Singapore focus I: Singapore focus II: China focus I ... · cal support in China and financing...

Singapore focus I:Can Singapore government securities outperform during a global bond sell off?

Singapore focus II:Housing: Volume down,prices holding up so far

China focus I:A brief on the "silk road economic beltand 21st century maritime silk road"

China focus II:Aiming for the SDR basket

3Q 2015

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EXECUTIVE SUMMARYTHE WAITING GAME IN 2H 2015

FX & INTEREST RATE OUTLOOK

SINGAPORE FOCUS ICAN SINGAPORE GOVERNMENT SECURITIES

OUTPERFORM DURING A GLOBAL BOND SELL OFF?

SINGAPORE FOCUS IIHOUSING: VOLUME DOWN, PRICES HOLDING UP SO FAR

CHINA FOCUS IA BRIEF ON THE "SILK ROAD ECONOMIC BELT

AND 21ST CENTURY MARITIME SILK ROAD"

CHINA FOCUS IIAIMING FOR THE SDR BASKET

CHINA FOCUS IIIMARKET LIBERALIZATION MEASURES UPDATE

CHINA FOCUS IVRMB INTERNATIONALIZATION UPDATE

INDONESIA

MALAYSIA

SINGAPORE

THAILAND

INDIA

CHINA

HONG KONG

JAPAN

SOUTH KOREA

TAIWAN

EUROZONE

AUSTRALIA

NEW ZEALAND

UNITED KINGDOM

UNITED STATES OF AMERICA

FX TECHNICALS

Information as of 19 June 2015

CONTENT

Quarterly Global Outlook 3Q2015 • UOB Global Economics & Markets Research4

EXECUTIVE SUMMARYTHE WAITING GAME IN 2H 2015

As we enter into the second half of 2015, we con-tinue to be troubled by unresolved issues of the re-cent past and waiting for the outcomes which hope-fully will be positive or at least palatable, and let the global economy continue on its recovery road.

Indeed, the state of the global economy remains a concern: Chinese data continued to show econom-ic growth momentum stuck at a tepid pace of “new normal” and the Chinese central bank responded with another rate cut in May, its third in six months and more easing measures are expected to be un-veiled in 3Q. The growth bright spots are surprising-ly found in the Eurozone and Japan where the data point to better prospects ahead but Greece could potentially trip up not just Europe but also the glob-al economy. Global oil prices which plunged in late 2014, has stabilized in recent months and provided some comfort to oil producers as well as allaying concerns that price weakness will be further aggra-vated in 2H. Additionally, the prospects of a return of El Nino weather phenomenon in 2015 could re-verse the recent commodity price weakness (such as rice) and set a return path for inflation not only in Asia but also globally.

One key concern for the markets will still be about the US Federal Reserve’s timeline for its interest rate normalization. At the conclusion of the June 2015 FOMC meeting, US Federal Reserve Chair Janet Yellen reiterated that rate liftoff remains on course in 2015 but continued to emphasize on data-dependent guidance and that exact timing of liftoff matters less than the path of rate hike, which is likely to be gradual. The 2015 and 2016 “dot plot” chart projections released at the June FOMC imply

two 25 bps hike this year and then possibly four 25bps hikes in 2016. But when exactly? While we missed the mark in our expectation that the US Fed liftoff would begin in June, we still expect the Fed rate normalization to take place in 2015. Fol-lowing the dot plot chart guidance, we now look for the first hike to take place at the 16-17 Sep 2015 FOMC, followed by the second move at the 15-16 Dec FOMC. We have further lowered our rate hike trajectory, bringing the FFTR to 0.75% by end-2015 (from 1.0% previously), and to 1.75% by end-2016 (from 2.0% previously). Our September FOMC lift-off view is still premised on three factors:

1. An expected growth rebound in 2Q & 3Q-2015 in the US (similar to what we experienced in 2014);

2. Tighter labor market conditions and Increasing US domestic wage pressure; and most impor-tantly,

3. The Fed Reserve’s desire to get away from the prolonged state of zero-interest rate policy (ZIRP) environment.

That said, as the Fed emphasized their monetary policy formulation is data-dependent, there unfor-tunately remains significant risk to both our project-ed timeline and rate trajectory. In addition, we are worried that US politics could re-emerge as a risk factor for Fed policy making in 4Q 2015 (just like in late 2013 during Bernanke’s Fed Chairmanship when the US debt ceiling crisis erupted) could pos-sibly delay the rate hike schedule in the September meeting. Specifically, we fear there may be a re-run of the US debt ceiling limit drama come late 2015 (when US$18.113trn US debt ceiling limit must be

Central Banks’ Policy Decisions on Rates in So Far In 2015 – Will US Finally Tighten Instead?

Contractionary Expansionary

Source: Bloomberg, Various news wires

Quarterly Global Outlook 3Q2015 • UOB Global Economics & Markets Research 5

EXECUTIVE SUMMARY

raised in 4Q 2015 for the US government to stay under the limit). Some believe that it will be different this time as we will have the 2016 US Presidential primary campaigns and both Republicans & Demo-crats lawmakers will avoid political brinkmanship in 2015. But nothing should be taken for granted these days, especially regarding US politics.

As the US Federal Reserve prepares the markets for a “liftoff” this year, there is the other closely-fol-lowed issue that is a “wilder” card within the deck of past unresolved problems – Greece. The debt prob-lems of Greece first surfaced in 2010. After simmer-ing quietly in the background for a few years, the issue has re-surfaced even more prominently this time when a anti-austerity government was voted into power in January 2015. Though our base case assumption remains to be that a last-minute deal will be reached (similar to past episodes) to resolve its debt repayment to IMF, one cannot help but be increasingly concerned that a man-made accident can happen and send things spiraling out of control towards default and “Grexit”. The matter was seri-ous enough for the US to warn against such sce-nario at the G7 meeting on 29 May 2015.

A quote from Robert H. Schuller reads, “Again and again, the impossible problem is solved when we see that the problem is only a tough decision waiting to be made.” The Fed is finding it tough to make the decision when to start normalizing because it has too many considerations. But the longer the Fed waits, the more difficult it gets and clearly markets are pricing that “difficulty” in now. In comparison, the tough decision that Greece has to make is too diffi-cult to stomach. And without compromise from both sides, it looks increasingly likely for Greece take the other extreme “tough decision”, potentially leading to disastrous and unintended consequences.

SINGAPORE IN FOCUS I: Can Singapore Government Securities Outperform During A Global Bond Sell Off? SGS performance during previous periods of Bund selling has been inconsistent; having outperformed in April but underperformed in June. We view June underperformance as driven by idiosyncratic fac-tors which will diminish in significance going for-ward and together with light domestic supply, the prospects of SGS outperforming during future Bund liquidations is much improved.

SINGAPORE FOCUS II: Housing: Volume Down,Prices Holding Up So Far Private residential property sales have plunged >50% to crisis lows but average prices were only 6% off the recent peak. However, rising interest rates & a sharper fall in rentals could trigger a fur-

ther 5-10% price decline. Mortgagee sales have spiked as more buyers default.

And while the high-end segment remains under pressure from supply overhang, mass market is also feeling the pinch as supply builds; shoebox units are particularly vulnerable. At the same time, vacancy rate could return to peak levels (~9%) on the back of a supply glut, especially as immigration policies remain tight.

The Singapore Government is still unlikely to re-verse policy measures unless prices decline more significantly. Soft landing could nonetheless be at hand with generally strong balance sheets and ta-pering land supply.

CHINA IN FOCUS: I. Silk Road Economic Belt and 21st Cen-tury Maritime Silk Road: China is embarking on an ambitious project by connecting to Asia, Af-rica, and Europe through its land-based silk road and maritime silkroad. It is motivated by long-term strategic needs as well as near term economic rea-sons. The initiative is already in motion, with politi-cal support in China and financing falling in place through the establishment of the Silk Road Fund, Asian Infrastructure Investment Bank, and the BRICS Bank. In addition, various infrastructure pro-jects are already kicking off in countries along the “Belt and Road”.

II. Aiming for the SDR Basket: One key agen-da for China this year is being admitted to IMF’s Special Drawing Rights (SDR) basket, as the once-in-5-years (“quinquennal”) review due by end-2015. A score with SDR could further accelerate the RMB internationalization efforts and adoption. However, a positive decision remains uncertain at this year’s review, as it can be argued that China has yet to satisfy all the four requirements set out by IMF in 2011, and we peg the probability of RMB’s admis-sion into SDR in 2015 at 60%. As China keeps its eyes on the SDR basket, the risks of a sharp depre-ciation for the RMB would be low, and our projec-tions for USD/RMB exchange rate still stand at 6.20 for end-2015. We also expect a further widening of the RMB trading band to 3% from 2% sometime this year.

III. Market Liberalization Measures: China announced a slew of financial market liberalization in recent months, as it looks to strengthen its finan-cial markets and moves towards further opening of its capital accounts. Among the measures are the Pledged Supplementary Lending (PSL), which co-incides with the initiation of local government debt swap program, large denomination certificates of deposit program which is now open to non-bank corporates and individuals, and the approval for


EXECUTIVE SUMMARY

offshore RMB clearing and settlement banks to participate in the onshore interbank bond market’s repurchase facilities.

IV. RMB Internationalization Update: PBoC released on 11 Jun 2015 its first report on the RMB internationalization efforts since 2009. Aside being a treasure trove of data and information, it also pro-vides an authoritative assessment of the progress so far and the road ahead. The report coincides with the IMF’s SDR decision later this year (please see Focus II. Aiming for the SDR Basket, for more details). The gist is that RMB internationalization is gaining ground either through trade, investment, or even cash notes, and is here to stay. The usage and acceptance of RMB globally will be accelerated if admission to SDR is a success. However, even without SDR, PBoC is likely to continue to pursue the same path.

Global FXEUR/USD: Despite the ongoing saga in Greece, the Euro has been able to find plenty of support. In the last three months, the currency has been follow-ing Bunds slavishly, with the recurrent selling wave in Bunds being a constant source of EUR strength. We continue to look for a lower EUR/USD in the coming quarter, reflecting the concerns we have on Greece and the Eurozone. That said, we have con-sistently been of the view that the ramifications of a default by Greece would be severe. And because of political reasons, it would be in Europe’s interest to keep Greece firmly in the EU, including providing it with further financial assistance. Hence, similar to previous episodes, we believe a last-minute deal will be reached. We thus see limited downside for the EUR further out.

GBP/USD: Previously, we cited political uncer-tainty and slowing of economic data as the two ma-jor factors explaining our bearish view on the GBP. However, heading into the second half of the year, we think we are past that short-term uncertainty. In fact, another reason why we see the GBP perform-ing is our belief that the BoE will be the next major central bank after the US Fed to raise rates.

AUD/USD: We continue to look for a lower AUD/USD, largely due to the combination of a slowing China, weak domestic economy, a stalling domes-tic economic transition and an RBA with an easing/cautious bias. In addition, we believe that Aussie dollar weakness will come through in the next few months because the US is going to be raising inter-est rates.

NZD/USD: Further declines in commodity prices coupled with continued slowing economic mo-mentum is likely to see the NZD underperforming. Besides, the yield advantage of New Zealand is clearly diminishing. With the central bank expected

to move rates lower, and stay low for longer than widely expected, this should see the NZD weaken.

USD/JPY: Even without any new easing this year, the yen is about 2.7% weaker against the US dol-lar so far this year (as of 18 Jun). The USD/JPY pair was initially pushing to multi-year high of 125 in early June but BOJ Kuroda called for currency sta-bility on 10 June, saying that it was “hard to see [the JPY] real effective rate falling further,” which sent the JPY strengthening towards 122 (from above 125) against the US dollar. We keep our view for USD/JPY to push fresh multi-year highs although the pair may be stuck in 120-124 range in early 3Q barring any unexpected global event. We expect the USD/JPY pair to break conclusively above 125 when the Fed finally delivers the first rate action (now expected in Sep 2015).

Asian FXUSD/CNY: The focus this year is the IMF review of its Special Drawing Rights (SDR) by end-2015 and China is keen to have the RMB as part of the SDR basket of currencies. This means that the the risks of a sharp depreciation for the RMB are relatively low as it would jeopardize the chance We continue to maintain our forecast of USD/RMB at 6.23 for end-3Q15, and at 6.20 for end-2015. A band widen-ing is still likely before year end, possibly around the annual IMF/World Bank annual meetings in Oct.

USD/SGD: More than anytime during the past 8 years of low interest rate environment, the US Federal Reserve will likely start their interest rate normalization cycle this year, although the 18 June FOMC statement signaled a downward adjustment in the pace of rate hike. With that and our view that the Monetary Authority of Singapore will keep the SGD NEER appreciation slope unchanged at our estimated 1% pa rate as core inflation environ-ment remains within their forecast, we lowered the USDSGD appreciation trajectory and forecast the USD/SGD to reach 1.38 by end of 2015, from 1.40 as expected earlier.

USD/IDR: USD/IDR surged to a fresh 17-year high in June on the back of rate normalization expecta-tion in the US which was compounded by domestic growth concerns and seasonal USD demand for debt payments. Since the start of the year, IDR has depreciated by around 7.0% against USD, mak-ing it the worst-performing currency in Asia. The eventual rate liftoff in the US supports higher USD/IDR but a more gradual pace will likely reduce the upward trajectory in the pair. We expect USD/IDR at 13,500 and 13,600 at end-3Q15 and end-4Q15 respectively. However, a soft commodity outlook could further weigh on the currency.

USD/KRW: Weaker sentiment towards South Ko-rea contributed to USD/KRW rebound from its clos-


EXECUTIVE SUMMARY

ing low of 1,068.60 in April. We have reduced our expectation of the USD/KRW upward trajectory in line with a gradual pace of US Fed interest rate nor-malization. South Korea's strong current account surplus (1Q15: 7.0% of GDP) will also moderate the up-move in the pair. Our end-3Q15 and end-4Q15 targets for USD/KRW are at 1,130 and 1,140 respectively.

USD/MYR: Despite expectation of a more gradual pace of rate normalization in the US, uncertainties in Malaysia will continue to underpin USD/MYR upside. USD/MYR surged to fresh highs since the July 2005 de-peg on the back of USD strength and more downbeat domestic sentiment. While the Fi-nance Ministry has said that there are no plans to reintroduce a currency peg, the weakening MYR is likely to keep the concerns alive. Before the end of June, Fitch is expected to announce its review of Malaysia’s credit rating. The rating agency has put the chance of a downgrade at more than 50%. Although market has priced it in, there could still be knee-jerk reaction and pressure on MYR should the risk materializes. Political risk is another area of concern given the fallout from state investment firm 1Malaysia Development Bhd.’s RM42 bn debt, of which slightly more than half is US dollar-denomi-nated. While we are maintaining our end-3Q15 and end-4Q15 USD/MYR forecast at 3.78 and 3.80 re-spectively, the uncertainties in the domestic econo-my and the start of the Fed’s interest rate normali-zation may cause the pair to overshoot our targets.

USD/THB: The USD/THB moved up in a big way in 2Q 2015 and had gained 3.4% to date as the cur-rency market reacted negatively to the 25bps rate cut by BoT on 11 March and then another 25bps cut on 29 Apr. We think that the moves seemed overly aggressive, and some profit-taking may pare off the gains in the near term ahead. Going forward, we are not anticipating any more rate cuts by the BoT and this should act as an anchor to support the THB. However, the anticipation of the US Fed rate hike will see a stronger greenback against the THB and we expect the USDTHB pair at 34.30 by end of 2015.

USD/INR: The USD/INR gained 2.2% in the 2Q to date as the Reserve Bank of India proceeded with the third cut in the key interest rate to 7.25% on 2 June, on the back of lower inflation and other weak-er economic indicators such as auto sales, core industrial growth, and credit growth. However, we believe that further rate cuts will not be in the cards because the possible shortfall in the Southwest monsoon may drive inflation higher in the coming months. Not only that, further monetary easing may see another round of capital outflow from India and will be detrimental to the INR. Even without any easing, we keep to our long-held view that the USD/INR will likely trend higher towards 66.0 by the end

of 2015 from the 63.84 level at the time of writing.

Global Interest RatesFederal Reserve: The Fed kept its ultra-low rates policy unchanged in June, even as Yellen said rate liftoff remains on course in 2015 but con-tinued to emphasize on data-dependent guidance and that exact timing of liftoff matters less than the path of rate hike which is likely to be gradual. The dovish sentiment was further reinforced by margin-ally more dovish June dot-plot chart forecasts from March.

We now expect the first Fed rate hike to take place in the 16-17 September 2015 FOMC but we re-vised lower the rate trajectory, expecting the FFTR to reach 0.75% by end 2015, and 1.75% by end 2016. That said, we fear that re-emergence of US political brinkmanship in late 2015 could complicate Fed monetary policy decision making during Sep-tember.

European Central Bank: There were no sur-prises at the June ECB meeting and press confer-ence. In line with our expectations, ECB President Mario Draghi reiterated the ECB Governing Coun-cil’s strong commitment to fully implementing its quantitative easing (QE) plans. All policy rates were kept unchanged; and no new policy initiatives or changes to the current asset purchase programme were announced. There was no reconsideration of its policy plans, no discussion of exit. The ECB’s new mantra is the intention to maintain a “steady course” on monetary policy. Market speculation about possible QE tapering may well continue dur-ing the coming months/quarters, but we remain of the view that this will be met with little support from the ECB, and that purchases will continue up to September 2016.

Bank of England: Minutes of the latest BoE’s meeting saw all nine panel members voting to keep the benchmark interest rate at 0.5% in June and voting unanimously to leave the size of the central bank’s bond portfolio at GBP375bn. Although gen-erally, the MPC members’ view on the economic outlook, and the appropriate stance of monetary policy that it implies, had not changed materially; the overall stance appears slightly more hawk-ish than previously. Given the latest set of labour market statistics, it could be a matter of time be-fore both Weale and McCafferty break ranks with the majority and start agitating for monetary policy tightening. This could happen as soon as August, the same month as when the next Inflation Report is due (6 August).

Reserve Bank of Australia: The RBA chose to keep interest rates unchanged at a record low of 2.0% during the June meeting. Whilst there is room for further easing amid continuing sluggishness


EXECUTIVE SUMMARY

in business investment and consumer spending, we believe the central bank would prefer to moni-tor the impact of the 50bps cuts already delivered this year. Furthermore, the RBA has its hands tied because further lowering rates risks inflating the nation’s housing bubble. Watching the effects of APRA’s tightening measures, incoming economic data as well as the Australian currency would be what the RBA would do, although we believe the current rate of 2.0% should mark the low point for the cash rate in this easing cycle.

Reserve Bank of New Zealand: The RBNZ slashed its cash rate by 25bps in June to 3.25%. This was the first rate cut since January 2011 and reverses a period of rate hikes that the central bank engaged in 2014. More importantly, the central bank also provided a very strong hint that the latest rate cut will not be a one-off. Indeed, slowing growth not only underscores the RBNZ's latest decision but also for further reductions ahead. We are now ex-pecting another 25bps cut in the coming quarter, bringing the cash rate to 3.00%. Further out, much will depend on economic data, and all eyes will be on the quarterly CPI print due on 16 July.

Bank of Japan: We believe the BOJ is unlikely to do more easing & probably maintain the status quo position at least in 3Q 2015 after its last stimu-lus addition in October 2014. The 1Q GDP upward revision certainly helps our view and is an affirma-tion of the BOJ’s optimism that Japan “continued its moderate recovery trend” and meant little impetus to add more easing into the system. We reiterate our belief that the BOJ policy makers viewed further monetary easing to shore up inflation as a counter-productive step in the foreseeable future and that additional stimulus could trigger significant declines in the yen which in turn would damage confidence while giving little mileage to generate inflation. Market views about more BOJ stimulus were also dialed back more easing expectations after BOJ Governor commented (10 June) that further yen weakness is “unlikely” which may imply BOJ has no plans for more easing..

Asian Interest RatesPeople’s Bank of China: China delivered its third interest rate cut in 6 months on 10 May 2015. There is certainly room for further policy flexibility ahead. In particular, there is a long way to go for the RRR at current level of 18.5%, which is higher than the previous low of 15.5% (2009) and record low of 6% (1999-2003). We see risks of another round of RRR cut at 50bps, most likely in 3Q 2015. For interest rates, it is more challenging for PBoC with the 1Y benchmark interest rates at or near historic lows. To reap, China’s 1Y lending rate is already at the lowest level since 1991 and surpassing the

low of 5.31% in December 2008, while the 1Y de-posit rate matches the low seen in December 2008, and not much further from the record low of 1.98% in February 2002. For now, we see just one more round of interest rate cuts, which are likely to take place in 3Q 2015 as well, as we expect signs of stabilization in broad Chinese data by second half of 2015. The move would also likely come with the announcement of a removal of the deposit interest rate ceiling (last raised to 1.5x on 10 May) as China liberalizes the interest rate market.

Monetary Authority of Singapore: Singa-pore’s headline inflation had contracted for the sixth consecutive month in April while core inflation also edged lower to an average of 0.95% in the first four months of 2015. With that, there had been talks that the MAS may ease further in their upcoming October 2015 policy meeting. We are of a differ-ent view. The on-going period of lower core inflation (which matters for policy decision, and not headline inflation) was due to lower healthcare costs from the Pioneer Generation scheme, as well as low fuel prices compared to a year ago. Global oil price has been on the rise and towards the end of this year, the low base effects from 2014 will wear off. We still think that core inflation will fall nicely within the central bank’s forecast of 0.5% to 1.5% and that there should likely be policy inaction in October. With that, we maintain our view of the SGD NEER appreciation of 1% pa unchanged, together with no changes to the bandwidth and midpoint. The 18 June FOMC statement had signaled a downward adjustment in the pace of rate hike in the US and we have lowered the USD/SGD appreciation tra-jectory. As such, our forecast for the SGD 3-month SIBOR had been adjusted lower to 1.15% by end 2015, from the 1.30% expected earlier.

Bank Indonesia: Despite the slowdown in growth, we believe that Bank Indonesia (BI) has little room to cut its interest rates further in the short-term after the surprise 25 bps rate reduction in February. The headline inflation rate edged higher to 7.15% y/y in May from 6.79% y/y in April and is likely to remain at around 7.0% in the next few months. We may see some upward price pressure through Ramadan but inflation will drop in 4Q15 due to a high base effect. Against the backdrop of rate normalization expectation in the US this year and the depreciation pressure on the IDR, we expect BI to maintain its policy rate unchanged at 7.50% for the upcoming meetings.

Bank of Korea: Near-term growth concerns over-shadowed that of the high household debt, leading to two interest rate cuts so far this year. The 25 bps cut in June to bring the base rate to fresh re-cord low at 1.50% was clearly driven by the MERS


EXECUTIVE SUMMARY

Growth Trajectory

y/y % change 2012 2013 2014 2015F 2016F 1Q15 2Q15F 3Q15F 4Q15F

China 7.7 7.7 7.4 6.8 6.8 7.0 6.8 6.7 6.9

Eurozone -0.9 -0.4 0.8 1.5 1.7 1.0 1.4 1.6 1.7

Hong Kong 1.7 3.1 2.5 2.6 2.8 2.1 2.2 2.3 3.5

Indonesia 6.0 5.6 5.0 5.0 5.5 4.7 4.9 5.1 5.1

Japan 1.5 1.6 -0.1 1.0 1.5 -0.9 1.5 1.5 2.0

Malaysia 5.5 4.7 6.0 5.0 5.3 5.6 4.9 4.8 4.7

Philippines 6.8 7.2 6.1 6.2 6.3 5.2 6.0 7.3 6.2

India 4.8 4.7 6.9 7.4 7.7 7.3 7.5 7.5 7.3

Singapore 3.4 4.4 2.9 2.9 3.4 2.6 2.8 2.8 3.6

South Korea 2.3 2.9 3.3 2.9 3.5 2.5 2.5 2.9 3.5

Taiwan 2.1 2.2 3.8 3.0 3.5 3.3 3.0 2.8 2.7

Thailand 7.6 2.9 0.9 2.7 4.9 3.7 3.1 2.2 2.0

US (q/q SAAR) 2.3 2.2 2.4 2.5 2.5 -0.5 3.2 3.8 3.2

Source: CEIC, UOB Global Economics & Markets Research Estimates

outbreak. Going forward, the rate decisions will be highly data-dependent. Due to expectation of US rate normalization in the second half of the year and concerns over the household debt, more rate cuts in Korea will have to be driven by further sharp deterioration in growth outlook. As such, we expect the base rate to be kept at 1.50% for the rest of this year.

Bank Negara Malaysia: Pressure on the MYR and higher inflation post-GST implementation has limited the options for Bank Negara. Reflecting the impact of the 6% GST, headline inflation surged to 1.8% y/y in April from 0.7% in 1Q15 and is likely to rise quickly to an average of 2.5-3.0% y/y in the second half of the year. We are maintaining our call for Bank Negara to be on hold at 3.25% for the rest of this year.

Bank of Thailand: In the benign environment of lower prices as well as slower economic growth, the Bank of Thailand cut its policy rate to 1.5%, the low-est since the 2008/09 financial crisis, where policy

rate was at 1.25%. Although there remains room for another 25bps to the ‘crisis level’, we think that the BoT will stand pat, as yet lower interest rates may aggravate the already-high household debt prob-lem in Thailand and the recent dynamics in interna-tional oil prices may point to upside risks to future inflation. The current policy rate will likely remain as such for the rest of 2015, and then coming in with a 25bps rate hike in 1Q 2016 to match the start of the rates normalization cycle in the US.

Reserve Bank of India: The Reserve Bank of India proceeded with the third cut in the key interest rate to 7.25% on 2 June, on the back of lower in-flation and other weaker economic indicators such as auto sales, core industrial growth, and credit growth. However, w e believe that further rate cuts will not be in the cards for the rest of this year because the possible shortfall in the Southwest monsoon may drive inflation higher in the coming months. Not only that, further monetary easing may see another round of capital outflow from India and will be detrimental to the INR.


FX & INTEREST RATE OUTLOOK

FX OUTLOOK As at 19 Jun End 3Q15F End 4Q15F End 1Q16F End 2Q16F

USD/JPY 123 126 127 129 130

EUR/USD 1.14 1.09 1.10 1.12 1.12

GBP/USD 1.59 1.60 1.62 1.64 1.67

AUD/USD 0.78 0.75 0.74 0.74 0.73

NZD/USD 0.69 0.66 0.64 0.63 0.62

USD/SGD 1.33 1.36 1.38 1.40 1.39

USD/MYR 3.72 3.78 3.80 3.80 3.77

USD/IDR 13314 13500 13600 13700 13500

USD/THB 33.7 33.5 34.3 34.6 34.3

USD/PHP 45.0 43.0 42.0 42.0 41.0

USD/INR 63.7 64.8 66.0 65.0 64.0

USD/TWD 31.1 31.4 31.8 32.0 31.7

USD/KRW 1103 1130 1140 1150 1130

USD/HKD 7.75 7.75 7.75 7.80 7.80

USD/CNY 6.21 6.23 6.20 6.19 6.17

Source: Reuters, UOB Global Economics & Markets Research

INTEREST RATE TRENDS As at 19 Jun End 3Q15F End 4Q15F End 1Q16F End 2Q16F

US (Fed Funds Rate) 0.25 0.50 0.75 1.00 1.25

EUR (Refinancing Rate) 0.05 0.05 0.05 0.05 0.05

GBP (Repo Rate) 0.50 0.50 0.50 0.50 0.75

AUD (Official Cash Rate) 2.00 2.00 2.00 2.00 2.00

NZD (OCR) 3.25 3.00 3.00 3.00 3.00

JPY (OCR) 0.10 0.10 0.10 0.10 0.10

SGD (3-Mth SIBOR) 0.82 1.05 1.15 1.22 1.27

IDR (BI Rate) 7.50 7.50 7.50 7.50 7.50

MYR (Overnight Policy Rate) 3.25 3.25 3.25 3.25 3.25

THB (1-Day Repo) 1.50 1.50 1.50 1.75 2.00

PHP (Overnight Reverse Repo) 4.00 4.00 4.00 4.00 4.00

INR (Repo Rate) 7.25 7.25 7.25 7.25 7.25

TWD (Official Discount Rate) 1.88 1.88 1.88 1.88 1.88

KRW (Base Rate) 1.50 1.50 1.50 1.50 1.50

HKD (Base Rate) 0.50 0.75 1.00 1.25 1.50

CNY (1-Yr Working Capital) 5.10 4.85 4.85 4.85 4.85

Source: Reuters, UOB Global Economics & Markets Research


SINGAPORE FOCUS ICAN SINGAPORE GOVERNMENT SECURITIES OUTPERFORM DURING A GLOBAL BOND SELL OFF?

The highlight in Q2 2015 has been the unexpected ferocity of a Bund led global bond sell off. Crowded investor positioning, recovery in commodity prices, and the increase in inflation expectations were some of the reasons put forward to explain the bond shedding that manifested in April and then again in June. Singapore’s rates markets were not immune from external volatility and performance of Singapore Government Securities (SGS) has been inconsistent relative to US treasuries (UST) and Bunds.

The global bond sell off coincided with recoveries in both the EU and US inflation expectations. It is not a surprise to find that the Bund curve has experienced the largest steepening in phase 1 of liquidations since the uptick in EU inflation expectations has been more pronounced than their US equivalents. Furthermore, investors’ positioning in Bunds was more extreme due to the dominance of ECB QE theme. Crowded positions resulted in a cascade of selling where the

only circuit breakers were the day’s closing bell or zero net exposures.

Since April, global yields have shot higher and yield curves have steepened due to the Bund led selloff. While SG rates markets have not been able to resist the directional pull of risk re-pricing, SGS did suffer relatively less price damage/yield increase in phase 1. However, SGS outperformance in phase 1 could not be sustained and in the days leading up to the phase 2 sell off, SGS significantly underperformed with yield and curvature increases that exceeded even those experienced by Bunds.

The shifting relative performance characteristic in SGS between phase 1 and phase 2 can be mainly attributed to the 10Y SGS auction on 27th May. Concession building ahead of auction supply caused SGS to underperform even while the UST and Bund curves were undergoing consolidation after phase

Phase 1: April Yield Changes

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Phase 2: June Yield Changes

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Source: Bloomberg

Steeper Curves As A Result Of Bond Selloff

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Source: Bloomberg

EU Leads In Reflation Expectations

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Source: Bloomberg


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1; this can be seen through the abrupt widening in the SG vs. UST and Bunds interest rate differentials in the middle of May (illustrated by the “V” shape curve). Before the ink could dry on the 10Y SGS auction, phase 2 of Bund selling took place and this complicated the market’s digestion of a relatively large auction supply. SGS performance in phase 2 has consequently been unable to revert back to outperformance because of forced adjustments in misaligned hedges.

Therefore, SGS underperformance in phase 2 has mainly been driven by idiosyncratic factors, and these factors are likely to play a diminished role going forward. In addition to waning post auction drag, there are other reasons to expect better relative performance from SGS should there be another bout of Bund led liquidations;

� The auction calendar favours demand for SGS into the early parts of the 3rd quarter; auction at the end of June is for a new 5 year Benchmark bond and will be against SGD 6.3 bio of maturing proceeds, furthermore SGS auctions will also be taking a break in July.

� 2 rounds of Bund selling have elevated SGS yields to their highest levels this year which increases the possibility that sentiments towards SGS could receive an unexpected boost from a successful launch of the Singapore Savings Bonds (see side box) in the 3rd quarter.

� The Bund led rise in SGS yields has largely been missing the currency multiplier effect. Underperformance or widening in interest rate differentials has not matched the extremes seen in Q1 primarily due to a lack of follow through in FX swaps. Without this multiplier, the potential for significant SGS underperformance is more limited.

SGS Cross Market Performance Has Been Checkered

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Source: Bloomberg


SINGAPORE FOCUS I

Side Box: Singapore Savings BondsInauguration of the Singapore Savings Bonds (SSBs) will take place in the 3rd quarter of 2015. The start date, which has not been announced, could be as early as July since savers would have had almost 2 months to complete the preparatory tasks of setting up CDP accounts and earmarking of funds.

Based on the MAS information available, SSBs will be issued monthly and the yield to maturity will be based on the average yield of the previous month’s 10Y Singapore Government Securities (SGS). Note that on pricing, it has not been made explicit if the SSB pricing will reference the benchmark SGS curve or an interpolated constant maturity SGS curve, we suspect it will be the latter to adjust for seasoning effect.

SSBs subscription amount can vary between SGD 500 to SGD 50,000, while the maximum holding is limited to SGD 100,000. There is a cash flow timing mismatch between application and redemption of SSBs, therefore this will limit the ability of savers to actively take advantage of higher yields through a redeem and reinvest strategy. Savers should also be prudent in exercising the early redemption option; frequent and small quantum redemptions will significantly erode the after transaction costs return of SSBs.

A key benefit of SSBs is that it addresses the dearth of alternatives in long term savings by introducing a risk free asset to a choice which has traditionally been either equity or property. Perhaps future innovations could see the introduction of inflation linked bonds to target saver’s concerns on preserving purchasing powers.

For further details and FAQ regarding the Singapore Savings Bonds (SSBs) please refer to MAS's website link http://www.mas.gov.sg/news-and-publications/media-releases/2015/applying-for-singapore-savings-bonds.aspx


SINGAPORE FOCUS IIHOUSING: VOLUME DOWN, PRICES HOLDING UP SO FAR

By Elaine Khoo & Wesley Chong From UOB Country & Credit Risk Management

2014 new home sales volume has been dismal, falling 51% YoY to 7,316 units, levels last seen during the GFC. 1Q15 sales have also been lackluster, down 25% YoY (-5% QoQ). Developers’ reluctance to launch new projects in a softening market coupled with financing constraints and prohibitive transaction costs (eg. TDSR, ABSD, SSD) are key contributors.

Resale transactions have also contracted as sellers have been unwilling to significantly lower their price expectations while prospective buyers take a wait-and-see approach. The result of this ongoing stalemate is sharply reduced sales volume but milder price declines.

The slew of tightening measures has resulted in increased interest in foreign property investments in markets such as Malaysia, UK, Australia and Japan. Developers have also stepped up their offshore diversification in response to shrinking development margin domestically and in acknowledgement that the challenging conditions could prolong. As such, local developers’ participation in government land sales has been lukewarm and land prices have slid. In contrast, foreign developers (particularly the Chinese players) continue to be relatively upbeat.

Uneven Price DeclinesBased on the government’s official Private Property Price Index (PPI), average prices have fallen by 5.9% since peaking in 3Q13. Price declines accelerated across all segments in 1Q15, with prices of non-landed properties falling the most in the Rest of the Central Region (RCR) or city fringe areas (-1.7% QoQ). The overheated suburban segment, captured under Outside Central Region (OCR) has also started to cool (-1.1% QoQ) after rising 75% from 2Q09 to 3Q13. Meanwhile, price declines in the Core Central Region appear to have leveled off (-0.4% QoQ).

The public housing segment has not been spared with 1Q15 HDB resale prices down 5.5% YoY (-1% QoQ), marking the 7th consecutive quarter of declines. The 9.2% fall in HDB prices from the recent peak has surpassed that of the private segment. This could consequently dampen demand for private properties by HDB upgraders as sizeable Cash-

Over-Valuation (COV) premiums over the past few years have helped facilitate down payments.

Deeper Price Correction On The CardsAs Interest Rates Rise And Rents SlipSome resolution to the stalemate could emerge this year as developers and sellers capitulate in the face of rising interest rates and weakening rentals. The 3-month SIBOR and 3-month SOR have surged around 40bps and 70bps respectively, representing more than a doubling YoY. As the majority of mortgages in Singapore are floating, home owners will need to brace themselves for higher mortgage payments. Nonetheless, with interest rates still low by historical standards, the impact should be manageable although overleveraged buyers will feel more pain.

Rents have fallen for 5 quarters as the massive supply pipeline starts to progressively hit the market. While the decline has been mild thus far (-5% from peak), the pace could accelerate as bargaining power shifts to tenants amid a sharp surge in supply. CBRE data showed that 1Q15 prime rental yields dipped from 2.8% to 2.7% YoY. While this still implies positive carry with mortgage rates <2%, the buffer could be rapidly eroded given the expected interest rate trajectory.

Competition for tenants looks set to intensify further on the back of the government’s tighter immigration

Fig 2: Singapore PPI vs HDB Resale Price Index

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Fig 1: Primary & Secondary Sales Have Plunged

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SINGAPORE FOCUS II

policy. In the face of oversupply, tenants’ flight to quality suggests that suburban landlords could be vulnerable as tenants opt to move closer to the CBD for similar rental budget.

HDB sub-letting rents have also started to slide and we anticipate further weakness as HDB upgraders move out to private properties upon completion. With demand for resale HDB flats constrained by the 30% mortgage service ratio, more owners could elect to put their units up for rent instead. 4Q14 subletting approvals surged 43% YoY to 10,365 and continued to tick up in 1Q15 to a high of 10,385. The total number of HDB flats being sublet rose by 3.6% YoY to 48,338 units in Dec 2014 (c.5% of stock).

A Forced Handshake?Distress sales have increased particularly in the non-landed prime segment which is currently facing the most pressure due to oversupply and smaller accommodation budgets for expatriates.

Based on data from Colliers, mortgagee sales spiked fivefold last year as over-committed borrowers defaulted on their loans. There were 159 forced sales listings, up from just 32 in 2013. The bulk (78%) was residential non-landed units in prime districts 9 and 10. Luxury apartments from newer prime districts 1 and 4 (Sentosa and the City Centre) and shoebox units also featured.

In the high-end segment, property funds approaching the end of their fund life as well as developers facing potential Qualifying Certification (QC) penalties have offered units in bulk. Through its wholly-owned company, Hiap Hoe acquired 55 units in bulk for S$227m across three of its own projects in order to minimize extension charges. Heeton is once again looking for a bulk buyer for 30-unit iLiv@Grange after cutting asking prices by 10-15% to S$1,879-

2,050psf.

As only foreign developers are subject to QC rules, more developers are seeking privatization to escape

these hefty charges. Popular Holdings recently emerged as the latest to go private, following in the footsteps of SC Global and HPL.

Nonetheless, further price falls in the high-end segment could slow after the >15% drop last year, narrowing the gap to mass market properties to an all-time low. Supply will fall sharply from next year, which could support prices. Moreover, the bulk of unsold stock resides in the hands of major developers with greater holding power.

Despite having written down the value of their residential land banks, developer balance sheets remain generally healthy with net gearing significantly below 2008 peak. This should help prevent disorderly price cuts that could destabilize the market. Household balance sheets also remain firm and the pace of growth in household debt has decelerated on the back of MAS’ macroprudential measures.

Increased willingness by developers/ sellers to cut prices could help spur inventory clearance as more price-sensitive demand returns. In addition, investors caught by the 4-year Seller’s Stamp Duty imposed in Jan 2011 could start to exit from this year onwards and may be more amenable to lower asking prices. This could in consequently set the stage for the market to trough. We expect a further 5-10% fall in private home prices this year.

Start Of Supply Avalanche;Mass Market Completions Accelerating2014 private completions surged 52% YoY to a 20-year high of 19.9k units, significantly higher than

Fig 4: Price Gap Between Properties In The Central Re-gion vs. Suburban Areas Have Narrowed To All-Time Low

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Fig 3: Private Residential Rents By Segment: Luxury Rents Have Been Under The Most Pressure

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SINGAPORE FOCUS II

URA’s projections at the start of the year. We expect 21.2k units to complete this year and a further 19.6k units in 2016 before easing materially from 2017. Including HDB supply, around 183k housing units will come on stream over the next 4 years which will bring the overall stock of housing from the current 1.28m to 1.47m, representing a 14.5% increase or 4-year CAGR of 3.4%. With population growth forecasted at only 1.5% pa over the same time period, oversupply pressures will persist.

Supply composition will start to shift this year. While supply over the past few years was dominated by the high-end segment, the number of homes in the fringe and suburban areas will account for >80% share of overall supply. Supply will pick up most prominently in the North-East (Sengkang, Punggol) with close to 14k new private and ECs slated for completion in the next 3 years, excluding the bumper crop of new HDBs. This may result in near term indigestion.

Floodgates Still ShutWith Singapore’s anemic rate of natural increase in population, the government’s immigration policy is a major driver of demand. It is however showing no signs of loosening its tight stance on immigration.

The increase in the number of foreigners has dwindled to 44,600 last year, representing around a quarter of peak levels of ~163k pa from 2005-2008. Similarly, the number of Permanent Residencies (PRs) granted has more than halved from the peak of 79,167 to slightly under 30,000 from 2010-2012.

As a result, Singapore’s longer term population trajectory is unlikely to revert to the rapid increase seen last decade. In the 2013 Population White Paper, growth rates are projected to decelerate to 1.3-1.6% this decade and slow further to 1.1-1.4% from 2020-2030. This will weigh heavily on rents, particularly as supply surges in the coming years.

Private vacancy rates have risen from a low of 4.6% in 2010 to 7.2% in 1Q15 (24k vacant units). We expect it to increase further to a high of c.9%, before dipping from 2017 onwards as supply tapers off. By location, the high-end oversupply is reflected in above average vacancy rates for the Central Region (8.6% in 1Q15). Vacancy rates in other areas have also picked up, e.g. in the North, up from 2.6% in 1Q13 to 11.5% in 1Q15. In the North East (Punggol, Sengkang), vacancy rates have doubled in two years and could continue to trend up amid record supply.

Light At The End Of The TunnelAs Future Supply ModeratesWhile pockets of distress could emerge, a soft landing scenario could be at hand with affordability restored by rising income levels and supply starts to taper off from 2017. The government continues to hold back on land sales, with confirmed supply on

Fig 5: Long Term Trend Of Overall Supply vs Population Growth

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Source: UOB, URA, HDB

Fig 7: Inflows Of Foreigners, PRs AndSingapore Citizens Still Constrained

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Fig 6: LT Composition Of Private Supply

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the 1H15 GLS Programme cut by 23% to 3,000 units representing more than half of peak levels in 2012.

On the public housing front, after ramping up the BTO building programme for 3 years, the government has tapered the BTO flat supply as the backlog has been cleared. This year, HDB will offer 16,900 Build-To-Order flats, down by 1/3 compared to the past 4-year average of approximately 25,100 units.

Consequently, total inventory has fallen steadily to a historical low of 33.5k units in 1Q15 as the number of units without approvals fall sharply. This represents a manageable 2.6 years of supply based on the past 10-year average take-up.

Tightening Measures To Go? Prospective homebuyers continue to harbour hope that the government will start to remove some of the tightening measures this year. In our view, it

may make sense to tweak some of the stamp duty measures such as the ABSD and SSD as market speculation has fallen significantly and the TDSR framework and LTV limits essentially ensure financial prudence. Nonetheless, the government is unlikely to act in the absence of a larger price decline as the sharp rise in property prices was a key flash point during the last “watershed” General Elections.

In late Oct 14, Deputy PM and Finance Minister Tharman commented that there is “some distance to go in achieving a meaningful correction”, without which property prices will run ahead of the growth in household incomes. This view was echoed by National Development Minister Khaw who said that it was still not the right time to wind down the cooling measures with further room for prices to moderate.

While there is no guidance on what constitutes a “meaningful” correction, we think anything short of a

Fig 9: Total Inventory As At 1Q15

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Fig 8: Private Housing Demand, Supply & Vacancy Rates

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SINGAPORE FOCUS II

Fig 11: Affordability Ratio

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Fig 10: The Curious Case Of Singapore’s Ever-Shrinking Homes

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10% fall may not suffice. Historically, the government only reacted when faced with major external shocks such as the Asian Crisis, Dot Com crisis) which led to significant price declines (45% peak-to-trough in the former and 20% in the latter).

Given our expectation of a 5-10% correction this year, the government could potentially review the measures at year-end. Relaxation in SSD and selected reductions in ABSD rates particularly for Singaporeans may be likely.

Rising Incomes And Falling Prices Dampen Impact Of Rising Rates On Housing AffordabilityFirst time home buyers have been spared by the consecutive rounds of tightening measures. While the sharp spike in interest rates has adversely affected affordability, this has been offset by income growth and falling prices. Median household income from work by residents increased by a 3-year CAGR of 5.6% to S$7,400 last year.

Home sizes have also continued to shrink with the average size of a 3-bedroom unit now less than 800sf (smaller than a 4 room HDB flat). As shown in Fig 10, the median size of new homes has fallen ~40% over the past 6 years. Notably, despite the sharp 45% increase in psf prices, overall price tag only increased by 7.5% with ~S$1m the sweet spot.

As a result, our estimated affordability improved slightly from 33% as at end-2013 to around 31% currently. Assuming the 3-month Sibor trends up further to 1.0%, affordability ratio will increase slightly to 32% which is still below the long term average.

SINGAPORE FOCUS II


CHINA FOCUS IA BRIEF ON THE “SILK ROAD ECONOMIC BELT AND 21ST CENTURY MARITIME SILK ROAD"

Embarking On An Ambitious Project:Connectivity, Integration, And Cooperation China President Xi Jinping first mooted the “Belt and Road" initiative in Sep/Oct 2013. This ambitious strategy, based on the two ancient trade routes, aims to develop a land-based Silk Road Economic Belt through western China starting from Xian, and the 21st Century Maritime Silk Road, which begins from Fuzhou via the maritime route. In addition to historical context, this project should be seen as an extension of China’s plans to develop the western, land-locked part of the country, which is lagging far behind the coastal provinces.

As can been in the map below, the “Belt and Road” project envisages a seamless connectivity between China and Asia, Africa, and Europe, via land-based or maritime routes, with increased integration and cooperation with the Asian, African and European continents. The plan fits with China’s economic, security, military, and diplomatic strategy. The Silk Road Economic Belt focuses on bringing together China, Central Asia, Russia and Europe (the Baltic); linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia; and connecting China with Southeast Asia, South Asia and the Indian Ocean. The 21st-Century Maritime Silk Road goes from China's coastal region to Europe through the South China Sea and the Indian Ocean in one route, and from China's coast through the South China Sea to the South Pacific in the other.

Specifically for the maritime segment, “Belt and Road” will focus on jointly building smooth, secure

and efficient transport routes connecting major sea ports along the route, and will involve the China-Pakistan Economic Corridor and the Bangladesh-China-India-Myanmar Economic Corridor.

Motivation For “Belt And Road” Why would China commit the resources for such a bold project? We believe that there are three main considerations:

Long term strategic requirements: As the world's top trading nation, China needs to ensure that it has timely, efficient, and secure access to markets and resources, and therefore facilitation of trade and investment is one key focus. In addition, it should not be surprising that securing conventional and renewal energy and resources is another focus for China. Once completed, “Belt and Road” will provide land-based and sea-based alternatives not just for China accessing to the continents, but also access for other countries to China. Transport link is a critical consideration for China, as it is vulnerable to choke points along its sea route. Such threats would be mitigated once land based alternatives including railroads, highways, and communication links are in place.

Near term economic reasons: More immediately, “Belt and Road” also provides new markets and business opportunities for the country to deal with its excess industrial capacity especially for its debt-laden state-owned companies. In addition, after three decades of breakneck economic development, Chinese companies are now more capable of competing for businesses with its

Source: Wall St Journal http://www.wsj.com/articles/chinas-new-trade-routes-center-it-on-geopolitical-map-1415559290


overseas competitors, given the rise in technological sophistication and maturity. Note that countries in the "Belt and Road" initiative account for 63% of the world's population and 29% of global GDP. Trade between these countries and China reached more than US$1tn in 2014, or 26% of China's total trade value.

Financial capability: China’s financial capability has also increased significantly to fund such a venture, given that its stock of foreign exchange reserves at USD3.73tn (~32% share of world’s total) is the largest in the world, and its four largest domestic Chinese banks (ICBC, CCB, ABC, and BOC) are also the world’s top four largest in 2015, according to a Forbes review in Jun 2015 based on a composite score of revenues, profits, assets and market value.

“Belt And Road” Is Already In MotionPolitical support: How sustainable is the “Belt and Road” initiative? Political support in China appears to be firm, as the Third Plenary Session of the 18th Central Committee in Nov 2013 called for accelerating infrastructure links among neighboring countries and facilitating the “Belt and Road” initiative. None other than China President Xi Jinping is the chief advocator himself. NDRC, Ministries of Foreign Affairs and Commerce are the ministries responsible, led by senior, heavyweight political leaders including Vice Premier Zhang Gaoli, Vice Premier Wang Yang, State Councilor Wang Jiechi, among others.

To underscore its seriousness, the Chinese government in Mar 2015 released a “vision and actions plan” for the project (Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce, Mar 2015 http://news.xinhuanet.com/english/china/2015-03/28/c_134105858.htm).

Financing channels: Secondly, the main financing platforms are falling in place, starting with the Silk Road Fund in Feb 2015 with US$40bn, of which 65% was from China’s foreign exchange reserves, 15% from sovereign wealth fund China Investment Corp, and remaining 20% from state-owned Export-Import Bank of China and China Development Bank.

This is followed by the establishment of Asian Infrastructure Investment Bank (AIIB), with 57 countries as its founding members, including 16 of the world’s 20 largest economies on board, after the 30 Mar 2015 deadline. The United States, Japan, Mexico and Canada remain absentees citing concerns of lack of transparency, lending and environmental safeguards, governance, and China’s influence. AIIB members voted at a meeting in Singapore on 22 May 2015 to double the capital to USD100bn, with China expected to hold a stake of

more than 25% in terms of voting rights. In contrast Asian Development Bank (ADB) holds USD5.9bn of capital and a loan portfolio of USD75bn. This means that once AIIB’s capital is fully subscribed, it could potentially lend up to USD1.27tn, which is in a relative stronger position than ADB as China’s Ministry of Finance estimated earlier that, over the next 10 years, financing needs for infrastructure development in Asia amounted to US$700 billion per year.

Another less prominent financing vehicle is the New Development Bank, commonly known as the BRICS bank, which was established in July 2014 with authorized capital of USD100bn and to be based in Shanghai. The institution is to be headed for the first 5 years by non-executive chairman of ICICI Bank, KV Kamath, which will then be succeeded by a Brazilian and then a Russian. The BRICS bank will be used for infrastructure financing and sustainable development project funding within the BRICS nations, though other low- and middle-income countries will be able to access loans as well.

Note that financial integration is among the key planks in the “Belt and Road” Initiative and we anticipate RMB to play a significant role, helping to push RMB internationalization further. As China opens up its capital account, there will be more opportunities for companies and FIs along the route to raise funds by issuing RMB bonds in China, while Chinese FIs and companies are also expected to increase its bond issuance in both RMB and foreign currencies outside China, and use the funds in countries along the “Belt and Road”.

Projects underway: Looking at some of the examples below, the “Belt and Road” project is already taking shape quickly, at least at this early phase, as a number of projects is being operationalized or undergoing studies. It should be noted that most of these projects are infrastructure in nature, which is the nature at this early stage.

Some recent examples: � The building of a China-Pakistan Economic

Corridor (CPEC) - a network of roads, railway and pipelines between the two countries, announced in Apr 2015. A superhighway is planned to run some 3,000km from Gwadar in Pakistan to China's western Xinjiang region. China is expected to inject a total of US$46bn for the CPEC project, just a little less than three times the entire foreign direct investment Pakistan has received since 2008.

� A bridge over the Danube to be financed and built by the Chinese in Belgrade

� Two nuclear power plants will be built in Romania, under a "binding and exclusive" agreement with China

CHINA FOCUS I


� China is building a high speed rail connecting southeastern tip of Europe with the central part of the continent

� Hungary in early June signed an MOU with China to promote the One Belt, One Road proposals, the first European country to do so

While these infrastructure projects are designed to be joint venture with local host countries, one observation is that often the bulk of the materials and labour force come from China, and financed by China banks.

ConclusionChina has embarked on an ambitious undertaking in a bid to integrate further with the global economy, and to secure access to markets and resources. This connectivity is reflective of its rising role as a political and economic power in the next decades. Cooperation is needed, and not guaranteed, from countries along the “Belt and Road”, though investment in infrastructure is likely to bring benefits to those involved. Business opportunities are also likely to arise, as incomes and livelihood improve. ASEAN economy and businesses should benefit directly, being part of the maritime silk road, which will accelerate the already close trade and investment linkages between the two sides.

The probability of success for this initiative looks to be high as long as China’s political support continues. Financing is falling in place with the establishment of Silk Road Fund and the AIIB which saw 16 of the world’s 20 largest economies as founding members, and backed by China’s foreign exchange reserves.

However the Initiative will be subject to challenges along the way including domestic factors, opposition/resistance from countries along the routes, geopolitical developments, technological advancements, among others.

CHINA FOCUS I


CHINA FOCUS IIAIMING FOR THE SDR BASKET

� With its rising economic size and position as a top trading nation, China is aiming for the RMB to be included into the SDR basket of currencies at the 2015 IMF review, which could further accelerate the RMB internationalization efforts and adoption.

� However, a positive decision remains uncertain at this year’s review, as it can be argued that China has yet to satisfy all the four requirements set out by IMF in 2011, and we estimate the probability of RMB’s admission into SDR in 2015 at 60%.

� As China keeps its eyes on the SDR basket, the risks of a sharp depreciation for the RMB would be low, and our projections for USD/RMB exchange rate still stand at 6.20 for end-2015, vs. current 6.20 level. We also expect a further widening of the RMB trading band to 3% from 2% sometime this year.

Summary: China SeekingTo Score The SDR BasketAmong the key initiatives for China this year is to have the RMB admitted into International MonetaryFund (IMF) Special Drawing Rights (SDR) basket of currencies, which currently consists of four members: US dollar, the euro, British pound, and Japanese yen. SDR is a reserve asset created by IMF in 1969 to supplement its members’ international reserves. The SDR is reviewed every five years (“quinquennial”), and a decision is due by end of 2015 for the latest review.

As China presses ahead with capital account opening and RMB internationalization, an endorsement from the IMF and international community via admission into the SDR basket would accelerate this process further, and widen the acceptance of RMB in the global financial system. From China’s point of view, a positive decision from IMF would affirm its efforts of more than 2 decades to integrate with the global financial system and allow China a greater say in international financial affairs.

To be sure, China’s rising stature in the global economy and as a top trading nation means that itscurrency should be a candidate as a reserve currency. On its part, China has also gradually liberalized its capital account for fund inflows and outflows and strengthened the resilience of its domestic financial markets, though much more work needs to be done.

Will China be able to score the SDR basket this year? A positive decision remains uncertain, as it can be argued that China has yet to satisfy all the four requirements set out by IMF in 2011, especially the condition that the currency to be widely held as a reserve currency. We estimate the probability

of the RMB’s inclusion into SDR in 2015 at 60%, with the remaining 40% hinging on factors such as evaluation by IMF executive board, which is dominated by advanced economies and has yet to implement the quota reform agreed to in 2010.

As China keeps its eyes on the SDR, the risks of a sharp depreciation for the RMB are relatively low as it would jeopardize the chance of becoming a reserve currency. Concerns for depreciation were heightened in early 2015 when the RMB fell to nearly 3 year low of 6.274/USD. Furthermore, there are no fundamental reasons to support a sharp depreciation or devaluation of the currency, given the size of its foreign reserves at USD3.7tn. We continue to expect USD/RMB exchange rate at 6.20 for end-2015, vs. current 6.20 level. However, the RMB is likely to move in volatile fashion on a day to day basis as it responds to both domestic and global market conditions, and we are still expecting a further widening of the RMB trading band to 3% from 2% sometime this year.

How Has China Progressed So Far?China’s rise as a major economy and trading nation has been progressing at an astonishing speed over the past three decades. Based on IMF’s purchasing power parity (PPP) measure, China’s economic size rose from less than 5% share of the global economy in early 1990s, to 16.3% share in 2014, and is projected to account for nearly 20% of the global economy by 2020. Meanwhile, the share of the US economy is expected to decline steadily from nearly 20% in early 1990s and 2000s, to 15% share of the world by 2020. As shown in the chart, it is remarkable that both China and India started at about the same size, though India’s economy has expanded much slower and is projected to be less than half of China by 2020.

As a trading nation, China’s combined value of exports and imports is the largest in the world at US$4.3tn in 2014, given its position as the world’s largest exporter. However, in terms of imports, China trails the US, but still imported about the same amount in 2014 as the next two large importers, Germany and Japan, combined.

At the same time, this economic strength and trading strength have also spilled into the financial arena, with the most visible impact being the internationalization of the RMB, as well as the opening of the capital account in recent years as China stepped up financial connectivity with the rest of the world.

The use of RMB as a payments and trade settlement currency has also increased significantly. For instance, the amount of cross border goods and services trade settled in RMB has risen from virtually zero prior to 2009, to RMB6.5tn in 2014, or about 25% of China’s total trade. Similarly for foreign


direct investment and outward direct investment, the amount settled in RMB has also picked up sharply, (see chart below).

Based on SWIFT (Society for Worldwide Interbank Financial Telecommunication) payments data, RMB is now the world’s 7th largest currency as a payments currency, with 1.8% share. While this value looks small or insignificant, the difference with Japanese yen at number 4 is only 1% point. With the ongoing internationalization and widening acceptance, the RMB could soon catch up with the Japanese yen or even the British pound. However, it will take a long time for China to challenge the position of the euro or the US dollar, the top two payments currencies in the world.

The setting up of RMB clearing arrangements will play an important role in facilitating cross-border

payments, as well as closer integration and relations with these economies, and will benefit corporates and financial markets along the way. China has so far established offshore RMB centers in 14 countries/regions, covering trading time zones from East Asia to North American west coast when Vancouver joined the rank with Toronto in March 2015. In addition, China has signed bilateral currency swaps agreements with foreign central banks to the tune of RMB3.15tn as of April 2015, from just RMB180bn when the process started in late 2008.

More important however, is for the Chinese government to strengthen the domestic financial sector, particularly its banks, so that it is sufficiently resilient to cope with the new pressures that financialliberalisation inevitably brings. The integration of a new major currency in the global financial system means that financial shocks would transmit more

World Top Five Trading Nations (2014)

2.33

1.96

1.22

0.82

0.68

1.58

2.34

1.45

0.80

0.58

3.91 4.

30

2.67

1.62

1.26

0.0

1.0

2.0

3.0

4.0

5.0

US China Germany Japan France

USD trillion

Imports Exports Total Trade

Source: UOB, URA

Size of GDP (PPP)

15.3

18.5

11.4

3.8

8.25.6

2.2

0.0

5.0

10.0

15.0

20.0

25.0

US China EZ Japan India ASEAN5 UK

1992 2001 2007 2014 2019F

% share of Global GDP (PPP)

Source: IMF, Bloomberg, UOB Global Economics & Markets Research Est

SWIFT: Payments Currency

1.081.081.801.811.821.852.75

8.5728.95

43.09

0 10 20 30 40 50

THBHKDAUDCNYCADCHFJPY

GBPEURUSD

% share

Feb 2015 Jan 2014

Source: SWIFT, UOB Global Economics & Markets Research Est

RMB Settlement Of Cross Border Trade & Investment

5,900.0

656.5

186.60862.0

0

2,000

4,000

6,000

8,000

2009 2010 2011 2012 2013 2014FDI ODI Services Goods trade

RMB, billions

Source: CEIC, UOB Global Economics & Markets Research Est

CHINA FOCUS II


easily across borders in either direction. On this front, it should be noted that the Chinese authorities are embarking on the implementation of banks’ deposit insurance scheme (effective 1 May 2015), and restructuring of local government debt, among other things, to improve resilience of the domestic financial system.

What Is IMF’s Special Drawing Rights (SDR)?The SDR (which is also known as “paper gold”) is an international reserve asset, created by the IMF in1969 to supplement its member countries’ official reserves. Its value is based on a basket of four keyinternational currencies (as of April 2015), and SDRs can be exchanged for freely usable currencies. Asof 17 March 2015, 204bn SDRs were created and allocated to members (equivalent to about US$280bn).

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usablecurrencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs intwo ways: first, through the arrangement of voluntary exchanges between members; and second, by theIMF designating members with strong external positions to purchase SDRs from members with weakexternal positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations. As such it should be clear that the SDR by itself does not function as “money”, as it is only able to fulfill the role of “unit of account” and “store of value”, and not the role “medium of exchange” for payments for goods and services and repayment of debts.

The SDR basket today consists of the euro, Japanese yen, pound sterling, and US dollar. The value of the SDR in terms of the US dollar is determined daily, calculated as the sum of specific amounts of the four basket currencies valued in US dollars, on the basis of exchange rates quoted at noon each day ine London market. The weights of these currencies are shown in the table below. Valuation of SDR is posted on IMF website. (https://www.imf.org/external/np/fin/data/rms_sdrv.aspx)

The basket composition of SDR is reviewed every five years (“quinquennial”), or earlier if the IMF finds

changed circumstances warrant, to ensure that it reflects the relative importance of currencies in theworld’s trading and financial systems. This happened in 1998 when the euro was incorporated into the SDR basket, replacing Deutsche mark and French franc.

In 2011, the IMF Executive Board set down the criteria that a country should meet in order for its currency to be included in the SDR basket. First, the currency should be actively traded on foreign exchange markets. Second, there should be active markets in exchange-based and over-the-counter foreign exchange derivatives. Third, the country should have market-based interest rate instruments. And, fourth, the currency should be widely held as foreign exchange reserves. (Please refer to : “IMF Executive Board Discusses Criteria for Broadening the SDR Currency Basket,”, IMF Public InformationNotice (PIN) No. 11/137, 11 November 2011, https://www.imf.org/external/np/sec/pn/2011/pn11137.htm)

China is likely to be able to meet the first three criteria of active trading and availability of FX derivatives given the ongoing RMB internationalization efforts, while the onshore interest rate market will be liberalized before end of 2015 following the implementation of deposit insurance system on 1 May 2015. The last criterion on foreign exchange reserves will be problematic, as it is really a chicken-

Bilateral Currency Swap Agreements

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

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

Thou

sand

s

RMB trillion

Source: Bloomberg UOB Global Economics & Markets Research Est

SDR Basket Weightage (% share)

Effective Period

IMF/WB Annual Meetings

Decision Announced USD EUR GBP JPY Sum

2011-2015 8-10 Oct 2010 15 Nov 2010 41.9% 37.4% 11.3% 9.4% 100.0%

2006-2010 24–25 Sep 2005 28 Oct 2005 44.0% 34.0% 11.0% 11.0% 100.0%

2001-2005 19–28 Sep 2000 12 Oct 2000 45.0% 29.0% 11.0% 15.0% 100.0%

1999-2000* 29 Sep – 8 Oct 1998 31 Dec 1998 39.0% 32.0% 11.0% 18.0% 100.0%

* Euro was introduced in the SDR basket from 1999, with the weight consisting of DEM (21%) and FFR (11%) upon inception.Source: IMF, UOB Global Economics & Markets Research Est

CHINA FOCUS II


and-egg problem: the currency needs to be widely held as a foreign reserves asset to be included in SDR, however foreign central banks would only increase holding of that currency if it is in the SDR basket. As such, it could be a contentious issue leading up to the decision at the end of this year.

For the 2015 edition, Annual Meetings of the World Bank Group and the International Monetary Fund areslated to take place in Lima, Peru, from 9 to 11 Oct 2015. As shown in the table, a decision is likely to bereturned approximately one month after the end of the Annual Meetings, though it could be as late as theend of the year in certain circumstances, as in the case for the euro’s inclusion into SDR basket in 1999.

China’s March TowardsCapital Account ConvertibilityChina began its pursuit of capital account convertibility more than 2 decades ago, when the Third Plenum of 14th CPC Central Committee in 1993 set the goal of “gradually making the RMB a convertible currency.”

After achieving current account convertibility in 1996, China set its target on capital account convertibility. The quest was twice interrupted: first by the 1997 Asian Financial Crisis, and then the 2008/09 GlobalFinancial Crisis.

Nevertheless, the progress has largely remained on track with gradual liberalization, with the RMB becoming convertible for foreign direct investment (FDI) and outward direct investment (ODI); registration-based management has been adopted for trade credit and trade-related claims onnonresidents, and only external debt remains subject to quota management; Qualified Foreign Institutional Investors (QFII) and Qualified Domestic Institutional Investors (QDII) programs have been introduced and improved. In addition, China also expanded the usage of RMB in cross border trade and investment, establishing offshore RMB centers in 14 countries/regions, as well as the signing of bilateral currency swaps with foreign central banks, establishing free trade zones (Shanghai Pilot Free Trade Zone was established in 2013) cross-border stock connect (Shanghai-HK Stock Connect scheme commenced in late 2014), among others.

Obviously, the aim is to achieve some form of full capital account convertibility and PBoC noted that currently more than 85% of China’s capital account (35 out of 40 items) are either fully or partly convertible under IMF classification. The remaining 15% (5 out of 40 items) that are still nonconvertibleinclude individual cross-border investment and the issuance of shares and other financial instruments bynonresidents on domestic markets. In PBoC’s view, it is getting close to full capital account convertibility.The five broad items that are currently nonconvertible will be gradually liberalized in 2015, making the

RMB a more freely usable currency, according to China’s plans.

The steps to be taken include:1. For individuals: channels for cross-border

investments include the pilot Qualified Domestic Individual Investor (QDII2) program;

2. For the upcoming Shenzhen-Hong Kong Stock Connect program, nonresidents will be allowed to issue financial products on the domestic markets with the exception of derivatives;

3. Foreign exchange regulations will be revised to remove requirements for ex ante approvals in most cases, and a system for ex post monitoring;

4. For foreign institutional investors, further access to the Chinese capital markets;

5. Further facilitate the international use of the RMB by removing unnecessary policy barriers and providing the necessary infrastructure.

Implications Of Inclusion Into SDRRMB’s admission into the SDR basket will be a significant step forward for the internationalization efforts, and likely to boost further usage and acceptance as a currency for international trade and investment. It will also allow the RMB to be a contender as a reserve currency, in addition to the US dollar, euro, British pound, and Japanese yen, given that SDR itself is counted as part of a country’s foreign exchange reserves.

Beside counted as a reserve currency, this will allow the RMB to contest in the space of pricing commodities with China being a large consumer. In addition, the more widely used and internationalized RMB is, the easier and less costly for China-based businesses to venture abroad through trade or investment.

In terms of weightage in the SDR basket, it is worth noting from the table earlier that GBP’s share has stayed quite constant throughout the period while JPY’s share has fallen steadily, consistent with Japan’s waning economic influence. As such, it is very likely that inclusion of RMB would be at the expense of JPY and GBP, and to a lesser extent from EUR and USD, depending on what is the entry weight for the new constituent. A 10% to 15% weight for the RMB at the outset would be a good starting point for the new SDR basket.

What are the chances for RMB’s scoring the SDR basket in 2015? At this stage, it remains uncertain as it can be argued that China has yet to satisfy all the requirements set by IMF in 2011, especially the part on foreign central banks and governments holding a significant share of their foreign exchange reserves in the RMB. On this criterion, it is really a chicken-and-egg problem, i.e. the currency needs to be widely held as a foreign reserves asset to be included in SDR, however foreign central banks would be more

CHINA FOCUS II


inclined to increase holding of that currency if it is in the SDR basket.

We estimate the probability of the RMB’s inclusion into SDR in 2015 at 60%, with the remaining 40% hinging on factors such as evaluation by IMF executive board, which is dominated by advanced economies and has yet to implement the quota reform agreed to in 2010.

For the RMB exchange rate itself, the risks of a sharp depreciation or devaluation have certainly diminished significantly as China aims for the SDR basket. A sharp weakening of the currency would certainly jeopardize the chance of becoming a reserve currency. Furthermore, there are no fundamental reasons to support such weakening, given the size of its foreign reserves at USD3.7tn. We continue to expect USD/RMB exchange rate at 6.20 for end-2015, vs. current 6.20 level. However, the RMB is likely to move in volatile fashion on a day to day basis as it responds to both domestic and global market conditions, and we are still expecting a further widening of the RMB trading band to 3% from 2% sometime this year.

CHINA FOCUS II


CHINA FOCUS IIIMARKET LIBERALIZATION MEASURES UPDATE

China’s financial market and capital account liberalization continues to quicken, with a slew of news and data releases in recent days. On 2 Jun, PBoC released details on its PSL (Pledged Supplementary Lending) program, as well as announced the launch of large-denomination, floating-rate tradable certificates of deposit (CD) to individuals and companies, as it moves towards full interest rate liberalization. On 3 Jun, PBoC also announced further opening of the capital account and RMB internationalization, by allowing offshore RMB-clearing and -settlement banks to participate in China’s interbank bond market’s repurchase facilities, and the funds raised can be used outside of mainland China.

All these developments are aimed at strengthening the financial sector: the PSL as one of the tools to manage financial sector’s liquidity condition, CDs to improve the banks’ funding needs and liability management, and participation of offshore institutions in domestic bond markets to see increased inflows and outflows of funds, and ultimately full RMB internationalization.

More Details On PSLChina’s central bank PBoC on 2 Jun released more information on its PSL (Pledged Supplementary Lending; 抵押补充贷款) program. PSL was first mooted in Apr 2014, and was reported in July 2014 that PBoC has extended RMB1tn at low interest rates for 3 years, to China Development Bank (CDB) to facilitate rebuilding of slum areas (棚户区改造). The aim of PSL is to provide stable, longer term funding at reasonable costs to financial institutions for long term development projects, backed by high quality collaterals.

Based on data released on 2 Jun by PBoC, the funds released under PSL amounted to RMB383.1bn in 2014, and RMB262.8bn so far in 2015, thus the outstanding amount under the PSL program is RMB645.9bn at end-May 2015. Equally important, interest rate on the PSL was lowered from 4.5% in 2014 to 3.1% so far in 2015, reflecting PBoC’s three consecutive interest rate cuts over the past 6 months. The data confirmed that CDB is the only borrower under this program so far. From June onwards, PBoC will be releasing data on PSL on a monthly basis.

The latest statement further reaffirmed the role of PSL, which is one of the instruments among PBoC’s monetary policy “toolbox”. These include an alphabet soup of acronyms such as MLF (Medium-term Lending Facility, 中期借贷便利), SLO (Short-term Liquidity Operations,公开市场短期流动性调节工具), SLF (Standing Lending Facility, 常备借贷便利) created only in recent years as PBoC refined its liquidity and interest rates management just as financial markets are further liberalized and increasingly becoming more complex and sophisticated.

Unlike other instruments, which are short term tools to manage liquidity conditions ranging from short term operations of 1 day to 3 months (for SLO and SLF/MLF), PSL is of medium term duration of 3 to 5 years. This means that PBoC can now employ a range of tools to influence short term to medium term liquidity conditions and interest rates.

PSL And Local Government Debt Swap The release of details on PSL also coincided with the recent developments on the local government debt swap program, with the total amount doubled to RMB2tn from the original RMB1tn. This increase no doubt was encouraged by the successful placement of Jiangsu province’s RMB10.9bn worth of bonds on 1 Jun, as part of the debt swap program.

The swap program is one of the key planks in resolving China’s local government debt burden, which the National Audit office estimated to stand at RMB17.9tn at end-Jun 2013 (some recent analyses suggested the outstanding balance may have risen to more than RMB20tn since then), with an estimated RMB1.86tn coming due in 2015, in addition to contingent liabilities of RMB919.3bn, data from the same 2013 audit report show. Based on the 2013 audit report, more than 56% of the local government debt was in the form of bank loans. As such, banks play a crucial role in this restructuring exercise to rehabilitate local governments’ finances.

As these loans owed by local governments are swapped and restructured into bonds with longer duration and lower interest rates, the upside is that banks will be able to free up capital/boost capital ratios, reduce the loan-to-deposit (LD) ratios, slow down the formation of non-performing loans (NPLs) and provisions, and otherwise improve the overall asset and credit quality of the banking sector as a whole. It is therefore no surprise that the restructuring size expanded from the current RMB1tn.

However, up to this point, a necessary condition is being created for banks to improve their asset quality and capacity to lend. This condition is not sufficient to spur local banks to increase their lending activities. This is where the PSL could potentially play a role, even though it is not explicitly stated as such. As these privately placed, restructured local government bonds are not tradable in the open market, the only way to obtain stable and low cost funding is to pledge them to the central bank, via programs such as the PSL. This will be in line with Premier Li Keqiang’s earlier exhortation of targeted use of increased quantity and existing resources (“用好增量盘活存量”).

This may sound like a China version of “Quantitative Easing” or QE. However, it is only true to the extent that PSL, MLF, QE, and others are “quantitative” in nature, i.e. the creation of new money. But the QE of the US Fed, European Central Bank (ECB), and Bank


of Japan comes with a prescribed size of large scale asset purchase (LSAP) program over a set calendar period to expand the central bank’s balance sheet. In this this instance, PSL and the likes are closer to refinancing programs such as ECB’s Long Term Refinancing Operations (LTRO), than to QE.

Large Denomination Certificates Of Deposit (CDs)On 2 Jun, PBoC also announced the launch of Large Denomination Certificates of Deposit to both individuals and institutional investors, which will help banks to improve funding and liability management, and to reduce the attractiveness of wealth management products. Previously, only depositary financial institutions were allowed to issue and trade in CDs.

The minimum amounts for large denomination CDs are set at RMB300,000 for individuals and RMB10mn for institutional investors, and will be sold among core members in a self-regulated system as a trial at initial stage. More importantly, CD interest rates are to be decided by market with the floating-rate CD using Shibor as a benchmark, as China moves towards full liberalization of interest rate, which is likely before end-2015. Making CDs attractive to investors are that they can be transferred, pledged, redeemed and withdrawn early, and will be included in deposit insurance system.

With the recent increased deposit rate ceiling to 1.5x of benchmark rates and the introduction of deposit insurance from 1 May, commercial banks have increased flexibility to price their deposits, especially with larger denominations being involved. This will certainly make CDs an attractive alternative to wealth management products (WMPs), after taking into account features such as deposit insurance, tradability, ability to pledge, early withdrawal, among others.

Capital Account Opening Measures On 3 Jun, China announced further opening of the capital account, by allowing offshore RMB-clearing and -settlement banks to participate in China’s interbank bond market’s repurchase facilities, and the funds raised can be used outside of mainland China.

This latest move is to address the last few remaining major restrictions of China’s capital account, i.e. the inability of foreign institutions to raise funds in China’s bond and equity markets, and individuals from China to move funds offshore. The further opening of China’s capital account will help to lower offshore RMB funding costs and improve offshore liquidity conditions, as China keep its eye on the prize of being included in IMF’s Special Drawing Rights (for further details on SDR, please refer to Focus II: “China: Aiming for the SDR Basket, dated 30 Apr 2015).

Source: PBoC’s PSL Operations Details人民银行开展抵押补充贷款操作 2 Jun 2015http://m.weibo.cn/3921015143/Ckicit8gm

PBoC’s Guidelines for Large Scale Certificates of Deposit大额存单管理暂行办法 2 Jun 2015http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2015/20150602161842756366076/20150602161842756366076_.html

CHINA FOCUS III


CHINA FOCUS IVRMB INTERNATIONALIZATION UPDATE

China’s central bank PBoC on 11 Jun 2015 released its first report on RMB internationalization. Other than a treasure trove of information and data, this report provides a comprehensive assessment of the RMB internationalization development so far, as well as a look to the future, from an official point of view.

The report is also timely – ahead of the once-every-five-year review before end-2015 by IMF on the Special Drawing Rights (SDR) basket of currencies – providing a definitive perspective of various, and sometimes confusing, analyses of the entire RMB internationalization process that began in 2009.

While China has largely met three out of the four SDR criteria, the FX reserve requirement may be the only weakness, as data from PBoC’s report shows that the currency accounted for just 1.4% share of global (ex-China) foreign reserves of USD7,840.9bn. This is lower than JPY's 4% share held in advance countries' forex reserves. As such, we are still pegging China’s success in the SDR admission at 60% probability.

With or without SDR, we expect financial market liberalization efforts in China to continue to accelerate ahead. This means that there will be further two way moves for the RMB exchange rate and no more one-way appreciation/depreciation trend, and also the possibility of widening of RMB trading band to 3% from 2% before end-2015.

In terms of interest rates, full removal of the deposit rate ceiling (at 1.5x currently) is very likely in 3Q 2015, along with one more round of interest rate cuts and reserve requirement ratio (RRR) cuts to lend support to economic growth.

Some of the highlights from the report: � Rise in usage of cross border RMB under current

account: the amount of goods and services trade settled in RMB rose from RMB3.60bn in 2009 to RMB6.55tn in 2014.

� There were 189 countries (excluding HK, Macao, Taiwan, and other areas) involved

in cross border RMB settlement with China in 2014. Within China and under the current account items, Guangdong province led in terms of cross border settlement with 26.7% share of the total amount of RMB6.55tn, reflecting the province’s role as a powerhouse in goods trade and manufacturing center.

� Rise in usage of RMB in direct investment in both directions, i.e. foreign direct investment (FDI) into China and outward direct investment (ODI) to overseas as Chinese enterprises look beyond China’s borders for business and investment opportunities. The combined amount of cross border RMB settled FDI and ODI rose from RMB106.6bn in 2011 to RMB1.05tn in 2014, a nearly 10 times increase in just three years.

� Use of RMB as a reserve currency has a lso expanded s ince the cur rency ’s internationalization began in 2009. Aside from the bilateral currency swap agreements signed with 32 central banks worldwide worth RMB3.2tn, the more interesting piece of data is how much of the RMB is being held by central banks. PBoC disclosed that, based on estimates, RMB-denominated bonds, stocks, and deposits held by central banks worldwide amounted to RMB666.7bn as of end-Apr 2015. Assuming that there was minimal amount held prior to 2009, the growth rate would certainly be impressive. However, the amount is approximately USD107.5bn or just around 1.4% share of global foreign reserves (ex-China) of USD7,840.9bn. This is lower than JPY's 4% share held in advance countries' forex reserves. This means that it is still long way for China to catch up with other reserve currencies, especially the USD.

� Nonresidents’ (including institutions and individuals) holdings of RMB assets in China have also risen, though it appears that the pace is more measured. Total assets rose from

Cross Border RMB Settlement of Current Account Items

In RMB billions Global Trade (Exports)

Global Trade (Imports)

Services and other trade

Total Current Ac-count items % share

Guangdong 736.8 870.4 144.9 1,752.1 26.7%

Shanghai 320.2 506.5 188.2 1,014.9 15.5%

Zhejiang 379.5 345.3 19.0 743.9 11.3%

Beijing 88.6 453.5 131.4 673.5 10.3%

Shangdong 157.8 390.5 18.9 567.1 8.7%

Jiangsu 187.1 181.8 45.2 414.1 6.3%

Tianjin 66.5 89.9 23.1 179.5 2.7%

Guangxi 89.0 53.1 1.4 143.5 2.2%

Fujian 61.5 61.7 7.7 130.9 2.0%

Others 430.1 427.5 76.8 934.3 14.3%

Total 2,517.0 3,380.3 656.5 6,553.9 100.0%

Source: RMB Internationalization Report (2015), p 6; UOB Global Economics & Markets Research Est


RMB2,879.7bn at end-2013 to RMB4,406.5bn at end-Apr 2015, as shown in the table above. It should be noted that deposits account for the bulk of the assets given restrictions on bonds and equity markets, the target for further reductions in restrictions in the capital account.

� RMB FX trading in China (including interbank and on behalf of customers) averaged about USD55.0bn per day in 2014, and a total of USD4.12tn of spot trading was conducted that year, a 1.2% growth from 2013. FX derivatives saw much stronger growth in 2014, with total amount of OTC FX swap expanding 32.1% from 2013 to USD4.49tn in 2014, while FX forwards value rose 63.5% to USD52.9bn in 2014. Based on its estimates, the combined trading of RMB in offshore markets such as Hong Kong, Singapore London, and others averaged more than USD230bn per day in 2014, which is more than 4 times the onshore volume. This also suggests the importance of offshore market in driving the RMB FX value.

� In the next steps, PBoC is focusing on driving the 1) convertibility of the capital account, a process that started after current account convertibility in 1996; 2) interest rate liberalization, including the announcement of the large-denomination, floating-rate tradable certificates of deposit (CD) to individuals and companies; and 3) market-determined pricing of the RMB exchange rate, including the widening of trading bands to 2% in March 2014, as well as the increased two-way trading and flexibility of the exchange rate.

� Further steps to internationalize the RMB remain in place, and PBoC is looking to 1) implement cross border payment system (China International Payment System, or CIPS) before end-2015; 2) expand mainland entities’ usage of RMB under current account; 3) broaden the usage of RMB in cross border financing, e.g. offshore entities’ issuing of RMB bond in China, Chinese entities raising RMB funding in offshore market, pricing of commodities in RMB; 4) enlarge the scope and amount of bilateral currency swap agreements; and 5) accelerate the admission of RMB into the SDR basket and to support the adoption of RMB as foreign reserve currency by removing certain

restrictions against foreign central banks’ participation in mainland markets.

ImplicationsAs we noted in our earlier reports (for further details please refer to: Focus III: “China: Market Liberalization Measures Update” and Focus II: “China: Aiming for the SDR Basket”), China’s financial market liberalization remains on track and, the pace has been accelerating.

PBoC’s main aim this year is obviously the admission to the SDR basket by end of 2015. To ensure success, China needs to show progress in the four main areas considered by IMF. First, the currency should be actively traded on foreign exchange markets. Second, there should be active markets in exchange-based and over-the-counter foreign exchange derivatives. Third, the country should have market-based interest rate instruments. And, fourth, the currency should be widely held as foreign exchange reserves. (Please refer to: “IMF Executive Board Discusses Criteria for Broadening the SDR Currency Basket,”, IMF Public Information Notice (PIN) No. 11/137, 11 November 2011, https://www.imf.org/external/np/sec/pn/2011/pn11137.htm).

As described earlier, data provided in the RMB internationalization report suggest that China is likely to have met three out of the four criteria set in the IMF report, except the one on the usage as a reserve currency. We note that RMB accounted for just around 1.4% share of global foreign reserves (ex-China) at end-Apr 2015, which could be a deal breaker in the SDR admission process.

The key reason for such low usage in FX reserve is mainly due to the non-convertibility of China’s capital account, which actually has very few restrictions left. As mentioned in our report on SDR, China’s capital account is basically convertible for 85% of the items, and PBoC is now working on the remaining 15% (or 5 out of the 40 items) which include individuals’ cross-border investment and the issuance of shares and other financial instruments by nonresidents in domestic markets. China’s capital account is in fact closer to full convertibility than many people think.

As such, we are still holding to our view that RMB success probability at SDR admission this year at 60%, with the remaining 40% hinging on factors

Nonresidents’ (including institutions and individuals) Holdings of RMB Assets in China

In RMB billions Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Apr-15

Equity 344.8 319.3 364.2 462.5 555.5 601.1 644.4

Bonds 399.0 512.3 559.3 634.1 671.6 712.8 735.2

Loans 531.0 746.8 893.8 860.5 819.0 876.9 873.9

Deposits 1,604.9 1,984.0 2,045.1 2,237.2 2,372.2 2,024.8 2,153.0

Total 2,879.7 3,562.4 3,862.4 4,194.3 4,418.3 4,215.6 4,406.5

Source: RMB Internationalization Report (2015), p 11; UOB Global Economics & Markets Research Est

CHINA FOCUS IV


such as evaluation by IMF executive board, which is dominated by advanced economies and has yet to implement the quota reform agreed to in 2010.

However, we believe that financial market liberalization efforts in China will continue to accelerate ahead with or without SDR. This means there will be further two way moves for the RMB exchange rate and no more one-way appreciation/depreciation trend, and also the possibility of widening of RMB trading band to 3% from 2% before end-2015. The risks of a sharp depreciation or devaluation have certainly diminished significantly as China aims for the SDR basket. A sharp weakening of the currency would certainly jeopardize the chance of becoming a reserve currency. Furthermore, there are no fundamental reasons to support such weakening, given the size of its foreign reserves at USD3.7tn. We continue to expect RMB exchange rate at 6.23/USD at end-3Q15 and 6.20 for end-2015, vs. current 6.2080/USD level.

In terms of interest rates, full removal of the deposit rate ceiling (at 1.5x currently) is very likely in 3Q 2015, along with one more round of interest rate cuts and reserve requirement ratio (RRR) cuts to lend support to economic growth. We look for one more round of 25bps cut in interest rates, to 2.00% for benchmark deposit rate and 4.85% for lending rate, and a 50bps cut to bring RRR to 18%.

Source:

人民币国际化报告 (2015) RMB Internationalization Report (2015), 11 Jun 2015http://bit.ly/pbc-rmbint2015

CHINA FOCUS IV


INDONESIA

USD/IDR At Highest Level Since 1998USD/IDR surged to a fresh 17-year high in June on the back of rate normalization expectation in the US which was compounded by domestic growth concerns and seasonal USD demand for debt pay-ments. Since the start of the year, IDR has depreci-ated by around 7.0% against USD, making it the worst-performing currency in Asia. The eventual rate lift-off in the US supports higher USD/IDR but a more gradual pace will likely reduce the upward trajectory in the pair. We expect USD/IDR at 13,500 and 13,600 at end-3Q15 and end-4Q15 respec-tively.

The current account deficit remains a major con-cern for Indonesia. Indonesia’s 1Q15 current ac-count deficit narrowed slightly to 1.8% of GDP from 2.6% in 4Q14 and was smaller than 1.9% in 1Q14. The deficit is expected to widen in 2Q15 before narrowing again in 2H15. Overall, the current ac-count is expected to remain in a deficit of around 2.5-3.0% of GDP this year (2014: 2.9%).

While BI has already mandated the use of IDR in Indonesia since 2011, further restrictions on the use of foreign currencies for non-cash transactions will be implemented starting July 1, but may not have a significant impact on the USD/IDR.

Despite the IDR depreciation against USD, relative-ly higher inflation in Indonesia compared to its trad-ing partners has led to firmer IDR on a real effective exchange rate basis which has compromised the country’s competitiveness. Containing the high in-flation rate will be of immediate concern to BI.

Relatively High Inflation And IDR Slump Limiting Monetary Policy OptionsDespite the slowdown in growth, we believe that BI has little room to cut its interest rates further in the short-term after the surprise 25 bps rate reduction

in February. The headline inflation rate edged high-er to 7.15% y/y in May from 6.79% y/y in April and is likely to remain at around 7.0% in the next few months. We may see some upward price pressure through Ramadan but inflation will drop in 4Q15 due to a high base effect. Against the backdrop of rate normalization expectation in the US this year and the depreciation pressure on the IDR, we expect BI to maintain its policy rate unchanged at 7.50% for the upcoming meetings. However, in order to lower lending rates for small businesses, the government said it will subsidize interest payments and provide cheap funding to the government and state-owned banks. While this might provide some support to credit growth, a weak overall sentiment could still hinder the growth recovery.

Second Quarter Growth To Remain Sub-ParDomestically, growth outlook remains downbeat after Indonesia turned in its slowest growth pace since 2009 at 4.71% y/y in 1Q15 (4Q14: 5.01%). 2Q15 growth is likely to remain below 5.0%.With soft commodity outlook, private consumption which accounts for around 56% of GDP will be the key growth driver ahead but slowing car sales point-ing to weak domestic demand are disconcerting. The government has only disbursed about 31% of its spending target through end-May and is ex-pected to accelerate spending in the second half of the year in order to push up the growth rate. This should improve outlook in 2H15 and bring the full-year growth to around 5.0%.

UOB Economic Projections 2013 2014 2015F 2016F

GDP 5.6 5.0 5.0 5.5

CPI (average, y/y %) 6.4 6.4 6.5 4.8

Unemployment rate (%) 6.3 5.9 5.7 5.3

Current account (% of GDP) -3.2 -2.9 -2.9 -2.3

Fiscal balance (FY, % of GDP) -2.2 -2.3 -1.9 -1.7

Inflation To Hover At Around 7.0% y/y In The Coming Months Before Moving Lower In 4Q15 Due To Base Effect

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Jan-10 Mar-11 May-12 Jul-13 Sep-14 Nov-15

FASBI Rate BI Rate CPI (y/y %)

UOB's Estimate


Despite The Sharp IDR Depreciation vs. USD, The Currency Has Appreciated In REER Terms

70

75

80

85

90

95

100

1058,000

9,000

10,000

11,000

12,000

13,000

14,000Dec 11 Oct 12 Aug 13 Jun 14 Apr 15

USD/IDR (LHS) NEER (2010=100)REER (2010=100)



MALAYSIA

Domestic Factors Underpin MYR Weakness USD/MYR surged to fresh highs since the July 2005 de-peg on the back of USD strength and more downbeat domestic sentiment. While the Fi-nance Ministry has said that there are no plans to reintroduce a currency peg, the weakening MYR is likely to keep the concerns alive. Before the end of June, Fitch is expected to announce its review of Malaysia’s credit rating. The rating agency has put the chance of a downgrade at more than 50%. Although market has priced it in, there could still be knee-jerk reaction and pressure on MYR should the risk materializes. Politics is another area of concern given the fallout from state investment firm 1Malay-sia Development Bhd.’s RM42 bn debt, of which slightly more than half is USD-denominated. While we are maintaining our end-3Q15 and end-4Q15 USD/MYR forecast at 3.78 and 3.80 respectively, the domestic uncertainties and the start of Fed’s rate normalization may cause the pair to overshoot.

Interest Rate Expected To Be On HoldPressure on the MYR and higher inflation post-GST implementation has limited the options for Bank Ne-gara. Reflecting the impact of the 6% GST, headline inflation surged to 1.8% y/y in April from 0.7% in 1Q15 and is likely to rise quickly to an average of 2.5-3.0% y/y in 2H15. We are maintaining our call for Bank Negara to be on hold at 3.25% this year.

GDP Growth Slowing Further AheadMalaysia’s GDP grew a better-than-expected 5.6% y/y in 1Q15 (4Q14: 5.7%). Private demand growth strengthened, offsetting the drag from the export contraction. A stable labour market and wage growth continued to drive private demand while the front-loading of spending ahead of the GST imple-mentation in April also provided a boost. That said, we would expect a pullback in private consumption in 2Q15.

Capital spending in both manufacturing and servic-es sectors were firm in 1Q15, but investments could weaken with the deterioration in sentiment and a soft commodity sector. Indeed, exports went on to contract by a sharper 8.8% y/y in April compared to the 2.5% drop in 1Q15, led by the slump in crude, palm oil and natural gas shipments as well as re-cent weakness in electrical and electronics (E&E) orders. Industrial production grew at a slower pace of 4.0% y/y in April compared to 6.5% in 1Q15. The data suggests that growth will moderate further in the second quarter, especially as private consump-tion is also likely to ease after the GST roll-out.

Slowing export will narrow the current account sur-plus to 2.4% of GDP this year which is another neg-ative factor for the MYR. Malaysia’s current account surplus fell to 3.6% of GDP in 1Q15 compared to 7.3% in 1Q14. Some pick up in tourism activities with MYR weakness may alleviate the impact.

On the fiscal front, we think the government’s deficit target of -3.2% of GDP in 2015 is achievable and is likely to narrow to -2.7% in 2016. The government expects to collect additional revenue of RM31.4bn per annum and possibly more depending on the ef-fectiveness of GST implementation. We anticipate lower contributions from Petronas but would be off-set by additional dividends from other government linked entities. That should help ensure fiscal con-solidation plans remain on track.


GDP 4.7 6.0 5.0 5.3

CPI (average, y/y %) 2.1 3.1 2.1 2.7

Unemployment rate s/adj (%) 3.3 2.8 2.9 2.7

Current account (% of GDP) 3.5 4.3 2.4 3.4


Inflation Heading Higher Ahead

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15Headline CPI (y/y %) CPI: Non FoodCPI: Food OPR (%)


Sharp Depreciation In MYR

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.980

85

90

95

100

105

110

Dec 04 Jun 07 Dec 09 Jun 12 Dec 14

NEER 2010=100 REER 2010=100 USD/MYR

Source: CEIC, BIS


SINGAPORE

Robust Services Sectors Will SupportEconomic Growth In 2H 2015Singapore’s 2nd reading of 1Q GDP (+2.6% y/y), came in higher than the 2.1% y/y estimated during the 1st reading. The two key reasons for the better-than-expected GDP performance was the smaller on-year contraction in the manufacturing sector, as well as, the stronger growth from the services sec-tor.

Although the manufacturing sector fell 2.7% y/y in 1Q, the second consecutive quarter of on-year con-traction, we think that the worst is over and manu-facturing activities will likely pick up from 2Q-4Q this year due to low base effects. However, this does not mean that manufacturing growth will be strong this year. We are projecting a full year manu-facturing sector growth rate of 1.3%, and this is only half the 2.6% growth rate in 2014. Year-to-date, the chemicals clusters was the only bright spot as it was the only cluster with a positive on-year growth. Even so, the chemicals cluster grew only 3.1% y/y and since it comprised only 11% of total manufacturing activity, it is likely not able to pull up overall growth. Moreover, the offshore & ma-rine engineering and petrochemicals clusters may see slower growth as uncertainty in future oil prices continues to question capex in this sector. Addition-ally, growth in the electronics cluster (the largest cluster in the manufacturing sector) could be ham-pered as suppliers in the personal computer value chain continue to face lower external demand for their products, while they manage the rising costs amid a contraction in labour productivity growth. Manufacturing sector’s labour productivity fell 1.4% y/y in 1Q 2015, registering the second consecutive quarter of contraction.

Nevertheless, economic growth should be well supported by the robust services sector, where 1Q

2015 saw the fastest on-year pace in four quar-ters to reach 3.8% y/y. The key push came from the wholesale & retail trade sector, and finance & insurance sector. We remain optimistic on the economic recovery in the US and anticipate some positive spillovers to the non-oil tradeables sector in Singapore. However, the external economic condi-tions remain fluid, with recent concerns re-center-ing on “Grexit” and the resurgence of political-eco-nomic uncertainties in the Eurozone. Deflationary pressures, slower growth and high unemployment rates amongst Singapore’s top exporting countries continue to pose risks on the trade front.

The government maintained their 2015 GDP growth forecast of 2-4% while we maintain our forecast of 2.9%. More than anytime during the past 8 years of low interest rate environment, the US Federal Reserve will likely start their interest rate normalization cycle this year, although the 18 June FOMC statement signaled a downward ad-justment in the pace of rate hike. With that and our view that the Monetary Authority of Singapore will keep the SGD NEER appreciation slope unchanged at our estimated 1% pa rate as core inflation envi-ronment remains within their forecast, we lowered the USDSGD appreciation trajectory and forecast the USD/SGD to reach 1.38 by end of 2015, from 1.40 as expected earlier. We also adjust our fore-cast for the SGD 3-month SIBOR to reach 1.15% by end of 2015, from 1.30% expected earlier.


GDP 4.4 2.9 2.9 3.4

CPI (average, y/y %) 2.4 1.0 0.3 0.8



Fiscal balance (FY, % of GDP) 1.3 1.3 -1.7 1.0

Services Sectors Grew At A Faster Pace Of 3.8% In 1Q 2015, While Goods Sectors Fell 1.4%

7.9

4.6 4.13.1 2.8

1.5

-0.4

-2.7

7.7

3.61.7

3.0 2.91.7 1.1

2.6

-4-202468

10

Finance &Insurance

Infocomms Wholesale &Retail Trade

Construction BusinessServices

Transport &Storage

Accomodation& FoodServices

Manufacturing

% y/y

1Q 2015 2014

2014 Share 12% 4% 18% 5% 14% 8% 2% 19%of GDP

Better Performing Services Sectors in 1Q2015

Source: CEIC


THAILAND

1Q Growth Missed Forecasts; More Headwinds For Rest Of 2015Thailand’s 1Q 2015 GDP grew 3.0%, although at the fastest pace in 8 quarters, it was lower than mar-ket forecast of a 3.4% growth rate. Caution should be exercised regarding the data as it reflected a low base in the same quarter a year ago. In fact, it could probably be the strongest on-year growth rate seen in 2015 as headwinds from slower global growth will likely hamper export demand, while weak domestic consumption may fail to lift up aggregate demand.

Recent data showed that Thailand’s exports fell for the 4th month in April and the private consumption index was seen dropping to a one-year low in April. The Thai government (NESDB) had also reduced its 2015 export growth forecast to 0.2%, from 3.5% earlier.

Although the 29 Apr Bank of Thailand policy deci-sion of a 25bps cut to the policy rate to 1.50% had surprised markets then, but on hindsight, that rate cut was probably meant to provide the much need-ed monetary boost to economic growth, as the infla-tion environment remained benign. In fact, Thailand had reported its fifth month of ‘deflation’ (the longest run since the global financial crisis) in May, and reg-istered a rate that was worse than any other major emerging market economy.

Although the lowered economic growth forecasts and the ‘deflationary’ environment may provide dov-ish policy impetus for the BoT, we do not think that the BoT will move to cut policy rates lower for the rest of this year. The current ‘deflation’ in Thailand is due to the transmission of lower oil and commod-ity prices into several segments of the consump-tion basket (chiefly in the transportation segment). This is not the same as the deflation seen during the 2008/09 global financial crisis where there was slack in the labour market, wage growth was nega-tive, and prices across most segments in the con-sumption basket contracted.

Moreover, lower interest rates may aggravate the already-high household debt problem in Thailand, while the recent dynamics in oil prices may point to upside surprise. As such, we believe that the BoT may stand pat at the current policy rate for the rest of 2015, and then coming in with a 25bps hike in 1Q 2016 to match the start of the US interest rate normalization cycle.

Going ahead, more work needs to be done to im-prove business sentiments and getting the invest-ment engine roaring once more. Fiscal stimulus will also be another key area to boost economic growth, especially in times of sluggish consumer and busi-ness confidence. With new information on 1Q GDP growth and our assessment of the economic envi-ronment for the rest of 2015, we had revised Thai-land’s 2015 GDP growth forecast to 2.7%, from 4.0% earlier.

Recent moves in the USDTHB seemed to be overly aggressive, and some profit-taking may pare off the gains in the near term ahead. However, the anticipation of the US Fed rate hike will see a stronger greenback against the THB and we ex-pect the USDTHB pair at 34.30 by end of 2015.


GDP 2.9 0.9 2.7 4.9

CPI (average, y/y %) 2.2 1.9 -0.5 2.5


Current account (% of GDP) -0.8 3.3 3.5 3.2


Private Consumption At One-Year Low

-10

-5

0

5

10

15

20

25

30

35

2011 2012 2013 2014 2015

% y/y

Pte Consumption Index Pte Investment Index

Weakness in Private Consumption

Source: CEIC


INDIA

Treading With CautionOn India’s New GDP NumbersIndia’s Jan-Mar 2015 GDP delivered a solid growth of 7.5%, beating the downward revised 6.6% growth in the previous quarter, and outshining most economies in the world. Growth was driven mainly by the services sector, with the trade, hotels, transport sector (+14.1% y/y) and the financial, real estate & professional service sector (+10.2% y/y) gaining strongly. In line with recent industrial pro-duction numbers, the Indian manufacturing sector also gained at a stronger pace of 8.4% y/y.

With such ‘rosy’, world-beating numbers, it seemed paradoxical that the Reserve Bank of India (RBI) cut its key interest rate for the third time this year in less than a week after the Jan-Mar 2015 GDP numbers were released. Our 2Q 2015 quarterly report discussed India’s new method in their GDP computation that followed the interna-tionally-recognised “market prices”, rather than the “factor cost” approach. Although the new approach had ‘boosted’ GDP growth rates by at least one more percentage point, the real economy remained weak still. Several recent higher frequency in-dicators such as auto sales, core industrial growth, and credit growth all pointed to a softer economy.

As such, it was of no surprise that the RBI cut the key interest rate by 25bps to 7.25% in their latest 2 June move, as both lower inflation and other weak-er economic indicators point to further monetary easing. Inflation had been tame over the last few months. The latest consumer inflation of 4.9% y/y was well within RBI’s target of 6% until Jan 2016. Additionally, wholesale price inflation was also in the negative on-year zone, weakening any price pass-through to consumer prices going forward. In-dia’s cargo traffic remained weak, while two-wheel-er sales were decelerating. Exports fell for the fifth consecutive month in April. Moreover, the RBI had also cited low domestic capacity utilization, weak corporate results, and subdued investment and credit growth as reasons for the need to lower the policy rate.

More Rate Cuts? It DependsIt seemed that there could be more room for fur-ther rate cuts in 2H 2015 should the various eco-nomic indicators continues to worsen, and inflation remains benign. However, it would have to depend on two key events.

First, concerns on a possible shortfall in the Southwest monsoon may drive food prices

higher. The annual rain is the only source of irri-gation for much of India’s farmland and is a vital driver for producing a plentiful harvest. Since food is the largest component (40%) in the average In-dian consumption basket, should lower crop yields drive up food prices, overall consumer prices will surprise on the upside.

Second, our view that the US could start their interest rate normalization in this year may point to further capital outflow from India. We recall the period of capital outflow and the quick de-preciation of the INR during May 2013 when the US Fed started the ‘taper talk’.

Any further RBI rate cuts will only worsen the outflow of capital. A quicker deprecation of the INR will ensue, further eroding the purchasing pow-er of the INR and higher imported inflation will add on inflationary risks. Even without any further rate cuts in our forecasts, our expectations of a stronger USD from the US interest rates normalization will likely see the USD/INR trending higher towards 66.0 by end of this year.


GDP 4.7 6.9 7.4 7.7

CPI (average, y/y %) 10.9 6.4 5.9 6.2




India’s Inflation Slowed Considerably And Is Below RBI’s 8% Target; But Risks Of Prices Climbing Back Up

0

2

4

6

8

10

12

14

16

18

2004 2006 2008 2010 2012 2014

% y/y

CPI CPI Target

Source: CEIC


2Q15 Growth Outlook Remains Downbeat China’s recent data releases continue to reflect the gripping impact of the downdraft from “new normal” environment. Data for manufacturing, external trade and investment in Apr-May largely point to a sub-7%y/y GDP growth rate for 2Q15, despite the fact that 1Q15 managed to turn in a surprisingly strong 7%y/y reading.

Since the beginning of 2Q15, data releases have not shown much improvement. For the manufac-turing sector, both the official and HSBC/Markit manufacturing purchasing managers’ index (PMI) headlines are below historic average. From 2005 to 2013, the average headline official PMI is 52.6, and for the HSBC PMI index is 51.4. Since 2014 how-ever, both versions of PMI figures have averaged just 50.5 for the official PMI and 49.7 for the HSBC PMI, 2.1 points and 1.7 points below the long term averages, respectively.

Inflationary pressure in China is expected to remain subdue, with CPI at 1.2%y/y from 1.5% in Apr, vs. average of 1.2% in 1Q15. While producer prices re-main in y/y declines for the 39th consecutive month since Mar 2012, at -4.6%y/y vs. -4.6% in Apr. The downward pressures on goods prices echo the tepid performance for manufacturing sector, which has seen the monthly industrial growth staying well be-low the long run average of 13%y/y (Jan 1995 - Dec 2013) for the second consecutive year.

While exports surprised on the upside in May at -2.5%y/y from -6.4% in Apr, it was nonetheless the third straight y/y declines despite low base in 2014. What is more worrying is the further sharp drop in imports, the 7th straight month of imports decline since Nov 2014, and at an increasing magnitude: double digits drops (-13% to -21% range) in the first 5 months of 2015. These are largely attributed to both weak external demand, and domestic factors of

“new normal”. Note that South Korea exports were negative y/y for four straight months, and imports in negative for 8 straight months, while Taiwan report-ed negative exports for 4 months, negative imports for 5 months, for the first five months of 2015.

Given these data, we expect 2Q15 GDP growth rate to run at the 6.8%y/y pace, below that of 7% in 1Q15.

Financial Market Reform In Progress The key agenda for China this year will be accelera-tion of financial market reform, with IMF’s Special Drawing Rights (SDR) once-every-5-year review by end-2015 the main highlight. As mentioned in our Focus article on SDR, the admission is not a sure thing and we assign a probability of success at 60%, with the remaining 40% at the disposal of IMF’s executive board which US has the largest vot-ing block. While China is able to deliver most of the criteria, including market-determined interest rates, the requirement that the currency be a “reserve cur-rency” could be problematic. This is because the RMB comprises of just about 1.4% of the world’s foreign exchange reserves, well below that of even the JPY which has a 4% share in advance countries’ reserves.

With or without SDR, we expect China to continue to pursue its market reform measures, including further opening of the capital account, interest rate liberalization, RMB internationalization. Meanwhile, monetary policy is expected to remain neutral and we do not anticipate excessive easing bias for the remainder of the year.

We continue to maintain our forecast of USD/RMB at 6.23 for end-3Q15, and at 6.20 for end-2015. A band widening is still likely before year end, possi-bly around the annual IMF/World Bank annual meet-ings in Oct. For rates, one more round of interest rate cuts and also RRR cut are likely (please see table below) to keep headline growth at even keel, along with the removal of deposit interest rate ceil-ing sometime in the second half of 2015.


GDP 7.7 7.4 6.8 6.8

CPI (average, y/y %) 2.6 2.0 1.5 2.0



Fiscal balance (% of GDP) -1.9 -2.0 -2.2 -2.2

CHINA

China: Real GDP Growth

7.0%

6.8%

6.7% 6.9%

0%

2%

4%

6%

8%

10%

12%

1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

%y/y

Forecast

Source: CEIC, UOB Global Economics & Markets Research Estimates

Interest Rate & RRR Forecasts 3Q15 4Q15 1Q16 2Q16

1-year Best Lending Rate % 4.85 4.85 4.85 4.85

1-year Deposit Rate % 2.00 2.00 2.00 2.00

Reserve Requirement Ratio % 18.00 18.00 18.00 18.00


HONG KONG

Growth Momentum Likely to Stay SubdueHong Kong’s 1Q15 GDP expanded 2.1%y/y, mar-ginally slower than the upwardly revised 2.4% pace in 4Q14. While it appears that economic growth seems to be off to a good start, the latest figure is well below that of the average of 4.5% for the 1Q in the past 5 years. Nevertheless, both private spend-ing and investment helped support 1Q15 growth but with domestic retail sales likely to remain sub-due for this year and China is shifting to the “new normal”, headline growth momentum is likely to re-main under pressure.

Similar to a number of exports powerhouses in the region, Hong Kong’s external environment remains clouded in the near term. For the first four months of 2015, Hong Kong’s total exports rose only 2.2%y/y, slower than the 3.2% pace in 2014 and just about one quarter of the average exports growth of 8.5% in the past 5 years.

On the domestic front, situation is equally downbeat. HK visitor arrivals edged up an average 3.9%y/y in the first four months 2015, a significant slowdown from the double-digit growth of the past 5 years, as mainland tourist arrivals, which account for nearly 80% share of total visitors and from just about 54% share in 2006, slumped to just single digit growth so far in 2015 vs. 16% in all of 2014. The number of mainland visitors to HK has been rising at double-digit pace every year since 2010, with 47 million vis-its recorded in 2014. The slowdown is on the back of China’s “new normal”, restrictions on daily trips by mainland authorities, as well as anti-mainland sentiment in HK. This has led to retail sales rising just 0.6% in 2014. For the first four months of 2015, retail sales managed to expand just 0.5%y/y. With dark clouds continue to overhang HK retail sales sector, outlook for this year remains downbeat. However, domestic factors are still supportive of the sector, including low unemployment rate of 3.3%, as well as wealth effect from the recent run up of the equity market.

With the electoral reform plan failed to pass in HK legislature on 18 Jun, one immediate impact is that it reduces risks of a repeat of the “Occupy Central” protest movement that lasted nearly three months late year which interrupted daily lives and business-es. However, it also means that Hong Kong will not hold the first-ever election of its political leader in 2017. The chief executive will continue to be cho-sen by a 1,200-member selection committee of the city’s elites that has picked all three leaders since control of the city was returned to China in 1997.

We continue to maintain our GDP trajectory for the coming quarters, but with the 1Q GDP print, our forecast for headline GDP growth now stands at 2.6% for full year 2015, with low base to help pro-vide some lift in the second half of 2015.

HKD Peg To Stay As for the HKD, we do not anticipate any change to the peg to USD any time soon, given the dominance of the latter as a global reserve currency and that the RMB is still a non-convertible currency for now. The commencement of the “Shanghai-HK Stock Connect” last year ushered in another new step for China to continue on its market reforms/RMB inter-nationalization path, and the pace of RMB interna-tionalization continues rapidly. As of end-Apr 2015, the RMB only accounted for 1.4% share of global (ex-China) forex reserves, well below that of JPY’s 4% share held in advance countries’ forex reserves. Nevertheless, the situation is likely to change in the years ahead especially if the RMB is able to gain entry to IMF’s Special Drawing Rights at the review this year’s end.

With the US Fed’s rate normalization likely to start only in Sep 2015 (instead of our earlier contention of Jun 2015), the HKD interbank rates continue to stay steady, with the 3-month HIBOR at around the 0.36-0.38% level since beginning of 2015. We do not expect domestic interest rates to move higher until 3Q 2015 when the US rate hike cycle be-comes more visible. We look for the 3-month HI-BOR to edge up marginally to 0.5% by end-2015, in response to higher USD Libor and based on our end-2015 Fed funds rate forecast of 0.75%.

Hong Kong: Labour Market

2.02.22.42.62.83.03.23.43.63.84.0

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Jan-03 Jun-05 Nov-07 Apr-10 Sep-12 Feb-15

%

Employed Workers (3MMA, mn persons, RHS)Unemployment Rate (%) - LHS

million persons


UOB Economic Projections 2013 2014F 2015F 2016F

GDP 3.1 2.5 2.6 2.8

CPI (average, y/y %) 4.3 4.4 3.0 3.6



Fiscal balance (% of GDP) 2.6 1.1 0.7 0.7


JAPAN

Sustaining The Good [GDP] Start Japan's 1Q-2015 GDP growth was revised to a higher pace of 1%q/q, 3.9%q/q SAAR (better than the 1st estimate of 0.6%q/q, 2.4%q/q SAAR), while the 4Q-2014 GDP rebound was revised to higher to 0.3%q/q, 1.2%. Stronger 1Q reflected improvement in private demand due to a jump in private non-resi-dential investments to 2.7%q/q (from 0.4%) even as private consumption was unchanged (at +0.4%q/q) while private residential investments came in lower at 1.7%q/q (from 1.8%). 1Q was also helped by further inventories increase (to 0.6ppt from 0.5ppt). External demand remains an uncertainty for the export-oriented Japan as decline in net exports was unchanged at -0.2ppt of 1Q growth despite Japan recording a trade surplus in March 2015, its first surplus since June 2012.

While 1Q GDP’s upward revision was expected, we were hopeful that the final number may be slightly improved due to upward revision in trade numbers late in 1Q but that was not to be. After the brief turnaround in March, Japan returned back into trade deficit in April & May, denting hopes of more sustained trade improvement after 3 years in dol-drums. That said, we still believe a turnaround in Japan’s trade prospects is still in sight on the back of a weaker yen. We also expect delay in the 2015 sales tax hike and base effect (from last year’s sales tax hike) to be helpful for domestic demand recovery in 2015. Japanese companies are also showing willingness to increase wages and unlock-ing more of their cash holdings via raising dividends to shareholders & increasing capital investments. But we are still concerned about persistent domes-tic consumer weakness and the other risk for weak-er growth is the external outlook which will erode Japan’s external demand contribution to GDP. We continue to expect Japan’s GDP to grow by 1% in 2015 after its minute -0.1% contraction last year.

Japan’s CPI inflation is markedly lower with head-line at 0.6%y/y in Apr from 2.3%y/y in Mar 2015 (versus high of 3.7% in April 2014) while core eased to 0.4%y/y from 2.1%y/y in Mar. The BOJ-calculat-ed inflation (which excludes the April sales tax hike effect) was lowered to 0% in April & May (from 0.2% in Jan) although the danger of slipping into deflation eased as energy prices stabilised.

More Easing Unlikely For Rest Of 2015We believe the BOJ is unlikely to do more eas-ing & probably maintain the status quo position in 2H 2015 after its last stimulus addition in October 2014. The 1Q GDP upward revision certainly helps our view and is an affirmation of the BOJ’s optimism that Japan “continued its moderate recovery trend” and meant little impetus to add more easing into the system. We reiterate our belief that the BOJ policy makers viewed further monetary easing to shore up inflation as a counterproductive step in the foresee-able future and that additional stimulus could trigger significant declines in the yen which in turn would damage confidence while giving little mileage to generate inflation. Market views about more BOJ stimulus were also dialed back more easing expec-tations after BOJ Governor commented (10 June) that further yen weakness is “unlikely” which may imply BOJ has no plans for more easing.

June's BOJ decision did provide some buzz with a new monetary policy meeting framework start-ing 2016 which will reduce the number of meetings to 8 (from 14 presently) and introducing quarterly outlook report & doing away with the monthly eco-nomic report (much like the FOMC framework).

JPY Kept In Range Until Fed HikesEven without any new easing, the yen is about 2.7% weaker against the US dollar so far this year (as of 18 Jun). The USD/JPY pair was initially pushing to multi-year high of 125 in early June but BOJ Kuro-da called for currency stability on 10 June, saying that it was “hard to see [the JPY] real effective rate falling further,” which sent the JPY strengthening towards 122 (from above 125) against the US dol-lar. We keep our view for USD/JPY to push fresh multi-year highs although the pair may be stuck in 120-124 range in early 3Q barring any unexpected global event. We expect the USD/JPY pair to break conclusively above 125 when the Fed finally deliv-ers the first rate action (now expected in Sep 2015).

UOB Economic Projections 2013 2014F 2015F 2016F

GDP 1.5 -0.1 1.0 1.5

CPI (average, y/y %) 0.4 2.7 1.0 1.8



Fiscal balance (% of GDP) -9.1 -8.3 -7.5 -6.5

Hopeful For A Trade Surplus In 2H 2015

-60

-40

-20

0

20

40

60

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

Jan-08 Jun-09 Nov-10 Apr-12 Sep-13 Feb-15Trade Balance (JPY bn) Exports (JPY bn)Imports (JPY bn) Exports (%y/y - RHS)Imports (%y/y - RHS)



SOUTH KOREA

MERS Clouding OutlookSentiment has deteriorated with the outbreak of Middle East Respiratory Syndrome (MERS) cases in South Korea, the largest outside of Saudi Arabia. GDP growth which has moderated to 2.5% y/y in 1Q15 (4Q14: 2.7%) is likely to remain under 3.0% in the second half of the year if the outbreak is pro-longed as this will delay the recovery that we have expected. Household private consumption (48% of the GDP) will be most affected as South Koreans stay indoors while tourism revenue (1.3% of GDP) is still relatively small. Short of announcing a sup-plementary budget, the government has pledged to maintain an expansionary fiscal policy until the economy is firmly on recovery. Looking at the SARS crisis which hit Asia in November 2002-July 2003, the impact from MERS could be significant if the outbreak continues for another six months.

At the same time, external demand from either de-veloped economies or China had been lacklustre. South Korea’s export contracted for the 5th straight month in May. Exports slumped by 9.4% y/y in April-May, sharper-than -2.9% y/y in 1Q15. In April, Bank of Korea (BoK) has downgraded its 2015 GDP growth forecast to 3.1% from 3.4% previously. We expect further downgrade in the growth forecast ahead. For now, we expect 2015 growth at 2.9%.

BoK Brings Interest Rate To Fresh Record LowNear-term growth concerns overshadowed that of the high household debt, leading to two interest rate cuts so far this year. The 25 bps cut in June to bring the base rate to fresh record low of 1.50% was clearly driven by the MERS outbreak. Weak domestic inflation provided room for the monetary easing as headline CPI stayed at near 16-year low of 0.5% y/y in May. With low oil prices, we expect the inflation rate to remain below 1.0% y/y in 3Q15 before picking up in 4Q15 due to a low base effect.

Going forward, the rate decisions will be highly data-dependent. Due to expectation of US rate normali-zation in the second half of the year and concerns over the household debt, more rate cuts in Korea will have to be driven by further sharp deterioration in growth outlook. As such, we expect the base rate to be kept at 1.50% for the rest of this year.

Current Account SurplusContinues To Buoy KRW NEERWeaker sentiment towards South Korea contrib-uted to USD/KRW rebound from its closing low of 1,068.60 in April. We have reduced our expecta-tion of the USD/KRW upward trajectory in line with a gradual pace of US Fed interest rate normaliza-tion. South Korea's strong current account sur-plus (1Q15: 7.0% of GDP) will also moderate the up-move in the pair. Our end-3Q15 and end-4Q15 targets for USD/KRW are at 1,130 and 1,140 re-spectively.

KRW NEER has appreciated by 4.5% in the first 4 months of the year which reflected the relative strength in the currency compared to its trading partners. One of the most important to watch is still the JPY/KRW which touched a 7-year low of 8.8458 during 2Q15. There will be further downward pres-sure on the KRW as JPY weakens further.


GDP 2.9 3.3 2.9 3.5

CPI (average, y/y %) 1.3 1.3 0.9 2.0




Despite Higher USD/KRW Since September 2014,KRW Has Appreciated In NEER And REER Terms

60

70

80

90

100

110

120

130800

900

1000

1100

1200

1300

1400

1500

1600Jan-08 Nov-09 Sep-11 Jul-13 May-15

USD/KRW NEER 2010=100 REER 2010=100

Source: CEIC, BIS

Comparison Of MERS And SARS Outbreak In Asia

Pandemic Severe Acute Respiratory Syndrome (SARS)

Middle East Respiratory Syndrome (MERS)

Period November 2002 – July 2003September 2012 – ?First confirmed case in South Korea on 20 May 2015

Asian Countries Affected

China (349 deaths, 5,328 infected)Hong Kong (299 deaths, 1,755 infected)Taiwan (37 deaths, 346 infected)Singapore (33 deaths, 238 infected) Vietnam (5 deaths, 63 infected)Philippines (2 deaths, 14 infected)South Korea (0 death, 4 infected)

South Korea (23 deaths, 164 infected)China (1 infected) Thailand (1 infected)

Global Total Infected 8,273 1,321

Global Total Deaths 775 466

Fatality rate (%) Around 10% 30-40%

Note: Information as of 18 June 2015.Source: WHO, various newswires


TAIWAN

Weak Domestic Growth Ahead Taiwan’s 1Q15 GDP growth rose a downwardly re-vised 3.37%y/y (from a prelim 3.46%y/y), vs. 3.35% pace in 4Q14. The headline figure is on par with the average of 3.25% seen in 1Q for 2011-2014. Nevertheless, the performance was still ahead that of Hong Kong, Singapore and South Korea in the first quarter. Growth momentum was maintained at 0.7%q/q SA in 1Q15, from 0.5% in 4Q14.

In other data, Taiwan’s manufacturing PMI index went below 50 for the second straight month in May and averaged just 49.3 for April and May, vs. 51.6 in 1Q15, and the first sub-50 readings since Jul 2013. This is a reflection of manufacturing output which fell 1.1%y/y in Apr.

One bright spot amidst dim data elsewhere is the labour market. Taiwan's jobless rate held steady at to 3.75% seasonally adjusted in Apr, similar to Mar, and at the lowest level in more than 14 years. Low jobless rate together with stable job gains, should support steady domestic demand growth.

The sharp downward revision in 1Q15 GDP figures was inline with the rest of the global economy, es-pecially with the developments in China. Taking into account of the data so far, we are scaling back our view for 2015 GDP to 3.0% (from previous forecast of 3.4%) but keeping our call for 3.5% for 2016.

For comparison, Taiwan’s official forecast for 2015 was cut by 0.5% point in May to 3.28%, having raised it to 3.78% in Feb (2014: 3.77%), on uncer-tainty in global outlook, sluggish external demand, and competition from mainland especially in IT products. Taiwan government also expects exports in USD value to contract 2.62% in 2015 vs. original forecast of +1.02%, its first annual exports decline since 2009. For 2015 imports are projected to de-

cline 8.75%, vs. original forecast of -2.07%.

CBC To Stay Put Taiwan’s headline CPI fell 0.73%y/y in May, extend-ing its negative inflation trend since early 2015, due to weak commodity prices since mid-2014. We do not expect CPI to rise sharply for the rest of 2015, as long as commodity prices stay subdue. Taiwan government has in May slashed full-year inflation target to 0.13% from 0.26% earlier, nearing a defla-tionary environment.

With the US Fed poised for its “liftoff” this year, we expect CBC to hold its policy rate unchanged through 2015. The next policy meeting is scheduled on 25 June 2015. Of more interesting note is that TWD has gained 3% vs. USD. There were reports earlier that CBC has asked major custodian banks to look into foreign customers' transactions, amid worries that inflows could over-inflate TWD. More critically, since mid-2011, the TWD has gained 60%+ from 0.40 TWD per yen to 0.25 TWD per yen in Jun 2015, while the KRW rose from 15.5 per JPY to 8.99, an appreciation of 72% against the JPY. As all these three economies rely on external demand as a key driver, and with BoJ’s holding to its weak JPY policy, CBC is expected to keep a wary eye on TWD strength. As such, we expect upward pres-sure in USD/TWD, targeting at 31.40 for end-3Q15 (previous: 32.6) and 31.80 by end-4Q15 (previous forecast: 32.40), from current level of 31.05.

USD/TWD vs. USD/JPY Trend

70

80

90

100

110

120

130

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

32.0

Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15USD/TWD (LHS) USD/JPY (RHS)

Source: Bloomberg, UOB Global Economics & Markets Research Est

Average Monthly Earnings

-10.0

-5.0

0.0

5.0

10.0

15.0

Jan-04 Nov-05 Sep-07 Jul-09 May-11 Mar-13 Jan-15

%y/y 12-month MA



GDP 2.2 3.8 3.0 3.5

CPI (average, y/y %) 0.8 1.2 0.3 1.2





EUROZONE

ECB Sticks With Bond-Buying PlanAs Eurozone Economy ImprovesThere were no surprises at the June ECB meeting and press conference. In line with our expectations, ECB President Mario Draghi reiterated the ECB Governing Council’s strong commitment to fully implementing its quantitative easing (QE) plans. All policy rates were kept unchanged; and no new pol-icy initiatives or changes to the current asset pur-chase programme were announced. There was no reconsideration of its policy plans, no discussion of exit. The ECB’s new mantra is the intention to main-tain a “steady course” on monetary policy. Market speculation about possible QE tapering may well continue during the coming months/quarters, but we remain of the view that this will be met with little support from the ECB, and that purchases will con-tinue up to September 2016.

The June press statement also noted that the Gov-erning Council expects the economic recovery to broaden. The word “strengthen” included in the April statement was omitted this time around be-cause the ECB had expected to see stronger fig-ures. However, compared with the March 2015 ECB staff macroeconomic projections, the projections for real GDP growth over the projection horizon remain virtually unchanged. Thus the June 2015 ECB staff macroeconomic projections foresee annual real GDP increasing by 1.5% (1.5% in March) in 2015, 1.9% (1.5%) in 2016 and 2.0% (2.1%) in 2017. Draghi noted that the loss of growth momentum has been due to the weakening of economies outside the Euro area.

QE Working Better Than HopedMeanwhile, the 2015 inflation forecasts were re-vised up for the first time ever although the 2016-17 inflation forecasts were unchanged, helping to reinforce the expectation that the ECB will complete

its asset purchase programme until at least Sep-tember 2016. The ECB projected annual inflation at 0.3% in the Euro area in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the March 2015 ECB staff macroeconomic projections, the inflation projections have been revised upwards for 2015 and remain unchanged for 2016 and 2017. The way Draghi put it was that the recent rise in inflation – above consensus but in line with the ECB’s own expectations – strengthens the Council’s conviction that the QE policy is appropriate.

Euro – Can It Go Lower?Despite the ongoing saga in Greece, the Euro has been able to find plenty of support. In the last three months, the currency has been following Bunds slavishly, with the recurrent selling wave in Bunds being a constant source of EUR strength. The spike in bund yields was triggered in part by improving growth and inflation data, as well as a reflection of overcrowded positioning and very illiquid market conditions.

We continue to look for a lower EUR/USD in the coming quarter, reflecting the concerns we have on Greece and the Eurozone. Indeed, fears over a pos-sible Greek exit from the Eurozone are growing as relations between the creditors and Greek negotia-tors over reforms grow increasingly tense. We are heading into the 18 June Eurogroup meeting as we write, and President of the Eurogroup Jeroen Dijs-selbloem had previously identified this date as the deadline for reaching an agreement. This should give enough time for those countries, including Germany, that have to pass the agreement through parliaments to do so, and the Greek parliament to pass all the required laws in time to complete the programme review and allow the creditors to dis-burse at least part of the EUR7.2bn on hold since December in time to avoid missing the EUR1.55bn

EUR In Thrall To Rising Bund Yields

1.02

1.07

1.12

1.17

1.22

1.27

1.32

1.37

1.42

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

10-Year Bund Yields EUR Currency


Higher Inflation Expectations

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Jun-10 Aug-11 Oct-12 Dec-13 Feb-15

EUR Currency 5y5yswap




GDP -0.5 0.9 1.5 1.7

CPI (average, y/y %) 1.3 0.4 0.2 1.2




payment to the IMF at the end of June.

Still, we think the chances of reaching agreement with Greece by 18 June are slim. Besides, even if a disbursement by the EU creditors allows Greece to meet the IMF payments, the situation beyond June remains very challenging. Greece faces a mountain of around EUR6.7bn of debt repayments (and EUR1bn in interests) to the ECB in July and August, as well as another EUR3.4bn by the end of the year. There is only about EUR3.7bn left in the current EU programme, including some EUR1.5bn of ECB profits on Greek bond holdings for 2015.

As such, we think that a third EU programme is very much needed and has to be in place before 20 July, date of the first ECB repayment, to avoid a default

to the ECB. Assuming that the Greek government remains solvent up until that point, the repayment to the ECB is critical due to the Greek central bank and Greek banking sector’s heavily reliance on the ECB’s Emergency Loan Assistance (ELA) program. The ELA has effectively kept the Greek financial system intact as these funds protect against large outflows of capital from private banks. If the Greek government is unable to repay the ECB, we can be almost certain it would be cut off from much-needed ELA funds and many Greek banks would become insolvent.

So whilst default does not necessarily mean Grexit, default would certainly unleash new uncertainties and, in our view, putting all these elements togeth-er, we think the uncertainty ahead could bring about more volatility and downside for the EUR/USD.

That said, we have consistently been of the view that the ramifications of a default by Greece would be severe. And because of political reasons, it would be in Europe’s interest to keep Greece firmly in the EU, including providing it with further financial assistance. Hence, similar to previous episodes, we believe a last-minute deal will be reached. After all, a recent poll continues to suggest that the over-whelming majority of the Greek population, includ-ing Syriza voters, wants to stay in the Euro. We thus see limited downside for the EUR further out.

Key Dates

June

5 Greece will have to make a payment of about EUR305mn SDRs to the IMF


12 Greece must roll over EUR3.6bn of Treasury bills



19 Greece must roll over EUR1.6bn of Treasury bills

25-26 EU leaders hold summit in Brussels

30 Expiry of extended bailout agreement between the Eurozone and Greece, which means the end of access to the funds left over from the Eurozone bailout.

July

10 Greece must roll over EUR2bn of Treasury bills


20 Greece’s EUR3.5bn bond held by the ECB matures

August8 Greece must roll over EUR1bn of Treasury bills

20 Greece’s EUR3.2bn bond held by the ECB matures

Source: Bloomberg, ECB, IMF

Greek Debt By Holder (EURbn)

T-Bills15

EFSF Loans142

GLF Loans53

Private Debt55

ECB 27

IMF24


Greece's Debt Obligations

0

1

2

3

4

Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

EUR bn

ECB IMF Treasury Bill Holders

Source: CEIC, BIS

EUROZONE


AUSTRALIA

Australian GDP Beats But Concerns PersistThe Australian economy grew at a seemingly healthy pace for the first quarter. The seasonally-adjusted 0.9% q/q expansion was a touch above expectations and an acceleration from 0.5% in Q4. In y/y terms, growth slowed to 2.3% from 2.4%. The breakdown showed that consumer spending rose by a solid 0.5% q/q, contributing 0.3pp to headline growth. Net exports contributed another 0.5pp to growth. The main weak point was investment, with private gross investment falling by 1.0% q/q, de-spite a 4.7% rise in dwelling investment. Although the headline figures may suggest that the economy has weathered last year's fall in commodity prices, we think it could get worse from here. The end of the mining investment boom and the lagged effects of lower commodity prices will continue to drag on the economy. Australia’s employment data has also been very volatile and just as April’s downwardly revised 13.7k drop in employment overstated the weakness in the labour market, the most recent 42k gain last month overstates its strength. We remain cautious and have even downgraded our full year GDP growth to 2.3% for 2015.

RBA To Hold FireThe RBA chose to keep interest rates unchanged at a record low of 2.0% during the June meeting. Whilst there is room for further easing amid con-tinuing sluggishness in business investment and consumer spending, we believe the central bank would prefer to monitor the impact of the 50bps cuts already delivered this year. Besides, it continues to be in a difficult position. Although low interest rates are required to support the rebalancing of growth towards the non-mining sectors of the economy; the RBA is reluctant to cut rates further, doubting the efficacy of further reductions on anything other than the Sydney, and to a lesser extent, Melbourne property markets. As it is, the Australian Pruden-

tial Regulation Authority (APRA) has been turning up the dial on lending standards, especially when growth in lending to housing investors has been running ahead of the 10% target pace. Hence, we think the RBA would also want to watch the effects of APRA’s tightening measures first. Meanwhile, it will continue to keep a close eye on incoming eco-nomic data and the Australian currency. In all, our own view remains unchanged. We continue to think that the current rate of 2.0% should mark the low point for the cash rate in this easing cycle.

Lower Aussie PreferredThe RBA has flagged out that a further fall in the AUD is both likely and necessary, especially given lower commodity prices. Hence, it is clear that the Australian central bank continues to prefer a lower currency, hopefully able to let a lower currency do the work in terms of further supporting the rebal-ancing of growth. In fact, because wage growth is so benign, the RBA would not have a problem if the currency overshoots on the way down, even if consumer prices got a bit of a boost. We thus con-tinue to look for a lower AUD/USD, largely due to the combination of a slowing China, weak domestic economy, a stalling domestic economic transition and an RBA with an easing/cautious bias. In ad-dition, we believe that Aussie dollar weakness will come through in the next few months because the US is going to be raising interest rates.


GDP 2.1 2.7 2.3 3.0

CPI (average, y/y %) 2.5 2.5 1.8 2.7





NEW ZEALAND

Economy Poised To StruggleNew Zealand’s first quarter GDP fell below expecta-tions, increasing 0.2% from the fourth quarter, when it rose a revised 0.7%, way below the 0.6% forecast by the RBNZ, which was also market consensus. This was the slowest pace since 0.1% in the first quarter of 2013. On a yearly basis, the economy grew 2.6% versus 3.1% expected and 3.5% prior. Growth was weighed by a fall in agriculture, forestry and mining as a summer drought curbed agricul-tural output and falling global dairy prices damped farm incomes. That said, consumer spending was underpinned by record immigration and a surge in tourist arrivals as New Zealand co-hosted the cricket World Cup, whilst rebuilding in earthquake-damaged Christchurch boosted construction. Since New Zealand’s prospects depend significantly on the evolution of global dairy prices, we think the agriculture-focused economy will continue to strug-gle, especially given that global dairy prices are down more than 50% since early 2014 and New Zealand's biggest trading partners, Australia and China, are experiencing slower growth.

Further Easing On The HorizonThe RBNZ slashed its cash rate by 25bps in June to 3.25%. This was the first rate cut since January 2011 and reverses a period of rate hikes that the central bank engaged in 2014. Whilst the timing of the rate cut may have come earlier than expected, the RBNZ justified the cut by saying that the un-expected worsening in the terms of trade largely triggered by the decline in dairy prices means that “monetary policy needs to be more stimulatory to encourage the pickup in inflation”. More importantly, the central bank also provided a very strong hint that the latest rate cut will not be a one-off. Indeed, slow-ing growth not only underscores the RBNZ's latest

decision but also for further reductions ahead. With slower growth suppressing inflation, the economy needs lower interest rates and a weaker currency to get prices gauge back up to the 2% target. We are now expecting another 25bps cut in the com-ing quarter, bringing the cash rate to 3.00%. Further out, much will depend on economic data, and all eyes will be on the quarterly CPI print due on 16 July. The RBNZ would also want to be careful about stoking an already overheated property market in Auckland, the country's biggest city.

Kiwi Vulnerable To RBNZ’s MovesThe yield advantage of New Zealand is clearly di-minishing. With the central bank expected to move rates lower, and stay low for longer than widely ex-pected, this should see the NZD weaken. Further-more, the RBNZ continues to reiterate that the New Zealand currency remains overvalued, despite the fall in commodity prices and the expected weak-ening in demand, adding that a further significant downward adjustment is justified. Another weighing factor is the weakness in the country's dairy indus-try, the world's top milk exporter. Further declines in prices coupled with continued slowing economic momentum is likely to see the NZD underperform-ing. As such, we look for a lower NZD from here.


GDP 2.5 3.0 3.0 2.5

CPI (average, y/y %) 1.2 1.2 0.6 2.0

Unemployment rate (%) 6.3 5.8 -4.9 5.1


Fiscal balance (FY, % of GDP) 0.3 1.4 -0.1 0.2


UNITED KINGDOM

A Surprise Election ResultIt has been more than a month now after the in-cumbent Conservative Party returned to power in the UK – following an election result that surprised and reassured markets – as the Conservatives won an outright majority (331 of the 650 parliamentary seats). Looking past the 7 May election, we can say that political risks have been pushed under the ta-ble for the timebeing, although the Chancellor of the Exchequer, George Osborne, could make reference to the EU referendum, which is slated to be held by the end of 2017, when he gives his first post-elec-tion economic budget on 8 July. In the meantime, the broader UK economy has been positive. The latest labour market report revealed a rise in aver-age weekly earnings growth (ex-bonus) to 2.7% y/y in the three months to April – the most since early 2009 – even as employment gains slowed and the unemployment rate remained stable for a second month.

Faster Wage Growth Could Force BoETo Raise Interest RatesMinutes of the latest BoE’s meeting saw all nine panel members voting to keep the benchmark inter-est rate at 0.5% in June and voting unanimously to leave the size of the central bank’s bond portfolio at GBP375bn. For two officials, probably Martin Weale and Ian McCafferty, who voted for higher borrowing costs as recently as December, the decision not to raise rates was “finely balanced”. Although gener-ally, the MPC members’ view on the economic out-look, and the appropriate stance of monetary policy that it implies, had not changed materially; the over-all stance appears slightly more hawkish than previ-ously. Given the latest set of labour market statis-tics, it could be a matter of time before both Weale and McCafferty break ranks with the majority and start agitating for monetary policy tightening. This could happen as soon as August, the same month as when the next Inflation Report is due (6 August). On a side note, it is worth noting that the June MPC meeting is the penultimate under the current regime

in which the policy decision is released separately from the minutes. From August, the Bank will pub-lish the two documents simultaneously in an effort to boost the transparency of its decisions to finan-cial markets and the public.

Pound Hinges On Race To Normalize Monetary Policy Previously, we cited political uncertainty and slow-ing of economic data as the two major factors ex-plaining our bearish view on the GBP. However, heading into the second half of the year, we think we are past that short-term uncertainty. In fact, an-other reason why we see the GBP performing is our belief that the BoE will be the next major cen-tral bank after the US Fed to raise rates. This cre-ates a yield advantage, given that a good portion of advanced economies are looking to cut rates. Although we had previously flagged out falling infla-tion as a big risk for the GBP, the latest BoE minutes show that officials expect annual inflation to accel-erate “notably” later this year even after recent data showed consumer prices in Britain rose on the year in May by just 0.1%, and recording the first annual fall in April for more than 50 years. One of the fac-tors expected to push inflation higher is faster wage growth, which rate-setters in the UK said may be running at a speedier clip than official data suggest. On a whole, the economic data prints coming out of the UK should continue to drive the GBP ahead as market participants weigh the outlook for monetary policy.


GDP 1.7 2.6 2.5 2.5

CPI (average, y/y %) 2.6 1.5 0.4 1.6





UNITED STATES OF AMERICA

Rebound Likely In 2Q But How Strong? This year’s first quarter began like 1Q 2014 when extreme weather & West Coast port disruptions sent 1Q 2015 GDP tumbling from a prelim +0.2%q/q SAAR increase to a revised -0.7% contraction. While personal consumption was revised lower to 1.8% (from 2.0%), the biggest drags were the sharp correction in net exports, shaving 1.9ppt off head-line growth as exports in 1Q contracted by -7.6% (from -7.2%) while private domestic investments growth was revised lower to +0.7% (from +2.0%) as growth in the intellectual property products compo-nent was severely revised to +3.6% (from +7.8%) even as rest of investment components experi-enced upward revisions.

Despite the 1Q setback, we expect growth to re-bound in 2Q & 3Q (similar to 2014 when 2Q & 3Q together recorded strongest US growth in a dec-ade). US retail sales grew 1.2%m/m in May while April was also revised higher. The US economy continue to add jobs above 250,000 monthly pace with wages increasing at 2.3%y/y in May, and re-cent US indicators continue to show improvement in the housing sector, adding to optimism that GDP may be boosted by higher personal consumption & domestic housing investment. The trade situa-tion improved as the April trade deficit narrowed to US$40.9bn after it initially widened to US$50.6bn in March, right after the West Coast port disrup-tion was resolved. We now expect US 2015 GDP growth lower at 2.5% (from 2.9% estimated pre-viously) bolstered by the US consumer and hous-ing market with downside risks of weak external environment & strong USD. The Fed revised 2015 growth lower to 1.8-2.0% (from 2.3-2.7%) while World Bank lowered it 0.5ppt to 2.7% and IMF cut it 0.6ppt to 2.5%.

US politics is a domestic risk factor in 2015 when there are no US elections. The defeat of Obama’s Trade Adjustment Assistance bill by his own Dem-ocrats highlights the difficulty of getting politics to support the economy. We reiterate our fear of a re-peat of the US debt ceiling limit drama in late 2015. The US debt ceiling limit was reset to US$18.113trn and must be raised in 4Q 2015 after the US Treas-ury exhausted all "extraordinary'' accounting meas-ures to stay under the limit, according to CBO. Po-litical brinkmanship may be avoided in 2015 amid 2016 Presidential primary campaigns but nothing should be taken for granted.

FOMC – Tentative September Lift-OffThe Fed kept its ultra-low rates policy unchanged in June, even as Yellen said rate liftoff remains on course in 2015 but continued to emphasize on data-dependent guidance and that exact timing of lift-off matters less than the path of rate hike which is likely to be gradual. The dovish sentiment was further reinforced by marginally more dovish June dot-plot chart forecasts as compared to March.

We now expect the first Fed rate hike to take place in the 16-17 September 2015 FOMC but we revised lower the rate trajectory, expecting the FFTR to reach 0.75% by end 2015, and 1.75% by end 2016. That said, we fear that re-emergence of US politi-cal brinkmanship in late 2015 could complicate Fed monetary policy decision making.

UST – Waiting For Higher, Flatter Yield Curve After falling below 2% after the March FOMC, the 10-year UST yield has since returned above the 2.3% range (as of 17 Jun 2015) boosted by the Fed’s eventual normalization of interest rate policy & the recent global bond sell off led by German bunds. While 10-year UST yields are likely to go higher (to 2.7% by end-2015), we still expect long-end yields to be well anchored due to: 1) Fed will not be UST seller to reduce its balance sheet any-time soon, 2) UST supply is lower due to improv-ing US fiscal position, 3) QE from BOJ & ECB will re-direct buyers to UST, and 4) geo-political risk to boost safe haven demand for UST. The UST yield curve will revert to flattening in 2015 as US rate hike gets underway.

USD – Dollar Supported Amid Volatility For 2H 2015, we still believe the US dollar will be supported when the Fed gives a concrete rate hike timeline. The divergence in policy directions will be especially stark between US and BOJ-ECB, add-ing to USD strength against majors and emerging markets currencies.


GDP 2.2 2.4 2.5 2.5

CPI (average, y/y %) 1.5 1.6 0.5 2.5





FX TECHNICALS

EUR/USD: 1.1250EUR bottomed out at 1.0456 in the mid-dle of March, roughly one week after ECB announced its QE program. The re-bound from the low failed to move above the strong resistance at 1.1530 with a high of 1.1465. However, the up-move from 1.0456 to 1.1465 is likely just the first leg of a corrective recovery which is expected to move above 1.1530 towards 1.1805/10 in the next couple of months. From current level, EUR could trade sideways for several weeks but a clear break above 1.1530 could lead to a quick move to 1.1805/10 (38.2% retracement of the drop from 1.3995 to 1.0456). The less likely scenario is for a break below 1.0750 which would signal a retest of the year’s low at 1.0456.

USD/SGD: 1.3330While USD/SGD has likely made a ma-jor bottom at 1.3150 in late April, the up-move from the low is viewed as part of a broad sideway consolidation range and not the start of a sustained up-move. The drop from the early June high of 1.3635/40 high may extend lower to 1.3200 but a move below 1.3150 appears unlikely in the next few months. Overall, we expect this pair to trade between 1.3200 and 1.3640 and only a clear break above 1.3640 would indicate the start a sustained rally to 1.3750/1.3800.

AUD/USD: 0.7720AUD made a low of 0.7535 in late March before rebounding to touch a high of 0.8165. The messy price action sug-gests that the movement is likely part of a corrective recovery phase. In view of the sharp decline since the middle of last year, the recovery appears incomplete and could extend higher to the major 0.8295/00 resistance. In other words, while the longer term outlook for AUD still appears to be bearish, further AUD weakness is likely only after the correc-tion phase is over.


FX TECHNICALS

GBP/USD: 1.5840 The failure to break above the major 1.5815/20 resistance in May resulted in sharp pull-back to a low of 1.5170. How-ever, the subsequent sharp rise from the low is accompanied by impulsive upward momentum and the clear break above 1.5820 suggests further upward pressure in the next couple of months. The next key level is at 1.6188 which is the 61.8% retracement of the drop from 1.7192 to 1.4565. From current level, any pull-back is expected to hold above 1.5490 and the 1.5170 low is unlikely to come under threat in the next few months.

USD/JPY: 123.10 USD dropped sharply after making a high of 125.85 in early June. Not only is the upward momentum waning, the strongly rally from Aug 2014 is clearly over-ex-tended. From the current level of 123.10, a move lower to test the 118.10 support will not be surprising but any weakness is viewed as corrective pull-back and not the start of a major reversal. Overall, we expect 125.85 to cap for the early part of Q3 but at this stage, a sustained move below 118.10 appears unlikely.

EUR/SGD: 1.5200 The rebound from the low of 1.4350 in April is likely part of a corrective rebound that is expected to extend higher to the strong resistance zone at 1.5540/1.5618 (minor peak in February as well as 38.2% retracement of the drop from 1.7670 to 1.4350). In view of the patchy upward momentum, a clear break above this resistance zone is not expected, at least not in Q3. On the downside, an unexpected break below 1.5000 would indicate a retest of 1.4640 low before a stronger recovery can be expected.


GBP/SGD: 2.1100 After making a low of 1.9900 in early April, GBP staged a remarkable rally that took out the major mid-term resistance at 2.1065. Strong and impulsive up-ward momentum suggests further GBP strength in the coming quarter. The obvi-ous target is at the 2014 peak of 2.1425. In order to maintain the current momen-tum, any pull-back should hold above the 2.0840 support.

FX TECHNICALS

AUD/SGD: 1.0330 AUD traded in a choppy manner in Q2 by swinging from a high of 1.0805 to 1.0240 before retesting the 1.0800 level. The subsequent drop from the high is ap-proaching 1.0240 one more time. While a break below 1.0240 will not be surpris-ing, this is likely only at a later stage. From the current level of 1.0320, we pre-fer to see another attempt to 1.0800/05 before a deeper down-move to 1.0020 can be expected.

JPY/SGD: 1.0840While the sharp drop in JPY from the 1.1540 high in early April is oversold, it is too early to expect a significant rebound. However, waning downward momentum suggests that any further down-move is likely limited to 1.0650 where the risk of a stronger rebound will increase. On the upside, 1.1000 is a strong resistance ahead of the key level of 1.1155.


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UOB Venture Management Private Limited(a subsidiary)80 Raffles Place, #30-20UOB Plaza 2Singapore 048624Phone: (65) 6539 3044Fax: (65) 6538 2569Email: [email protected]

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MalaysiaUOB Asset Management (Malaysia) Berhad(a subsidiary)Level 22, Vista Tower, The Intermark348 Jalan Tun Razak50400 Kuala Lumpur, MalaysiaPhone: (60)(3) 2732 1181Fax: (60)(3) 2732 1100Email: [email protected]: www.UOBAM.com.my

TaiwanUOB Investment Advisor (Taiwan) Ltd(a subsidiary)Union Enterprise Plaza, 16th Floor109 Minsheng East Road, Section 3Taipei 10544Phone: (886)(2) 2719 7005Fax: (886)(2) 2545 6591Email: [email protected]

ThailandUOB Asset Management (Thailand)Co. Ltd.(a subsidiary)Asia Centre Building, 23A, 25th Floor173/27-30, 32-33 South Sathon RoadThungmahamekSathon, Bangkok 10120Phone: (66)(2) 786 2000Fax: (66)(2) 786 2377Website: www.UOBAM.co.th

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MONEY MARKET

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STOCKBROKING

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Disclaimer

This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and area subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and account-ing characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise.


GLOBAL ECONOMICS & MARKETS RESEARCH

Jimmy Koh Head of Research

(65) 6598 [email protected]

Suan Teck Kin, CFASenior Economist


Alvin LiewSenior Economist


Julia GohSenior Economist(60)3 2776 9233

[email protected]

Lee Sue AnnEconomist


Ho Woei ChenEconomist


Manop UdomkerdmongkolEconomist

(66)0 2343 [email protected]

Francis TanEconomist


Quek Ser LeangMarket Strategist


Victor Yong Tze ChowInterest Rate Strategist


More reports available on:URL: www.uob.com.sg/research

Email: [email protected]: UOBR

MCI (P) 166/04/2015


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Singapore focus I: Singapore focus II: China focus I ... · cal support in China and financing...

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