ECB expand its stimulus? Fig 38. What kind of stimulus do you expect to be

implemented?

81%

19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

YES NO

Proportion of repondents

81%

42%

28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

ECB to extend QE past

Sept.16

Increase monthly purchases

above EUR60bn

Broaden range of assets

bought

Proportion of respondents


Note: Survey conducted by Bloomberg during October 9-15th from 43 economists who submitted their answer


Note: Survey conducted by Bloomberg during October 9-15th from 43 economists who submitted their answer

22

Fig 39. ECB’s options: How could Draghi “surprise” us?

Options Details Impact on EUR

1) Interest rate cut

Markets see a possibility of further 10bps cut to bring down deposit rate to -0.3%. In the previous meeting, the ECB hinted that rates were effectively at a lower bound but with low inflation expectation has driven real interest rate higher, and by default, monetary conditions have tightened and further cut seems to be a way to bring down real rates. A rate cut would also indirectly expand the pool of eligible assets which ECB could purchase into its QE program since one of the conditions is to not buying any assets that yield less then deposit rate

High

This should reflect the true divergence in policy between the Fed and ECB, thus it would likely to have significant impact on pressuring the euro significantly lower. Markets also do not full price in this option.

2) Extend duration for QE program

This would be the easiest way for the ECB; it could remove the duration of the program and leave it as open-ended or the purchase could be extended at beyond 2017 (ECB forecast that inflation target of 2% will not be met by 2017). The current commitment from the ECB is to purchase at least until September 2016

Low

The impact on EUR/USD to be limited as the duration extension can already be implied by ECB’s forecast. Furthermore, market participants seem to largely price in this option.

3) Increase monthly purchase

ECB could expand the size from EUR60bn per month by another EUR10-20bn

Moderate

The reaction should depend on the additional size of asset purchase. If the size was enlarged by EUR10-20bn per month, we expect the impact on the euro to likely be moderate

4) Expand a universe of eligible assets

ECB could include more types of asset eligible for the program from the current pool of covered bonds, asset-backed securities, and sovereign, institutional and agency bonds

Relatively high

The reaction should have relatively large impact on the EUR as the option seems to be least expected; the impact would also depend on asset universe

5) Combination A mix of option 1-4

6) Not doing anything yet in December

Low

EUR/USD will probably rebound higher to price out stimulus, at least for the short-term

Source: KBank’s view

Historical data suggests that market reaction towards the EUR has been the most significance when the policy (of course) was unexpected. The table below demonstrates the reaction is the most pronounced at September meeting when consensus expect no further cut in policy rate but the ECB did. At the same time, the ECB also hints about the possible non-traditional measures if the current plan is not sufficient. It should be noted that for January 2015 meeting, when QE was finally introduced the short-term movement of EUR/USD is less prominent and that is what we think is happening. Such move will therefore making the EUR stickier that we had thought. The average 1-day move from 8 cases is about -0.8% with the most extreme case of -1.6% which suggest that EUR/USD should still hover above 1.05 handle in the short-term.

23

Fig 40. The history of EUR reaction to ECB's surprise, % change from starting date (T)

Date & Event T - 12

months T – 6

months T – 3

months T*

T+ 1 days

T + 10 days

T + 1 month

T + 3 months

T + 6 months

T + 12 months

21-Dec-11 EUR/USD 3.39% -0.38% 0.27% 1.3047 0.02% 0.02% 0.74% 1.30% -2.61% 1.51%

The first round of Long-term refinancing operation (LTRO)

EUR NEER 2.43% 0.17% 0.34% 261.17 0.06% -0.12% -1.62% -1.03% -2.14% -0.77%

5-Jul-12 EUR/USD 0.48% 1.48% 1.09% 1.2392 -0.82% -0.87% -0.47% 5.05% 5.30% 3.53%

Draghi stated that the ECB “ will do whatever it takes to save the euro”

EUR NEER 1.64% 1.08% 0.63% 250.93 -0.14% -0.97% -1.30% 1.94% 2.49% 5.94%

5-Jun-14 EUR/USD 1.81% 0.05% -0.23% 1.3628 -0.21% -0.40% -0.76% -3.63% -9.14% -17.27%

New round of easing with deposit rate cut to a negative territory for the first time (to -0.1%) & TLTRO was announced

EUR NEER 1.47% -0.14% -0.22% 277.36 0.00% -0.72% -0.97% -1.81% -0.72% -6.05%

4-Sep-14 EUR/USD 2.07% -0.17% -0.13% 1.3150 -1.57% -1.44% -2.59% -6.38% -15.76% -15.41%

Deposit rate was cut again to -0.20% (unexpectedly) and ECB began to signal about possible unconditional measures (i.e. QE)

EUR NEER 1.15% -0.09% 0.11% 272.03 -0.94% 0.00% 0.03% 0.54% -4.80% -1.41%

22-Jan-15 EUR/USD 7.09% 2.11% 2.15% 1.1366 -1.43% -0.18% -4.59% -4.77% -3.36%

ECB announced QE program EUR NEER 4.79% 1.79% 1.40% 262.92 -1.08% 0.96% -2.70% -4.91% -1.79%

9-Mar-15 EUR/USD 4.28% -0.07% -0.07% 1.0852 -1.42% 0.87% -1.17% 4.05% 2.93%

The ECB began to purchase asset via QE program

EUR NEER 3.23% 0.07% 0.07% 255.64 -0.45% 0.12% -2.41% 2.25% 6.05%

3-Sep-15 EUR/USD -2.18% 0.79% 0.93% 1.1123 0.23% 1.50% 2.02%

Draghi signaled the possible expansion of QE program in terms of size and duration expansion if needed

EUR NEER -2.86% 0.67% 1.13% 268.21 0.48% 0.99% 0.61%

22-Oct-15 EUR/USD 0.10% 1.96% 2.07% 1.1109 -0.82%

Draghi stated that further easing will be “re-examined” at the next policy meeting EUR NEER 0.80% 0.64% 1.32% 267.42 -0.96%

Average 2.1% 0.7% 0.8% 1.2083 -0.8% -0.1% -1.0% -0.7% -3.8% -6.9%

Minimum move -2.2% -0.4% -0.2% 1.0852 -1.6% -1.4% -4.6% -6.4% -15.8% -17.3%

Maximum move 7.1% 2.1% 2.1% 1.3628 0.2% 1.5% 2.0% 5.1% 5.3% 3.5%


We think the case for EUR/USD parity should be postponed in the near term and it will probably “take two to tango” to get there, i.e. the combination of Fed and ECB move. We see higher probability of EUR/USD reaching parity in 2016 instead with interest differentials widens further. Furthermore, more positive momentum in the bloc economy is keeping the parity away for now. Despite poor development in headline inflation, some economic data began to signal improvement for Eurozone. Manufacturing PMIs and lending data have sent more encouraging outlook that cheap money is feeding through and benefiting the real economy.

24

Another signal on less bearish view for the EUR can be observed from speculation position in the futures market, the 4-week moving average of net non-commercial positions over the past months suggest that bearish EUR view has significantly retreated. The net sell-position peaked in March 2015 and began to decelerate, in line with EUR/USD movement. In sum, we expect the EUR/USD to hover around 1.05- 1.10 for the next couple of months .

What are the factors to watch for the Eurozone?

1) Warning signs from Germany? We think economic development in Germany,

i.e. the strongest among the bunch will be the key factor in driving policy direction. Germany has increasingly relied on exports as a growth driver as reflected in increasing size of export contribution to GDP. So the development in exports seems to be a big deal for the economy. The recent emission test scandal of Volkswagen creates concerns over the potential impact on the economy; the company is Germany’s biggest automaker and auto exports accounts for about 18% of the country exports. So far, leading indicators on sentiment suggests no significant impact from the incident. Yet, broad Germany economy began to show a slower gradual recovery in comparison to the rebound in Spain and Italy in the recent period.

Fig 41. Macro data from Eurozone has been broadly

exceeded market expectation Fig 42. Net non-commercial position in EUR suggest

that bearish EUR position has been cut

-80

-60

-40

-20

0

20

40

60

80


Eurozone

Index Economic surprise index (5-day moving average)

Index > 0: Good surprise compared to consensus

Index < 0: Bad surprise compared to consensus

-105,934

1.1051

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Net EUR non-commercial futures position, left EUR/USD, right


Fig 43. Export contribution to GDP has been

increasingly important Fig 44. Leading indicators on sentiment suggest

conflicting outlook about the economy

2.1

1.3 1.3

0.2

-0.6

0.8 0.7

2.0 2.0

1.2

2.1 2.1 2.0

3.0

-2

-1

0

1

2

3

4

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

Export contribution to GDP GDP growth

% contrbutio to GDP, growth

Expectation towards Germany's outlook

-100

-50

0

50

100

02 03 04 05 06 07 08 09 10 11 12 13 14 15

80

90

100

110

120

ZEW survey IFO survey, right

Source: CEIC, KBank Source: Bloomberg, KBank

25

2) The Eurozone lending data: While the impact in weak EUR as a result of

easing has been observed instantaneously, lending data is the Eurozone just began to slowly showing positive signs in the previous month. Overall lending to household and non-financial corporation crosses into positive territory. We think such dynamics is quite good news for the economy since banking sector is one of the most important channels for policy transmission. The figure below showed that the Eurozone’s funding relies largely on financial institutions (52%) as the intermediaries, whereas direct capital markets remain relatively smaller. Thus, if banking data began to show consistent improvement, that should bode well economic improvement. As for outlook, lending survey on commercial banks’ outlook on demand for loans suggest that banks expects a continued positive momentum in the next quarter. Anyhow, signs from stock markets are still conflicting since price to book ratio for banking stocks remain below 1x which implies that stock investors remain uncertain about banking industry’s outlook and there may be potential recapitalization in the future.

Fig 45. Lending to real sector began to enter positive

growth territory

Fig 46. Loan survey on commercial banks: What is your

expectation on demand for loan from enterprises and

consumer?

-8

-4

0

4

8

12

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Lending to household Lending to non-financial corporations

%YoY

-60-50

-40-30

-20-10

010

2030

4050

03 04 05 06 07 08 09 10 11 12 13 14 15

Loan to enterprises Consumer credit

% Balance


Fig 47. Structure of financial market in Eurozone: Bank

is key intermediary for Eurozone’s economy Fig 48. Price to book for Eurozone’s banking stocks

continued to trade below 1x

Equity12%

Publicbonds12%

Private bonds24%

Bankloans52%

0.8

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

EURO STOXX Bank index, price to book, X


26

Bear Market Rallies

� The two concerns that have driven capital markets from the two

largest economies, the slowdown in China and the uncertainty over

the US monetary policy, subsided

� The market seems to be trading with more certainty and, definitely,

with less volatility since the two most pressing concerns have

subsided

� We compare the recent asset movement to other bear market

rallies since USD appreciation trend first resumed in 2011

� We think the recent run in risky assets is well in advanced, and is

now rather stretched

� External forces should depress yield levels for the rest of the year

� Domestic economic backdrop should remain bond-positive well into

Q1/2016

� September economic momentum picked up moderately on the back

of improved private consumption and investment

� Risk to medium-term growth remains on the downside since the

recovery is still in its early stage

� Although we expect the FOMC to hike its Fed funds rate by 25bps in

2015 and 50bps in 2016, the BoT is unlikely to follow through

� LB25DA is trading very rich on the curve

� The spread between LB236A and LB25DA has tightened during the

bear market rallies to 5bps, compared to a 15bps average over

2014-2015

� We prefer switching out of LB25DA to LB236A, targeting 20bps

normalization in spread

Sentiment towards emerging market shifted swiftly o ver the past two months. The two concerns that have driven capital markets emerge from the two largest economies: the slowdown in China and the uncertainty over the US monetary policy. But, these threats have receded recently, sending risky assets to rally across the board. First, there is growing evidence that China is ramping up easing measures to prevent a hard-landing and support economic rebalancing process towards domestic demand. The stability in RMB ahead of the IMF’s decision on SDR inclusion further lent support to Asian currencies at large. On the other hand, the Federal Reserve (Fed) has come clear on the timing of the first rate hike during its October meeting. Clear message from the Fed raised market implied probability of a December rate hike from 34% (on the day of October FOMC) to 58% (on Nov 5th), suggesting that the Fed has successfully raised market expectations to a level that would support a smooth first Fed funds rate hike.

27

The timing of the first hike has been on top of inv estors’ mind. To us, the timing itself is insignificant, but it is the certainty that matters to asset performance. The market seems to be trading with more certainty and, definitely, with less volatility since the two most pressing concerns subsided. Equities gained broadly, leading by US bourses (+17% over the past month), followed by emerging Asia markets (+7%). EM sovereign bonds also saw large inflows, especially in Philippines and South Korea. Thai government bond (TGB) curve bull-flattened sharply in October with the long-end yields easing by as much as 15-17bps. The most pronounced movement was the drop in 10-year yield to 2.54%, close to this year’s trough of 2.49%. Our recommendation to extend duration towards the 10-year sector has returned 1.02% over one month holding period (entry 2.71%, target 2.60%), while those who caught the peak of the rally at 2.54% enjoyed 1.58% return. However, our entry point for the 6-year sector was not reached.

Fig 49. Market is pricing in 58% of a December liftoff Fig 50. UST curve was well-anchored, but the risk rally

caused TGB curve to bull-flatten sharply in October

15

20

25

30

35

40

45

50

55

60

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15

A December liftoff probability implied from Fed funds futures (%)

110

130

150

170

190

210

230

250

270


bps

30405060708090100110120130140150

bps

2-10 UST spread Spread between 10-year UST and TGB yields (right)

Yield spread


Fig 51. TGB yield curve bull-flattened significantly in

October in response to the global risk rally

Fig 52. The Fed liftoff is now positive to risky assets;

equities outperformed bonds in the past month

2.03 2.10

2.292.44 2.49

2.642.81

3.00 3.02 3.06

1.44 1.461.59

1.89

2.10

2.29 2.31 2.372.47 2.49

1.49 1.57

1.75

1.95

2.23

2.432.53 2.60 2.63 2.64

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

1y 2y 3y 4y 5y 6y 7y 8y 9y 10y

tenor

%

Max 2015Min 20151-Oct2-Nov

1-month (%change) YTD (%change)

US equity 17.3% 46.4%

EM Asia equity 6.9% -5.7%

EU equity 6.3% 10.1%

EM high yield corp bond 5.8% 8.4%

World equity 4.7% 0.2%

Asia equity 4.6% -5.1%

EM equity 3.4% -9.0%

LATAM equity 3.3% -24.1%

EM sovr bond 2.3% 2.3%

High yield corp bond 2.2% -4.8%

Dollar 1.8% -8.4%

LATAM bond 0.8% -0.6%

EM EU bond 0.8% -8.3%

Asian FX 0.7% 3.8%

EU sovr bond 0.3% 1.7%

Asia bond 0.1% 1.6%

US sovr bond -1.2% 1.0% Source: Bloomberg, KBank Source: Bloomberg, KBank

28

Does the latest rally have more room to go? We take a look at previous bear market rallies to t ry to answer this question. We compare the recent asset movement to other bear market rallies since USD appreciation trend first resumed in 2011. We think the recent run in risky assets is well in advanced, and is now rather stretched. From the figures below, it shows that the size of the recent rally is already in line with the average historical pattern for both FX and rates markets. Asian currencies gained about 2% from the end of September to November, while THB rose 2.2%, slightly more than the average rally size. In contrast, the run in TGB long-end bonds was even more pronounced. The 10Y UST yield dropped 8bps over the period, while the 10YTGB yield dropped 21bps. In our view, there is not much juice left to squeeze from the long-end of TGB curve from the rich-cheap perspective. Additionally, the gradual rise in the 10YUST yield during the first week of November also signaled that the recent run might have come to an end.

Even though we view that the current valuations for the long-term TGB curve are too rich, external forces should continue to depres s yield levels for the rest of the year. This is because the 10YTGB yield’s correlation with the 10YUST is the second highest across Asian bonds, second only to Taiwan (0.71). The degree of correlation is

Fig 53. Asian currencies movement Fig 54. USD/THB movement

Start date End date Duration (days) Start End

Change in Asian FX

(%)

14-Dec-11 3-Feb-12 51 114 118 3.2

31-May-12 31-Oct-12 153 114 118 3.5

22-Nov-12 18-Jan-13 57 118 119 0.9

5-Apr-13 8-May-13 33 117 119 1.5

5-Sep-13 17-Oct-13 42 114 117 2.4

3-Sep-13 18-Sep-13 15 114 117 2.2

13-Mar-15 6-Apr-15 24 111 113 2.2

28-Sep-15 2-Nov-15 35 107 108 1.8

Average 51 2

Median 39 2


Change in USD/THB

(%)

14-Dec-11 3-Feb-12 51 31.4 30.9 -1.6

31-May-12 31-Oct-12 153 31.8 30.7 -3.6

22-Nov-12 18-Jan-13 57 30.7 29.8 -3.0

5-Apr-13 8-May-13 33 29.2 29.3 0.2

5-Sep-13 17-Oct-13 42 32.3 31.0 -3.9

3-Sep-13 18-Sep-13 15 32.2 31.3 -2.8

13-Mar-15 6-Apr-15 24 32.9 32.4 -1.5

28-Sep-15 2-Nov-15 35 36.4 35.6 -2.2

Average 51 -2

Median 39 -3 Source: Bloomberg, KBank Source: Bloomberg, KBank

Fig 55. TGB 10-year yield movement Fig 56. UST 10-year yield movement


Change in TGB 10-year yield

(bps)

14-Dec-11 3-Feb-12 51 3.2 3.2 1

31-May-12 31-Oct-12 153 3.7 3.3 -39

22-Nov-12 18-Jan-13 57 3.4 3.7 29

5-Apr-13 8-May-13 33 3.5 3.4 -11

5-Sep-13 17-Oct-13 42 4.4 3.8 -53

3-Sep-13 18-Sep-13 15 4.3 4.2 -8

13-Mar-15 6-Apr-15 24 2.7 2.6 -8

28-Sep-15 2-Nov-15 35 2.8 2.6 -21

Average 51 -14

Median 39 -9


Change in UST 10-year yield

(bps)

14-Dec-11 3-Feb-12 51 1.9 1.9 2

31-May-12 31-Oct-12 153 1.6 1.7 13

22-Nov-12 18-Jan-13 57 1.7 1.8 16

5-Apr-13 8-May-13 33 1.7 1.8 5

5-Sep-13 17-Oct-13 42 3.0 2.6 -40

3-Sep-13 18-Sep-13 15 2.9 2.7 -17

13-Mar-15 6-Apr-15 24 2.1 1.9 -22

28-Sep-15 2-Nov-15 35 2.1 2.2 8

Average 51 -4

Median 39 4 Source: Bloomberg, KBank Source: Bloomberg, KBank

29

as high as 0.53 in 2015 while Asian bonds’ average is only around 0.32. Therefore, our view on the richness of the 10YTGB yield is driven mainly by UST. Looking forward, we see limited upside risk for the long-end UST curve, and, thus, retain our call on the 10YUST yield at 2.30% by year-end for the following factors.

� Weak global economic momentum: The flat manufacturing Purchasing Managers' Index (PMI) for major countries point to a still-weak economic momentum in Q4/15, and we continue to look for more signs of near-term growth stabilization. Markit's final Eurozone manufacturing PMI was 52.3 in October, slightly up from the September of 52.0 with only a modest growth in Germany, the Eurozone’s largest economy. In China, manufacturing industry unexpectedly contracted for a 3rd straight month (at 48.3), missing expectations for a break-even 50.0 reading that separates between growth and contraction, while new export orders continue to shrink. We expect China’s economy to remain in soft-patch well into 2016. The policymakers’ attempt to rebalance growth towards service sector is unlikely to bear fruit in the near-term since service sector is too small to offset weakness in manufacturing sector and fixed asset investment. Although we have already seen a pick-up in infrastructure investment from local government, the multiplier effect is still confined to state-owned enterprises, as reflected by the divergence between official and Caixin PMI surveys. Given China’s rising economic size, its soft-landing will continue to weigh on long-term global economic growth, hence, UST term premium.

� Relative trades between Bund and UST: Relative trades between the Bunds and USTs will weigh on the long-end of UST curve. Since the ECB officially announced the first asset purchases program in January 2015, average spread between the Bund and UST has averaged around 160bps. We think there is still scope for the Bund to dip further as the ECB signaled its readiness to take more accommodative action to fight the risks of low inflation. From our assessment of the Bund yield movement, we found that the 10YBund yield dropped 22bps (33%) from the day Mario Draghi, the ECB’s President, first hinted about the ECB’s first asset purchases program (APP1) in September 2014 to the official announcement date in January 2015, and 37bps (83%) from the official announcement date to its trough in April 2015. This marks a 59bps drop in total from the date of the first hint to the date the yield bottomed. If we assume the second round effect will be 50% of the first round, the 10Y Bund yield could drop to 0.30%, hence, presenting a larger drag on the 10YUST yield. However, one caveat is that this will depend on new measures that the ECB pursues in the next few months. Another wild factor is oil price which has major influence on the

Fig 57. Manufacturing PMIs signaled another weak

quarter for global growth

Fig 58. China’s growth to remain fragile as the economy

rebalance towards domestic sectors

48.3

52.4

50.6

52.1 52.3

54.1

46

47

48

49

50

51

52

53

54

55

China Japan France Germany Eurozone U.S.

May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15

Index (Neutral=50)

8%

16%

8%

-5%

12%13%

7%

11%

6%

-15%

18%16%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Real GDP Investment Production Freight

Traffic

Retail sales Loan

growth

3Q14 Latest data point

%YoY OLD economic drivers NEW economic drivers


30

10YBund through inflation expectations. If oil price remains around 40-50 USD/brl in the next three months, we still see room for the Bund to rally further.

� Attractive relative returns from the 10YUST: We believe that demand for the 10YUST will remain ample. UST is still a high-yielding instrument of global government bond markets. From the figure above, the 10YST gives attractive returns compared to other similarly rated papers. We note the risk from holding UST as the Fed is shifting its policy stance. But, to us, we see risk to US economy as tilted to the downside; thus, we deem that the upside pressure for the 10YUST yield is now limited. The 10YUST yield now shows increasing response to China-led factors in complementary factors from the US. The correlation between the 10YUST yield and China economic surprise jumped to 0.6 in 2015 from 0.2 in 2014, while the correlation to US surprise dropped to 0.3 from 0.5. The primary danger is not that the economic soft-patch passes, inflation picks up, and the Fed raises rates, but the recent strings of soft US data signal that the US economy is slowing down, and global weakness is impacting the US.

Fig 59. 10YBund-UST yield spread Fig 60. Inflation expectations have been the major

driving factor behind the Bund movement

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

11 12 13 14 15

-200

-175

-150

-125

-100

-75

-50

-25

0

25

Spread 10Y Bund-UST (right) US Treasury 10Y yield

German Bund 10Y yield

bps%

0.0

0.5

1.0

1.5

2.0

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

30

40

50

60

70

80

90

100

110

German Bund 10Y yield WTI crude oil (right)

% USD/brl


Fig 61. Yield movement post-QE announcement Fig 62. Attractive relative returns from the 10YUST

10YBund

yield (%change)

10YUST

yield (%change)

APP1 hint to announcement -33

QE1 hint to announcement -16

APP1 to trough -83 QE1 to QE2 1

APP1 to date 34 QE2 to QE3 -33 APP2 hint to date -17 QE3 to date 29

Current yields 0.60 2.22

2.6

1.5 0.8 0.6

2.4 1.8 2.10.7 0.9

3.1

0.3

4.1

1.72.6

1.4

7.68.8

10.2

15.7

7.8

0

2

4

6

8

10

12

14

16

AU CA DK GE SG UK US NE FR CN JP MY SP TH IT IN ID RU BZ GR

%

AAA rating AA A BBB BB CCC


31

Near-term domestic backdrop

Domestic economic backdrop should remain bond-posit ive well into Q1/2016. Although September economic number signals that the worst is now behind Thailand, the recovery trajectory remains fragile. In addition, we see higher downside risk in the medium-term from China’s economic development and a drought crisis; therefore, a possibility of further policy easing from the Bank of Thailand cannot be completely ruled out. We would closely monitor these developments, together with the monthly economic data until February, to assess whether the BoT will be required to adjust its economic projections. September economic momentum picked up moderately on the back of improved private consumption and investment . Private consumption posted a small growth of 0.4%YoY for the first time in September after contracting for the past 6 months. Private investment maintained its steady growth rate of 1.1%YoY in September from 2.1%YoY in August on imports of capital goods from telecommunication providers in anticipation of 4G-infrastructure construction. In contrast, tourism sector felt the impact of the Bangkok blast as the number of Chinese tourists (19% of inbound tourists) slid markedly. But, from our conversation with tour operators and our own ground research, we expect tourism data in October to return to its stellar growth rate, boosted by China’s long national holiday. Though government spending, the usual growth driver , decelerated in Q3/15, policymakers’ attempt to raise disbursement in Q4/1 5 should boost near-term consumption. The November MPC statement sounded more optimistic on public spending outlook. We also shared views with the MPC, and expect the government to be the main growth driver in Q4/15. Recent news show that the new economic team is trying hard to ramp up spending. The government has reduced the time limit required for approving Private-Public Partnership projects to only 9 months from 2 years. The government also approved additional THB 12bn stimulus package to lower cost of production for rubber producers, apart from the previous measures to support the low-income and farmers. Additionally, Transportation Ministry is due to approve 20 infrastructure projects (worth THB 1.8trn). Our economic affiliate, KResearch, expects Thailand’s economy to grow by 0.5%QoQ sa (2.8%YoY) in Q3/15 and 1.0%QoQ sa (2.4%YoY) in Q4/15, improving from a 0.4%QoQ sa average seen in the first half of 2015. Risk to medium-term growth remains on the downside since the recovery is still in its early stage. Despite more positive outlook on domestic factors, the MPC showed concerns on global economic weakness, particularly China, which is likely to weigh on

Fig 63. The 10YUST yield vs US economic surprise Fig 64. The 10YUST yield vs China economic surprise

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25


-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

US Economic Surprises (right) 10-year UST yield

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25


-150

-100

-50

0

50

100

China Economic Surprises 10-year UST yield


32

Thai exports. In addition, the drought could put additional constrain on the economy. We are no longer concerned about China as policymakers have shown little tolerance to economic slowdown. China’s growth is poised to stabilize around 6.9%-7.0% over the coming quarters. Infrastructure investment may be concentrated in Q4/15, supported by faster fiscal spending, savings from the local government loan-to-bond swap, issuance of construction bonds, and accommodative monetary policy. But, we see higher risk from another drought crisis which could potential hurt farmers who contribute to one third of the Thai population. Although we expect the FOMC to hike its Fed funds r ate by 25bps in 2015 and 50bps in 2016, the BoT is unlikely to follow throug h. The Finance Ministry expects the BoT to hike repo rate once in 2016 in order to catch up with the Fed. Based on our projection, the Fed funds target range will be raised to 0.75% and the BoT repo rate to 1.50%, leaving a 63bps difference. Since 2000, the interest rate differential has averaged around 80bps, while it was around 30bps during the previous hiking cycle in 2004-2007. Therefore, we think the 63bps difference would be adequate compared to historical standards. While, the FOMC’s dovish bias would temper risk of capital outflows from Thailand and emerging markets, hence, less pressure for the BoT tightening. Investment Strategy

Real money has already chased the rally after the September FOMC meeting. The most sought after tenors include those that are not very active, such as LB296A, LBA37D, and LB446A. We think there is not much juice left to squeeze for the long-end bucket. LB25DA is trading very rich on the curve. The 2-10 spread is stabilizing around 107bps, close to a year-to-date low at 98bps seen in October. Domestic backdrop in Q2/FY2016 (January-March 2016) will be less supportive as well since net bond issuance for the quarter will rise to as much as THB 113bn, compare to an average of THB 65bn in other quarters. The PDMO will issue notable amount of longer tenor bonds, i.e. LB25DA, LB336A, LB446A and LB616A. From now until the end of January, the PDMO will issue THB111bn worth of bonds, while LB25DA will take up 23% of this amount. The spread between LB236A and LB25DA has tightened to only 5bps during the bear market rallies, compared to a 15bps average over 2014-2015, and a 30bps peak in 2014. We prefer switching out of LB25DA to LB236A, targeting at least 15bps normalization in spread.

Fig 65. Historical spread between LB236A-LB25DA Fig 66. Projected net bond issuance for FY2016

0

5

10

15

20

25

30

Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15

Spread (LB25DA-LB236A) Average (2014-2015)

bps

109 113124

114

68

0

29

55

41

113

95

59

0

20

40

60

80

100

120

140

1Q (Oct-Dec) 2Q (Jan-Mar) 3Q (Apr-Jun) 4Q (Jul-Sep)

New bond issuance according PDMO plan Government bond to be matured

Net isuance

THB bn


33

Fig 67. Rich-Cheap Analysis of TGB yields

-30

-20

-10

0

10

20

30

LB15

DA

LB16

7A

LB16

NA

LB17

6A

LB18

3A

LB18

3B

LB19

3A

LB19

6A

LB19

8A

LB21

3A

LB21

DA

LB23

3A

LB23

6A

LB24

DA

LB25

DA

LB26

7A

LB27

DA

LB29

6A

LB32

6A

LB38

3A

LB39

6A

LB40

6A

LB41

6A

LB44

6A

3 mth avg Now

bps (actual YTM vs. model)


Fig 68. Relative trade - Long LB236A, Short LB25DA

Bond Buy / Sell Amount

(THB)

Start date Yield at start of

trade (% )

End date Yield at end trade (% ) Total return

(Pre-tax, % )

HPR

(Pre-tax, % )

Net P&L

(THB)

LB236A Buy 1,000,000 5-Nov-14 2.58 30-Jan-16 2.60 2.24 0.49 5,368

LB25DA Sell 764,000 5-Nov-14 2.64 30-Jan-16 2.80 3.16 0.70 6,039

Total 1,764,000 5.59 1.24 10,651

Assume a shift in yields


34

Economic Update

� September economic indicators showed that economic recovery

could be on the way, with domestic demand in private

consumption, investment and exports rising over-month

� For the remainder of 2015, we at KResearch are maintaining our

growth projection for 2015. Headline Inflation should average

within -1.0 to -0.8%YoY. For 2016, inflation is expected to rebound

to 0.8-1.8%YoY, given a low 2015 base, we expect the Dubai crude

oil price to hover around USD48.5-56.0/barrel

� Although recent US economic data showed some softness in

recovery, they are not enough to derail the Fed’s monetary

normalization plan by the end of this year

� Looking forward into 2016, the global economy continues to

stumble along. Advanced economies will contribute a bigger share

of 2016 global growth. Meanwhile, EMs are expected to

experience some deterioration amidst China slowdown

2014 2015

Units: YoY %, or indicated otherwise 1Q 2Q 3Q YTD. Jul Aug Sep Oct

Private Consumption Index (PCI) 1.3 0.8 -1.2 -1.1 -0.5 -2.2 -1.4 0.4 • Non-durables Index 0.8 4.1 3.7 3.4 3.7 4.2 3.8 2.2

• Durables Index -19.3 -3.6 -11.3 -10.4 -8.4 -13.0 -9.5 -8.7

• Non-residents expenditure Index -7.5 27.1 52.4 35.5 36.7 53.1 38.1 13.4

• Passenger Car Sales -41.4 -12.5 -27.3 -24.9 -21.6 -25.1 -24.0 -25.5

• Motorcycle Sales -15.1 10.9 -5.0 -16.4 -3.7 -29.4 -12.3 -5.9 Private Investment Index (PII) -1.2 0.6 0.4 1.1 0.7 0.6 2.1 1.1

• Domestic Sales Volume of Cement -0.9 -1.2 -0.1 -3.3 -1.6 -1.6 -4.3 -4.1

• Imports of Capital Goods at constant prices -2.0 -0.9 -5.3 -0.3 -2.2 -8.0 14.1 -4.7

• Commercial Car Sales -26.8 -11.3 -16.1 -0.3 -9.4 -3.1 0.9 1.2

• Domestic Machinery Sales at constant prices 6.4 10.5 13.3 9.8 11.2 12.3 12.8 4.9 Manufacturing Production Index -4.6 0.1 -7.5 -6.1 -4.4 -6.3 -8.3 -3.6 • Capacity Utilization 60.4 62.1 55.6 58.5 58.7 58.7 57.9 58.8 Agriculture Production Index -0.4 -3.9 -9.9 -9.3 -7.4 -10.3 -11.3 -6.3 • Agriculture Price Index -6.2 -7.2 -5.8 -4.8 -5.9 -6.3 -3.3 -4.6 No. of Tourists -6.5 23.1 37.6 24.3 27.8 39.4 24.7 8.7 Exports (in $) -0.3 -4.3 -5.5 -4.7 -4.9 -3.1 -5.6 -5.4 • Unit Value -1.0 -1.8 -1.8 -2.9 -2.2 -2.5 -3.1 -3.1

• Volume 0.7 -2.6 -3.8 -1.8 -2.7 -0.6 -2.6 -2.3 Imports (in $) -8.5 -7.2 -10.1 -14.5 -10.7 -10.6 -10.8 -21.3 • Unit Value -1.8 -10.9 -9.7 -11.7 -10.8 -10.4 -12.1 -12.6

• Volume -6.8 4.1 -0.4 -3.2 0.1 -0.3 1.5 -10.0 Trade Balance ($ millions) 24,583 7,425 7,847 9,616 24,888 2,708 2,907 4,001 Current Account ($ millions) 15,418 8,377 6,157 6,367 20,901 2,160 2,650 1,557 Broad Money 4.7 6.1 6.0 5.3 5.3 6.0 5.4 5.3 Headline CPI 1.89 -0.50 -1.12 -1.11 -0.89 -1.05 -1.19 -1.07 -0.77 USD/THB (Reference Rate) 32.484 32.648 33.269 35.255 33.923 34.311 35.428 36.024 35.718 Sources: BOT, MOC, OAE, and OIE

Kanang Duangmanee -- KResearch [email protected] Kangana Chockpisansin - KResearch [email protected] Warat Niamsa-ing - KResearch [email protected]

35

September Economy Improved Somewhat September economic indicators showed that economic recovery could be on the way. Private consumption rose over-month by 0.5%MoM, s.a., as private investment did by 0.4%MoM, s.a., and exports by 1.3%MoM. However, foreign tourist arrivals had fallen -8.1%MoM, still being limited by the August bombings. Over-year, the Private Consumption Index (PCI) resumed growth for the first time in six months at 0.4%YoY, up from an August -1.4% contraction, boosted by spending on non-durable goods (household electric power consumption, motor fuel sales) that rose 2.2%YoY, as well as services (hotel, restaurant and transportation sales VAT) that had expanded 3.1%YoY. Meanwhile, spending on durable goods recorded a lesser contraction at -8.7%YoY, from -9.5%YoY last month. Households remained cautious toward spending amid low non-farm income and tight credit guidelines at financial institutions The Private Investment Index (PII) showed a slight increase of 1.1%YoY, falling slightly from 2.1%YoY in August following a contraction in imports of capital goods (-4.7%YoY, from a 14.1%YoY increase in August), and as domestic cement sales contracted further at –4.1%YoY, from – 4.3%YoY previously. However, commercial vehicle sales had improved over-month, rising 1.2%YoY, up from 0.9%YoY. Exports recorded a contraction for a ninth consecutive month in September, -5.4%YoY, following weak demand from China as well as ASEAN economies, that amount was less than expected. Export values in many key product categories fell in line with global prices for crude oil, chemicals, petrochemicals and agricultural products. Meanwhile, increased petrochemical production in China has resulted in lower import demand there for such products. Agricultural production has also dropped on falling global demand for rice. However, exports of some categories improved, e.g., automobiles/parts, especially exports of new models to Australia, the Mideast and ASEAN. The September Manufacturing Production Index (MPI) dropped -3.6%YoY, up somewhat from -8.3%YoY last month, in an eleventh consecutive month of contraction for hard disk drive production as global demand shifts toward solid-state drives (SSD), even as apparel production fell on weak demand in key markets such as the USA and Japan. Meanwhile, food and beverage production contracted versus a high 2014 base, as well as a slowdown in frozen shrimp exports to the EU. Tourism continued to expand, though slower during S eptember, with foreign tourist arrivals falling to 2.03 million (up 8.7%YoY), down from 2.6 million in September 2014 (up 24.7%YoY then), as well as -8%MoM over-month, due largely to falling Chinese tourist arrivals as a result of the August 17-18 bombing attacks in Bangkok.

Fig 1. Private Consumption showed some improvement

this month

Fig 2. Many key indicators contracted less

0.4 1.1 2.2

-8.7

-4.1 -4.7

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

PCI PII Non-durables

Index

Durables

Index

Domestic

Sales of

Cement

Imports of

Capital

Goods

% Y

oY

1Q15 2Q15 3Q15 July-15 Aug-15 Sep-15

-7.2

-3.9-4.3

0.1

-5.8

-9.9

-5.5

-7.5

-4.8

-9.3

-4.7

-6.1

-4.6

-6.3-5.4

-3.6

-12

-10

-8

-6

-4

-2

0

2

Agricultural Prices Agricultural Production

Exports Manufacturing Production

1Q15 2Q15 3Q15

Aug-15 Sep-15

% Y

oY

Sources: BOT, KResearch Sources: BOT, KResearch

36

During 4Q15, we at KResearch hold the view that over-quarter economic performance will be substantial since some economic indicators have already begun to improve over the end of 3Q15. 4Q15 GDP growth should continue to be supported by thriving tourism and government stimuli implemented late in 3Q15. Accelerated budgetary disbursements and state investments will doubtless help reinvigorate domestic demand and offset contractions in the export and industrial sectors that are being plagued by a fragile global economic recovery. Thus, we expect the 4Q15 GDP to expand 1.0%QoQ. However, YoY GDP growth rate could soften to 2.4%YoY, given a high 2014 base.

The Ministry of Commerce (MoC) has reported that in flation had remained negative for the tenth consecutive month in October at -0.77 %YoY, though still better than expected, following a -1.07%YoY reading for September. Meanwhile, the October CPI rose 0.2%MoM; the highest increase in 17 months. However, this MoM increase was mainly due to higher food prices (on vegetables and fruit) during the Jae Festival had a brief influence, as well as rising retail oil prices. Core Inflation, excluding volatile fuel and food prices, had increased 0.95%YoY and 0.05%MoM. Over 10M15, the Headline CPI had fallen -0.89%YoY, while the Core CPI had risen 1.11%YoY. The MoC expects the pace of softening in prices should ease further over the rest of this year due to the government's recent stimuli to bolster income and purchasing power during the year-end spending season; therefore, they continue to maintain their 2015 inflation forecast as being within -1.0% to -0.2%. Through to the yearend, we are maintaining a projection on 2015 Headline In flation as averaging within a range of -1.0 to -0.8%YoY. As for 2016, it is expected to rebound to 0.8-1.8%YoY growth , given a low 2015 base, if the Dubai crude oil price is around USD48.5-USD56.0/barrel. Factors conducive to a recovery include domestic demand (“demand-pull inflation”) and minimum wage increases in some locales that may not involve any significant impact on inflation during 1H16.

Global Economy Update

Calm before the storm

Following months of turbulence, calm has finally settled in global markets. Concern toward China’s slowdown has eased somewhat after they introduced new stimuli. Meanwhile, hope toward other central banks trying new stimuli, too, has encouraged markets. Deflationary pressure may force the ECB and BOJ to boost their QE programs soon. However, risks toward global growth remain high and the spotlight will be on the December FOMC meeting.

Fig 3. Tourism sector was affected by August bombings Fig 4. October Headline CPI still down YoY, but up

MoM

22.3

5

26.5

5

24.7

8

7.85

7.01 7.27

2.64

2.60

2.03

18.9% 18.7%

-6.7%

23.1%

37.6%

24.3%

39.4%

24.7%

8.7%

-10%

0%

10%

20%

30%

40%

50%

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2012 2013 2014 Q1-15 Q2-15 Q3-15 Jul-15 Aug-15 Sep-15

No of Foreign Tourist Arrival % YoY (RHS)

Mill

ion

Per

son

-0.77

0.95

-2

-1

0

1

2

3

-0.5

0.0

0.5

1.0

Oct-14 Feb-15 Jun-15 Oct-15

%Yo

Y

%M

oM

Headline CPI (MoM-lhs) Core CPI (MoM-lhs)

Headline CPI (YoY-rhs) Core CPI (YoY-rhs)

Sources: BOT, KResearch Sources: MOC, KResearch

37

US data supports a Fed rate liftoff in December

Although recent US economic data shows some weakness, it is not enough to derail the Fed’s monetary normalization plan. The US economy is approaching full employment and their real estate market is improving. The Fed’s October post-meeting statement was rather hawkish. Committee members expressed less concern about unpleasant external factors, and the discussions were more about a December ‘liftoff’. Also, internal risk vis-à-vis the debt ceiling was resolved by the US Congress when they passed legislation suspending any debt ceiling until March 2017. These developments may trigger significant repricing of the Federal Funds future, now beyond a 50% probability of being raised at their December meeting.

What will the first rate hike in a decade look like …?

Initially, the Fed may set a modest target range for their Federal Funds rate. According to an internal Fed study, the FOMC seemingly intends to move incrementally with their Interest on Excess Reserve Rate (IOER). Within a target range of 25 basis points of increase, the IOER may be reach the top of that range and the Overnight Reverse Repurchase )ON RRP( rate at the bottom, thus a 25-basis-point spread between these two overnight rates at ‘liftoff’. However, it is also possible that the IOER and ON RRP might be increased by 50 basis points and 25 basis points, respectively.

2016 Global outlook…stumbling along

Looking forward into 2016, the global economy continues to stumble along. Consensus Forecasts reported that the global economy will grow 3.3% in 2016, a slight gain over the 2.9% of 2015. Advanced economies will contribute a bigger share of 2016 global growth than they had during 2015. Meanwhile, EMs are expected to experience some deterioration amid a slowdown in China. China’s fifth plenum meeting hinted at a decline in medium-term growth at perhaps 6.5% growth over 2016-2020. Also, a continuing increase in the global oil supply amid sluggish demand suggests that oil prices will stay low for some time. That would constrict commodity exporters’ demand. EMs are expected to grow only modestly amid numerous challenges. Depreciating EM currencies will increase the real local-currency value of external debts, while rising US rates will likely push emerging markets’ domestic interest rates higher, thus increasing debt-servicing costs.

Fig 5. US labor market condition is good enough to

support a rate hike

Fig 6. Markets reassess the higher chance of the rate

hike in Dec-15 FOMC meeting

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

Conference BoardJob Availability

Quits (JOLTS)*

UnemploymentMarginally attachedworkers

Job finding rate

Work part time foreconomic reasons

Initial Claims

Difficult to fill (NFIB)

Temporary help services employment

Dec-07 Dec-09 Sep-15 Sep-14

Labor Market Spider Chart

Leading Indicators

Employer Behavior

Utilization Confidence

three months ending

*JOLTS data are June to August averageSource: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board

0

10

20

30

40

50

60

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

Precent

Probability of rate hike in Dec-15

Sources: Federal Reserve Bank of Atlanta Sources: BOT, KResearch (Data as of Nov 5, 2015)

38

Outlook for Next Month

For November, the Headline CPI could report an over-month contraction following the end of the Vegetarian Festival that lifted fruit and vegetable prices in October, while the YoY figures will likely continue in negative territory. Exports could contract at a larger extent over the same period of last year on the back of a high 2014 base, contrasting with MPI that probably record a smaller contraction due to a low base effect and some recoveries in auto production.

39

Equity Market Outlook and Strategy

� The SET Index increased by 3.4% in October boosted by positive

news such as the ECB’s announcement that it is ready to

reassess its bond-buying program in December.

� We expect the SET Index to be more volatile in November due to

its current high valuation of 17x PER 2015. Expectations the US

FOMC will raise interest rates in December should be negative to

the SET Index in the near term.

� We expect LTFs to help support the market at year-end. We would

therefore accumulate stocks at the 1,350-1,370 level with a focus

on stocks with a good earnings outlook.

� Our top picks are ADVANC, AOT, BH, CENTEL, CK, CPALL, ERW,

INTUCH, and MTLS.

‘Wild Ride’ seen across the globe as December rate hike now in play

The Fed left its key short-term rate on hold at 0-0.25% at its latest FOMC meeting on October 27-28 but signaled a potential rate hike at the upcoming December 15-16 meeting. The deciding factors will be key economic data, i.e., money market fluctuations, jobs, and inflation.

While the Fed removed its previous concern about the possible effect of slowing global growth and fluctuations in global money markets, it saw the possibility of a rate hike in December (when a press conference will be held and GDP growth forecast and a new ‘dot plot’ will be revealed). We believe a striking change to the Fed’s statement could signal a shift to normalizing monetary policy.

In spite of the Fed’s previous hawkish comments, there is a light at the end of the tunnel. The European Central Bank (ECB) is to meet on December 3 to consider expanding and extending the size of its quantitative easing from the current EUR60mn (US$68mn) that is set to end in September 2016 If this occurs, divergent monetary policies in several major countries may make the Fed feel less positive about raising its key short-term rate as it would cause the US dollar to strengthen against the basket of major currencies, thus damaging the US economy.

Itphong Saengtubtim - KSecurities [email protected] Prakit Sirivattanaket - KSecurities [email protected]

40

Fig 69. FOMC rate decision Fig 70. Fed fund futures (Dec 2015)

Source: KS Research Source: KS Research

SET valuation looks pricey after poor 3Q15 earnings announcements

SET earnings in 2015 are likely to be cut further after PTTEP reported a 3Q15 net loss of Bt46.2bn (EPS -Bt11.64) vs a net profit of Bt1.3bn reported in 2Q15 and Bt15.3bn in 3Q14. The loss was primarily due to the recognition of an asset impairment totaling USD1.39bn, or Bt49.9bn (before tax), for its five major petroleum projects. PTT as the parent company with a 65% stake in PTTEP will be affected. As a result, combined energy sector net profit will drop considerably by Bt76bn from previous estimates. Combined with poor banking sector results due to higher provisions for their SSI loan exposure, SET 2015 earnings are expected to decrease by more than Bt84bn and thereby drag EPS down to roughly Bt84 from our previous estimate of Bt94. We will revise down our SET 2015 earnings estimate after the end of 3Q15 earnings season. With a high downward earnings revision, SET 2015 PER will surge to 17x, a level that is highly likely to trigger profit-taking, particularly in sectors with a high PER.

However, a significant drop in profits in the Energy and Banking sectors will not affect our 2016 EPS forecast. As such, we maintain our 2016 EPS estimate of Bt104, which represents growth of roughly 24% based on our EPS estimate of Bt84 for 2015. We believe the market’s high valuation will weigh on sentiment only in the near term, as investors will likely be shifting their focus to 2016 EPS growth estimates, which could be as high as 24% after downgrades of 2015 earnings roll in and valuation bases are rolled forward to 2016.

Fig 71. Performance since 24 Aug and upside to our

target price

Fig 72. Performance since 24 Aug and upside to our

target price


41

LTFs to support the market at year-end

Investments by local investors in LTFs should provide support for the SET Index at the end of the year. During previous years, demand for LTFs climbed at a robust pace in November and December, particularly in December. Statistics show that in every November and December from 2004 to 2014 funds flowed into LTFs worth Bt4bn and Bt14bn, or equivalent to 13% and 46% of full-year net inflows. Strong demand for LTFs in the last two months of the year coincided with heavy purchases of equities by local institutional investors. According to data, local institutional investors were net buyers of equities in November in 10 out of 11 years and in December in 8 out of 11 years, representing a probability factor of 91% and 72%. The SET Index gained in 7 out of 11 years in November (64% probability) with an average return of -0.29% annually. Inflows into LTFs increased at a steady pace over the past 11 years. Our regression analysis using a high R-Square value of 0.97 shows inflows into LTFs will be Bt59bn in 2015, a 5% increase from Bt56bn in 2014, which looks fairly justified. Net inflows into LTFs in the first seven months of 2015 jumped 87% YoY to Bt16.5bn from Bt8.78bn in the same period a year earlier. If the degree of demand for LTFs is on a par with the previous year, we estimate inflows of Bt7.7bn and Bt27bn in November and December based on our inflow estimate of Bt59bn in 2015. Fig 5. LTFs value (Bt mn) Fig 6. Accumulated net buy/sell (Bt mn)


Focus on stocks with a good earnings outlook Although large sectors such as Energy and Banking posted poor results, some sectors should report good 3Q15 performances. These sectors include airport, healthcare, finance, hire purchase, and insurance. Stocks in these sectors that we like are AOT, BH, SAWAD, MTLS, GL, BLA, and CPALL. Airport: AOT – Earnings are likely to soften QoQ but grow by more than 39% YoY on higher passenger traffic, which we expect to rise by 21% YoY. Finance: SAWAD, MTLS – We expect strong growth of 35% and 53% YoY on an increase in the number of branches, strong loan demand, and partnership advantage. Hire purchase: GL – We expect to see a turnaround in 3Q15 driven by its expansion into Cambodia. We estimate a net profit of Bt135mn vs Bt4mn in 3Q14.

42

Insurance: BLA – Earnings are likely to recover from a loss in 3Q14 to a profit of more than Bt800mn on the back of an easing policy rate and new products that yield a higher margin. Compared to the second quarter, net profit is expected to drop by 52% as the ratio of provisions for its life policy reserve to total premiums will likely return to a normal level of 67-68%. Commerce: CPALL – We expect 3Q15 earnings to grow by more than 19% YoY on a successful stamp campaign and lower interest expense. Investment themes and top picks We see downside risk for the SET Index above 1,420 as this level is equivalent to an undemanding PER of 17x. Meanwhile, the Fed’s signal of a possible rate hike at its next FOMC meeting in December is likely to generate selling pressure in November and December. We therefore see a good chance of a market correction in the near term. The SET Index at 1,350-1,370 is an attractive entry level for long-term investment as this is equivalent to 13x PER 2016 based on our 2016 SET Index EPS estimate of Bt104. Investments by local investors in LTFs should provide upside for the SET Index from our end-year target of 1,470. Our top picks are ADVANC, AOT, BH, CENTEL, CK, CPALL, ERW, INTUCH, and MTLS.

43

Disclaimer For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request.

mean s kbank mult i asset strategies strategies · 6 would the fed risk an event of default? like a...

Documents