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17
Asia FX Update: Risk dynamics and USD weakness dominate 05 Jun 2020 Treasury Research & Strategy Global Treasury Terence Wu (+65) 6530-4367 [email protected] 1
Transcript of Asia FX Update › assets › pdf › fx outlook › viewpoint › 2020... · 2005-06-20 ·...
Asia FX Update: Risk dynamics and USD weakness dominate
05 Jun 2020
Treasury Research & Strategy
Global Treasury
Terence Wu
(+65) 6530-4367
1
Asian FX Key Themes
• Economic outcomes remain depressed – that is a fact (p. 3-5, 7). It is also a fact that the outcomes are mostly in-line if
not better than estimates (p. 8). However, this could be a factor of overly pessimistic estimates in the first place.
Nevertheless, the glass-half-full interpretation in terms of macro trajectory is hard to shake up (p. 10). The broader
portfolio flow environment for Asia remains challenging, but the sustained market optimism has resulted in greater
interest in traditional high-yielders (p. 13-14). In terms of Asian govie bonds, expect the IDR bonds to outperform in the
near term.
• Summary of research view: How the Sino-US tensions evolved since it re-emerged in the front pages have been light
on the actual policy front. Thus, its impact on broader USD-Asia pairs seemed to be limited. Instead, USD-Asia has
broadly tracked broad USD prospects (p. 11). However, the impact is still clear to see within China and the RMB
complex, and we expect it to keep the RMB complex under pressure, and underperforming against the rest of the Asian
currencies (p. 12). Overall, we still expect South Asian currencies to outperform the North. On the SGD front, ongoing
USD weakness may keep the SGD NEER just above the parity level, but we see this dynamic as temporary. Domestic
economic imperative should instead drive the SGD NEER below the parity level on a more permanent basis. Overall,
with the lack of strong upside impetus in the SGD NEER, the decline in USD-SGD should stay largely USD-driven for
now. Expect 1.3850 to be a floor on a multi-session horizon (p. 16).
2
Short term FX/bond market views and commentary
USD-Asia 10y govie (%) Commentary
China ↔/↓
↔/↑ NPC highlights include higher targets for fiscal deficit ratio and aggregate social financing growth. This
leaves room for more fiscal and monetary stimulus, although a big-bang stimulus may not be immediately
obvious. Loan relief for SMEs extended to Mar 2021. Recovery after the re-opening of the economy is
under way, but data suggests that it will be a slow grind. Sino-US tensions are raised after a new security
law imposed on HK. However it remains very much a war of words for now. May Caixin manufacturing PMI
are back in expansionary territory, but the official gauge dipped lower compared to April. Apr industrial
production continue to print better than expected but retail sales continue to weigh heavily. April exports
rose 3.5% yoy, against expectations of -11.0% yoy. 1Q GDP at -6.8% yoy vs. expected -6.0% yoy. Apr CPI
prints continue to be softer than expected at 3.3% yoy, while the PPI shows -3.1% yoy. Apr growth in
monetary aggregates were firmer than expected. Short term gyrations in the USD-CNH and USD-CNY will
be Sino-US headline driven, but expect the PBOC to be always at hand to keep it under a lid.
S. Korea ↔/↓
↔ The BOK cut its policy rate by 25 bps to 0.50% in its May meeting, and downgraded the FY2020 growth
forecast to -0.2% yoy, from 2.1% yoy. For now, further cuts may not be forthcoming given that
conventional policy room is now limited. If conditions worsen, the BOK may instead have to adopt asset
purchases. Bond markets rallied in response. Man. PMI dipped for the fifth consecutive month in May to
41.3, from 41.6. May exports slumped -23.7% yoy, while imports also contracted -21.1% yoy, with no end
to pain in sight for the trade sector. Industrial production also declined -6.0% yoy in Apr. May core and
headline CPI in line with estimates are 0.5% yoy and -0.3% yoy. Expect the USD-KRW biased higher, with
Sino-US headlines being the near term driver and heavy economic prints being the structural driver.
Taiwan ↔/↓
↔ The CBC still has room to cut its policy rate, although fiscal policy is playing a larger role in supporting the
economy. FY2020 growth forecast cut to 1.3-1.8% yoy. 1Q GDP growth at 1.59% yoy, firmer than
estimates. May man. PMI slipped further to 41.9, from 42.2 prior. April exports printed -1.30% yoy, slipping
further from the Mar numbers. Apr headline CPI at -0.97% yoy, worse than expected. Do not rule out some
upside pressure for USD-TWD for now. 3
Short term FX/bond market views and commentary
USD-Asia 10y govie (%) Commentary
Singapore ↔/↓ ↔ 1Q GDP printed -4.7% yoy saar and -0.7% yoy. Ugly, but better than estimates. Official growth forecast
downgraded again to -7.0% to -4.0% yoy, from -4.0% to -1.0% yoy. The Fortitude Budget was larger than
expected, underlying the role of fiscal policy as the main support for the economy. MAS still regards
monetary policy as appropriate, so the SGD NEER is not likely to dip towards the bottom end of the policy
band. However, the SGD NEER should slide organically to account for the worsened macro expectations.
Apr NODX rose 9.7% yoy vs. mkt. expectation of -5.0% yoy, still supported by pharma exports and a low
base effect (Sino-US trade war in 1H 2019). Apr headline and core CPI printed -0.7% yoy and -0.3% yoy
respectively, softer than expected. May official PMI prints failed to recover from the previous month’s
depressed readings, coming in at 27.1, vs 28.1 prior. 1.4000 may be an interim locus for USD-SGD, before
1.3850 supports on a multi-session horizon.
Thailand ↓
↔/↑ BOT cut policy rates further by 25 bps, in a close 4-3 vote in the committee. 1Q GDP fell 1.8% yoy, against
expectations of a -3.9% yoy contraction. Official growth forecast downgraded to -6.0% to -5.0% yoy. Even
as the economies reopen, the tourism-reliant Thai economy may not see a strong recovery so long as
global travel does not pick up. May man. PMI recovered to 41.6 from 36.8, but remained deep in in the
contractionary zone. April custom exports grew at 2.12% yoy, defying estimates of a -3.00% decline.
Imports however, slumped -17.13% yoy. May headline CPI printed -3.44% yoy, with core CPI also coming
in softer than expected at +0.01% yoy. Although the BOT expects May to be a trough for price pressures.
Expect the USD-THB downside to be limited for now, with the BOT sounding concerns over THB strength.
Malaysia ↔/↓
↔/↑ 1Q GDP turned out firmer than expected at 0.7% yoy, supported by strong private consumption. A
contraction is expected in 2Q, with consumption hampered by MCO restrictions. BNM cuts its policy rate
by 50 bps in April. It appears that the BNM is putting priority on growth at this stage. Further cuts by the
BNM may stay relatively muted in the coming months. May man. PMI recovered to 45.6, from 31.3 prior.
Apr exports slumped -23.8% yoy, hit by soft global demand and MCO restrictions. A breach of 4.2850/00 in
the USD-MYR may see it capitulate lower towards 4.2500. 4
Short term FX/bond market views and commentary
USD-Asia 10y govie (%) Commentary
India ↔ ↔/↓ The RBI cut its policy rate by 40 bps to 3.35% in an emergency meeting on 22 May, and implied that it
could ease further. The RBI also extended the moratorium on loan repayments for three months. The RBI
expects the economy to contract in the fiscal year through Mar 2021. Selected relaxation of restrictions for
certain industries and offices are under way, even though the virus count continue to rise. 1Q GDP printed
3.1% yoy growth, better than the estimated 1.6% yoy. May man. PMI recovered marginally to 30.8, from
27.4 prior. This suggests that India may be lagging in terms of restarting the economy compared to the
other Asian economies. Apr exports shrank -60.3% yoy, highlighting the supply chain disruption in the
economy. USD-INR still exhibits a supported stance, but may turn heavy on USD weakness.
Indonesia ↔/↓
↓ The BI kept rates unchanged again at 4.50% on 19 May, preferring to prioritise IDR stability. Nevertheless,
the BI continue to see scope for further cuts. 1Q GDP at 2.97% yoy, with further softening expected in 2Q
and 3Q. Fiscal deficit currently expected to be at 6.30% of GDP, and increased issuance is expected to
finance spending. May headline and core CPI at 2.19% and 2.65% yoy respectively, continuing a decline
on a monthly basis. May man. PMI edged up slightly to 28.6, from 27.5 prior, perhaps one of the weakest
in the South Asia for now. April exports slumped 7.02% yoy, worse than the expected -3.95% yoy. Latest
bond auction saw a strong response, with bid-to-cover ratio at more than 5x. Inflow momentum has also
returned, especially on the bond front. Expect this to translate into lower back-end yields.
Philippines ↓ NA The BSP is highlighting a pause from rate cuts after substantial easing this year, although the room to cut
is still present. Calls for fiscal support is also stepped up. BSP open to purchasing more government
securities in light of the COVID-19 hit. 1Q 2020 GDP shrank -0.2% yoy, against expectations of 2.9% yoy.
2Q GDP expected to take a bigger hit compared to 1Q. Apr CPI firmer than expected at 2.2% yoy, firmer
than expected. May man. PMI recovered to 40.1, from 31.6 prior. Feb exports grew by a softer than
expected 2.8% yoy. Feb remittances grew 2.5% yoy, softer than expected.
5
COVID-19: Daily number of confirmed cases turning higher
• Total confirmed cases has topped
6.5m, and the daily growth of new
cases seemed to be turning up again.
• Vaccine-related headlines have taken a
back seat, and it seems like we are
nowhere closer to a workable vaccine.
Positives may be drawn from a lower
fatality rate, and a higher recovery rate.
Both developments should reduce the
pressure on healthcare resources
globally.
• Charts drawn from the daily COVID-19
Monitor. Please refer to the publication
for further details.
6
Macro trajectory: Really a V?
• Manufacturing PMIs in South Asia
saw a rebound in May – perhaps not
surprising after printing heavily
depressed figures in April. Countries
like Thailand, Malaysia and
Philippines saw a good jump back to
the 40s level, while India and
Indonesia are relative laggards with
small improvements.
• More worryingly, PMI prints in North
Asia and Singapore continued to slip.
At this juncture, PMI sub-indices also
suggest that global supply chains
have yet to smoothen out.
• Markets have started to price in a
V-shaped recovery. However, a
multi-month decline in PMIs akin to
2008 cannot be ruled out just yet.
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Asian PMIs (monthly)
EM PMI CN SK TW SG
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Asian PMIs (monthly)
IN TH MY PH ID
7
84.0
86.0
88.0
90.0
92.0
94.0
96.0
98.0
100.0
102.0
104.0
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
Asian CLIs
Korea Indo Japan China Asia: Major 5 CLI
91.0
93.0
95.0
97.0
99.0
101.0
103.0
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
Global CLIs
US CLI EZ CLI JP CLI Asia: Major 5 CLI
Macro trajectory: Really a V?
• The deep troughs in 2008 seen on our Macro Surprises Indices (MSI), which track actual data outcomes against
consensus estimates, have not materialized this time. In fact, the MSIs still look broadly supported in Asia and the US.
• Market participants have interpreted this as the global economy being less impacted than expected, thus explaining the
positivity. However, do note that this could also be a reflection of consensus estimates being overly weak, which is not
inconceivable in the context of an economic shutdown. The fact remains that the actual data-prints remain very
depressed by usual standards, and the evidence points more to a shallow, gradual recovery than a rapid V-
shaped one.
8
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
Ja
n-0
8
Jul-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
Ju
l-1
6
Ja
n-1
7
Ju
l-1
7
Ja
n-1
8
Ju
l-1
8
Ja
n-1
9
Ju
l-1
9
Ja
n-2
0
OCBC Asia Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
-80
-60
-40
-20
0
20
40
60
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
OCBC US Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
-70
-50
-30
-10
10
30
50
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
OCBC EZ Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
Asian 10y yields: Change of tack at PBOC?
• The PBOC launched a credit support plan to support loans to SMEs earlier this week, but Chinese yields rose as the
market questioned if it is a replacement for broader monetary easing. This may keep the low-yielders, especially North
Asian yields supported until there is further clarity. On the flipside, with macro optimism growing, expect a rotation
towards traditional high-yielders like Indonesia and Indian government bonds to take advantage of the yield
differential – note that bond inflows into both countries have already picked up (p. 14-15).
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%SK
2.60
2.90
3.20
3.50
3.80
4.10
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%MY
6.00
6.50
7.00
7.50
8.00
8.50
9.00
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%ID
5.60
6.10
6.60
7.10
7.60
8.10
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%IN
0.60
1.10
1.60
2.10
2.60
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%SG
9
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
% CN
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
% TW
0.60
1.10
1.60
2.10
2.60
3.10
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
%TH
Risk rally going strong
• Investors are gripped by the notion
of a potentially swift economic
recovery. The FX Sentiment Index
(FXSI), along with some equity-
related sub-indices, has moved into
the Risk-On half of the scale –
something that is not seen since
mid-February.
• Negative geopolitical developments
are far in the background at this
moment. Initial market concerns
over Sino-US tensions have very
much fizzled out. The fundamental
stance on both sides still seems
to be keeping the Phase 1
agreement intact, and exchange
verbal barbs and low-impact policy
tweaks like airline access in the
meantime. These are not going to
derail the current risk-on mode. -3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Emerging Market Bond Index Plus
RISK OFF
RISK ON
Z-score
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
MSCI AP ex. JP
RISK OFF
RISK ON
Z-score
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
FX Sentiment Index
RISK OFF
RISK ON
10
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
VIX
RISK OFF
RISK ON
USD-Asia heavy on broad USD weakness
• Market optimism proved to be more enduring than we previously
thought, and the risk premium factored into the broad USD is being
consistently undermined. USD-Asia has moved yet lower. Going
forward, for the next leg of USD-Asia directionality, we watch
for two issues: (1) the sustainability of the current risk rally,
and (2) downside support levels for USD-Asia pairs.
• At present, we are hard-pressed to find any catalysts that may
jeopardize the risk rally. Data-prints are not rosy, but the glass-half-
full interpretation will be hard to shake out. Thus, there is argument
for further downside for USD-Asia. However, this should be seen in
the context of the extent of USD-Asia moves so far. The USD-IDR,
in particular, have already returned to pre-COVID levels. Material
downside supports are coming into view, and we think this should
limit the pace of USD-Asia downside.
• We continue to see no justification for explicit Asian FX
weakness in the near term. Thus, USD-Asia to track the broad
USD for now. Overall, we expect South Asian currencies to
outperform, being less responsive to Sino-US issues and
better flow dynamics.
11
106
108
110
112
114
116
118
120
122
124
Ma
y-15
Sep
-15
Jan-1
6
Ma
y-16
Sep
-16
Jan-1
7
Ma
y-17
Sep
-17
Jan-1
8
Ma
y-18
Sep
-18
Jan-1
9
Ma
y-19
Sep
-19
Jan-2
0
Ma
y-20
Asian Currency Index (ACI) implied valuation
Actual Predicted
WeakerAsian FX
StrongerAsian FX
Asian FX Short-term Heat Map
USD JPY CNH SGD MYR KRW TWD THB PHP INR IDR
USD 2 9 1 1 9 2 1 9 1 1
JPY 2 2 1 1 9 2 1 1 1 1
CNH 9 2 2 2 1 2 1 1 1 1
SGD 1 1 2 1 2 2 1 2 1 1
MYR 1 1 2 1 2 2 1 2 9 1
KRW 9 9 1 2 2 1 2 9 2 1
TWD 2 2 2 2 2 1 1 1 1 1
THB 1 1 1 1 1 2 1 2 2 1
PHP 9 1 1 2 2 9 1 2 1 1
INR 1 1 1 1 9 2 1 2 1 1
IDR 1 1 1 1 1 1 1 1 1 1
Asian FX Short-term Heat Map
USD JPY CNH SGD MYR KRW TWD THB PHP INR IDR
USD 1 9 1 1 1 1 1 1 1 1
JPY 1 1 1 1 9 9 1 2 1 1
CNH 9 1 2 2 1 1 1 1 1 1
SGD 1 1 2 1 2 2 1 2 1 1
MYR 1 1 2 1 2 2 9 2 1 1
KRW 1 9 1 2 2 1 2 1 2 1
TWD 1 9 1 2 2 1 1 2 1 1
THB 1 1 1 1 9 2 1 2 1 1
PHP 1 2 1 2 2 1 2 2 1 1
INR 1 1 1 1 1 2 1 1 1 1
Asian FX Short-term Heat Map
USD JPY CNH SGD MYR KRW TWD THB PHP INR IDR
USD 2 9 1 1 9 2 1 9 1 1
JPY 2 2 1 1 9 2 1 1 1 1
CNH 9 2 2 2 1 2 1 1 1 1
SGD 1 1 2 1 2 2 1 2 1 1
MYR 1 1 2 1 2 2 1 2 9 1
KRW 9 9 1 2 2 1 2 9 2 1
TWD 2 2 2 2 2 1 1 1 1 1
THB 1 1 1 1 1 2 1 2 2 1
PHP 9 1 1 2 2 9 1 2 1 1
INR 1 1 1 1 9 2 1 2 1 1
Asian FX Short-term Heat Map
USD JPY CNH SGD MYR KRW TWD THB PHP INR IDR
USD 2 9 1 1 9 2 1 9 1 1
JPY 2 2 1 1 9 2 1 1 1 1
CNH 9 2 2 2 1 2 1 1 1 1
SGD 1 1 2 1 2 2 1 2 1 1
MYR 1 1 2 1 2 2 1 2 9 1
KRW 9 9 1 2 2 1 2 9 2 1
TWD 2 2 2 2 2 1 1 1 1 1
THB 1 1 1 1 1 2 1 2 2 1
PHP 9 1 1 2 2 9 1 2 1 1
INR 1 1 1 1 9 2 1 2 1 1
Look harder for impact of Sino-US issues
• The impact of Sino-US tensions seemed to be isolated to China and the RMB complex for now. Note that despite the
recovery in implied equity flows across Asia (ex. JP, CN), the same recovery has bypassed China. Outflow momentum
from China is actually at the highest since 2015.
• Despite the decline in USD-CNY, the sharp decline in the CFETS RMB Index complex has not abated. Instead, it has
continued to track the DXY lower. This suggests that the RMB is underperforming the rest of Asia. Going forward,
even though the Sino-US tensions may not have a larger impact on USD-Asia, we expect it to put pressure on
the RMB complex, and cause it to underperform the rest of the Asian currencies.
12
90919293949596979899
100101102103104105106107
31
/12
/14
30
/4/1
5
31
/8/1
5
31
/12
/15
30
/4/1
6
31
/8/1
6
31
/12
/16
30
/4/1
7
31
/8/1
7
31
/12
/17
30
/4/1
8
31
/8/1
8
31
/12
/18
30
/4/1
9
31
/8/1
9
31
/12
/19
30
/4/2
0
31/12/2014= 100
CFETS RMB Index
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
12000
14000
Ja
n-1
6
Ap
r-16
Ju
l-1
6
Oct-
16
Ja
n-1
7
Ap
r-17
Ju
l-1
7
Oct-
17
Ja
n-1
8
Ap
r-18
Ju
l-1
8
Oct-
18
Ja
n-1
9
Ap
r-19
Ju
l-1
9
Oct-
19
Ja
n-2
0
Ap
r-20
USD mn,4wk RS
Implied equity flows
China Asia Ex JP,CN
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
CFETS Index vs DXY Index: 20D Correlation
CFETS vs DXY (t-1)
NEERs: North Asians compromised by Sino-US issues
• North Asians, especially the RMB, underperformed since the previous Update. However, the likes of KRW should catch
up on USD weakness, especially since Sino-US issues have proven to be less pressing than first expected. Meanwhile,
the turn higher in THB NEER have attracted BOT attention. Expect THB strength to be contained in the coming weeks.
1000
1050
1100
1150
1200
1250
130071.00
73.00
75.00
77.00
79.00
81.00
83.00
85.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
South Korea
KRW NEER 5y Average USD-KRW (RHS)
Index: Jan 94 = 100 29.00
29.50
30.00
30.50
31.00
31.50
32.00
32.50
33.00
33.50
34.0079.00
81.00
83.00
85.00
87.00
89.00
91.00
93.00
95.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Taiwan
TWD NEER 5y Average USD-TWD (RHS)
Index: Jan 94 = 100
9000
10000
11000
12000
13000
14000
15000
16000
1700014.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Indonesia
IDR NEER 5y Average USD-IDR (RHS)
Index: Jan 94 = 100
28.00
29.00
30.00
31.00
32.00
33.00
34.00
35.00
36.00
37.0078.00
80.00
82.00
84.00
86.00
88.00
90.00
92.00
94.00
96.00
98.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Thailand
THB NEER 5y Average USD-THB (RHS)
Index: Jan 94 = 100
53.00
56.00
59.00
62.00
65.00
68.00
71.00
74.00
77.00
80.0043.00
45.00
47.00
49.00
51.00
53.00
55.00
57.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
India
INR NEER 5y Average USD-INR (RHS)
Index: Jan 94 = 100 2.80
3.00
3.20
3.40
3.60
3.80
4.00
4.20
4.40
4.6070.00
75.00
80.00
85.00
90.00
95.00
100.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Malaysia
MYR NEER 5y Average USD-MYR (RHS)
Index:: Jan 94 = 100
0
10
20
30
40
50
60
70
80
90
100
80828486889092949698
100102104106108110112114116118
De
c-16
Ma
r-17
Jun
-17
Sep
-17
De
c-17
Ma
r-18
Jun
-18
Sep
-18
De
c-18
Ma
r-19
Jun
-19
Sep
-19
De
c-19
Ma
r-20
Asian NEERs
THB PHP IDR MYR SGD
TWD KRW CNY INR
Index:30 Dec 2016 = 100 2019 2020
-4.84-4.38
-3.86
-2.90
-2.33
-1.27
0.29
1.58 1.81
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
KRW INR THB MYR IDR SGD CNY PHP TWD
Year-to-date Asian NEER performance
04/06/2020
%
13
Asian portfolio environment has mostly worsened…
• In particular, inflow momentum into South Korea has stalled, and equity outflow momentum from Taiwan is picking up
pace. Indonesia, however, has seen a resurgence in bond inflows as optimism in the macro recovery re-ignites the
search for yield dynamic.
14
-10,000.00
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Korea - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-30,000.00
-25,000.00
-20,000.00
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Taiwan - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-30,000.00
-20,000.00
-10,000.00
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
India - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-25,000.00
-20,000.00
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
cIndonesia - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Thailand - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-6,000.00
-4,000.00
-2,000.00
0.00
2,000.00
4,000.00
6,000.00
8,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Malaysia - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
1045
1095
1145
1195
1245
1295
1345-9000
-7000
-5000
-3000
-1000
1000
3000
5000
7000
9000
11000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
South Korea
NFB: Bond & Eq 20D RS USD-KRW
…however USD-Asia has not reacted as expected
29.0
29.5
30.0
30.5
31.0
31.5
-16000
-11000
-6000
-1000
4000
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Taiwan
NFB: 20d RS USD-TWD
62.00
64.00
66.00
68.00
70.00
72.00
74.00
76.00
78.00-20000
-15000
-10000
-5000
0
5000
10000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
India
NFB: Bond & Eq RS 20D USD-INR
13000
13500
14000
14500
15000
15500
16000
16500
17000-25000
-20000
-15000
-10000
-5000
0
5000
10000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Indonesia
Bond & Equity: 20D RS USD-IDR
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5-3000
-2000
-1000
0
1000
2000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Thailand
Net bond & equity WTD RS20 USD-THB
3.85
3.95
4.05
4.15
4.25
4.35
4.45-1800
-1500
-1200
-900
-600
-300
0
300
600
900
Jan-
18
Ap
r-18
Jul-1
8
Oct
-18
Jan-
19
Ap
r-19
Jul-1
9
Oct
-19
Jan-
20
Ap
r-20
Malaysia
Equity 20D RS USD-MYR
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
De
c-16
Feb
-17
Ap
r-1
7
Jun
-17
Au
g-1
7
Oct
-17
De
c-17
Feb
-18
Ap
r-1
8
Jun
-18
Au
g-1
8
Oct
-18
De
c-18
Feb
-19
Ap
r-1
9
Jun
-19
Au
g-1
9
Oct
-19
De
c-19
Feb
-20
Ap
r-2
0
Total Portfolio Flows (20D RS) ACI (RHS)
z-score4wk MA
1m%
Stronger Asia FX
Weaker Asia FX
-40000
-35000
-30000
-25000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
De
c-16
Ma
r-17
Jun
-17
Sep
-17
De
c-17
Ma
r-18
Jun
-18
Sep
-18
De
c-18
Ma
r-19
Jun
-19
Sep
-19
De
c-19
Ma
r-20
Asian aggregate portfolio flows (20D Rollsum)
Equity Bond
• With the exception of USD-TWD and USD-IDR, portfolio flow dynamics have not materially driven USD-Asia. The other
USD-Asia pairs – such as USD-MYR, USD-THB and USD-KRW – have mostly reacted to USD weakness instead.
15
SGD NEER: USD weakness supports for now
• We still lean towards downside risks for the domestic economy, and this informs our fundamental view that the SGD
NEER should be slightly below parity (up to -0.50%) to account for that. Admittedly, broad USD weakness may have
placed a floor on the SGD NEER temporarily, but we still prefer to await firmer evidence that the recovery is stronger
than expected before we review our stance on the SGD NEER.
• Going forward, we still do not expect the SGD NEER to organically strengthen. Thus, the USD-SGD is expected to
mainly track broad USD prospects. With downside supports breached quickly, we expect 1.3850 to be a firmer support
on a multi-session horizon.
-0.1500
-0.1000
-0.0500
0.0000
0.0500
0.1000
0.1500
0.2000
Contribution of SGD NEER component currencies (since 23 May to 03 June)
INR
AUD
IDR
KRW
GBP
CNY
THB
TWD
JPY
MYR
EUR
USD
SGD strengthens agst currency x
SGD weakens agst currency x
116
117
118
119
120
121
122
123
124
125
126
127
128
129
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
Jul-1
9
Oct-
19
Jan-2
0
Apr-
20
Jul-2
0
Oct-
20
2.0%pa+/-2.0% band
flatten slope
neutral slope
1.0%pa+/-2.0% band
flatten slope
0.5%pa+/-2.0%
band
0.0%pa+/-2.0% band
0.5%pa+/-2.0%
band
steepen slope
1.0%pa+/-2.0% band
steepen slope
0.5%pa+/-2.0%
band
flatten slope
neutral slope, re-centre lower
0.0%pa+/-2.0%
band
16
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Co.Reg.no.:193200032W
Treasury Research & Strategy
Macro Research Selena Ling
Head of Research & Strategy
Tommy Xie Dongming
Head of Greater China Research
Wellian Wiranto
Malaysia & Indonesia
Terence Wu
FX Strategist
Howie Lee
Thailand, Korea & Commodities
Carie Li
Hong Kong & Macau
Dick Yu
Hong Kong & Macau
Credit Research
Andrew Wong
Credit Research Analyst
Ezien Hoo
Credit Research Analyst
Wong Hong Wei
Credit Research Analyst
Seow Zhi Qi
Credit Research Analyst
17
