Anda di halaman 1dari 16

Is Korea the new safe haven?

Focus: Is Korea the new safe haven?

THURSDAY 12 SEPTEMBER 2013

EDITOR Sean Yokota


Head of Asia Strategy

Koreas performance across asset classes has been resilient in the last two months, while sean.yokota@seb.se many in emerging markets have suffered. Koreas equity market, Kospi is up almost 5% and +65 6505 0583 the Korean Won has strengthened versus the USD in similar amount as you can see in Chart 1. In the bond market, Korean yields have increased by a smaller amount than US Treasuries (Chart 2). Is Korea the new safe haven? We dont think so.

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

1) Performance a) The cyclical Korea and Taiwan continue to outperform. They lagged the region over the last 12 months and were likely the least crowded. China is rebounding. Indonesia has finally started adjusting the spot market and hiking interest rates. It has taken the first step towards improvement b) Indias rates have broken the trend from favorable monetary policies. c) Yields are steepening from rise in US longer term yields but we think this will start to flatten where short term rates need to rise to stem capital outflows.

2) Forwards Carry is falling in most places as risk off sentiment eases. CNY NDF carry has fallen from a move lower in fixing. Going long CNY onshore looks attractive. TWD and PHP negative carry has increased as sentiment improves on these two currencies.

3) Volatility - Vol and carry are moving in different directions, which typically means that vol is too high, especially in IDR and INR.

You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changes may be made to opinions or information contained herein without notice.

Asia Strategy Focus

Focus: Is Korea the new safe haven?


Koreas performance across asset classes has been resilient in the last two months, while many in emerging markets have suffered. Koreas equity market, Kospi is up almost 5% and the Korean Won has strengthened versus the USD in similar amount as you can see in Chart 1. In the bond market, Korean yields have increased by a smaller amount than US Treasuries (Chart 2). Is Korea the new safe haven? We dont think so.

Chart 1: Koreas currency and equity are performing well


(%) 15 10 5 0 (5) (10) (15) (20) TRY PHP BRL INR EUR ZAR TWD KRW SGD CNY THB JPY MYR IDR FX vs USD Equity change from 28/06 to 06/09

Chart 2: Bond yields have not risen as much


200 150 100 50 0 (50) IDR AUD KRW TRY UST Bunds ZAR MYR TWD THB CNY SGD PHP INR BRL JPY 5 y ear rate change (bp) change from 28/06 to 06/09

Source: Bloomberg, CEIC, SEB

Credit is due
Korea is superior to other emerging markets on several dimensions. First, looking at the balance of payment flows, Korea runs a strong current account surplus and that surplus has been growing as you can see from the blue line in Chart 3. The possible US Federal Reserve tapering of monetary policy is leading to capital outflows but Korea can offset them via the current account. Second, Korea hasnt experienced strong capital outflows because foreign positioning in the equity and bond market has been low. In the government bond market, foreigners own only about 16% of the market compared to Australia at close to 70%, Malaysia at 43% and Indonesia at 31%. In Korea, foreigners have hardly sold their bond holdings as you can see from the green line in Chart 4. On equities, foreigners had been reducing their holdings in the first half of the year (blue line, Chart 4) largely from the strong equity performance in Japan. Japan and Korea compete head-on in industries such as autos, construction and shipbuilding and we think many had rebalanced away from Korea to Japan. Furthermore, in the last two months, Yen and Nikkei performance has eased and there is again a re-accumulation of Korean equities.
Chart 3: Koreas current account surplus growing
6 5 4 3 2 1 0 01 02 03 04 05 06 07 08 09 10 11 12 13 Current Account % of GDP

Chart 4: Positioning on the light side


10 8 6 4 2 0 -2 -4 -6 Dec12 Jan13 Equity Feb- Mar13 13 Apr- May13 13 Jun13 Bonds Jul13 Aug13 Sep13 Net Foreign Purchases KRW trn 10d roll sum

Source: Bloomberg, CEIC, SEB

Asia Strategy Focus

Tailwinds to subside
We dont think these are sustainable trends. First, we think the current account surplus will likely fall. The favorable current account position came from improved trade balance from exports recovering faster than imports. We think this happened because Korea has had relatively higher inventory relative to production as you can see from Chart 6, which allowed Korea to export without importing too many inputs. However, in the coming months, we expect inventories to decrease from continued increase in demand, raise import growth and narrow the trade surplus. Second, we think the Japanese Yen will continue to weaken and the Nikkei will march higher and again compete for capital flows. Japan continues to run very loose monetary policy and they are ready to do more fiscal and monetary stimulus with any blip in the equity market or growth outlook. We are already seeing the commitment by the Japanese authorities with the proposed increase in the consumption tax scheduled for April of 2014. The government already plans to implement fiscal stimulus to cushion the fall in consumption. If the fiscal stimulus is not enough, Bank of Japan is ready to implement more monetary easing if the inflation and growth outlook weakens. This type of policy stance by Japan becomes headwinds for Korean assets to outperform. At least, it calls for a reduction in the strong equity inflows weve seen in the last 2 months.

Chart 5: Its a 2 month phenomenon


20 15 10 5 0 (5) (10) (15) (20) (25) (30) -3 -3 -4 -6 2 0 % ytd FX vs USD equity

Chart 6: High inventory means less imports


130 120 110 100 90 Korea 2010=100

-9 -10 -13 -15 -16 -17 -18 -20

80 70 60 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Production Inventory Jul-11 Jul-12 Jan-11 Jan-12 Jan-13 Jul-13

TRY

EUR

PHP

BRL

IDR

KRW

TWD

SGD

CNY

THB

Source: Bloomberg, CEIC, SEB

In summary, we think rest of Asia and emerging markets will either catch up to Korea or Korea will start under-performing. We dont recommend chasing the move lower in USD/KRW.

MYR

ZAR

JPY

INR

Asia Strategy Focus

Asia FX View Summary


China (CNY, CNH)
Macro: The economy is again running on all engines. We see 3 drivers to the Chinese economy a) external demand through exports b) domestic demand measured through construction and c) monetary policy. They were all turning lower in the first half of the year but all three are again turning up. First, exports had been decelerating since authorities have clamped down on over billing of exports to take advantage of RMB appreciation. However, this impact is waning and with improved outlook in Europe and US, exports took a bounce higher in July and August and we expect it to continue. Second, the biggest change we saw was in domestic demand where our SEB China Construction Indicator had turned down (Chart 10), signalling a slowdown. However, this has turned in July/August and we are seeing some specific relaxing of property measures (e.g. Wenzhou). Property prices continue to rise about 0.8% a month. Lastly, monetary contraction appears to be ending (Chart 11). The liquidity crunch in interbank market has subsided and interest rate sensitive non-bank lending has stabilized. Hence with 3 out of 3 drivers stabilizing, we think the risk for growth is to the upside going forward. FX: USDCNY fixing, set by the policymakers have been stable. We think the currency is acting as a nominal anchor of stability while the authorities reform the domestic financial market, which increases volatility in interest rates, credit growth and equity markets. In addition, the potential change in US Fed policy is increasing global currency volatility and China doesnt want to inherit that volatility. Lastly, Chinas real rates have risen with US real rates and CNY should outperform other Asian currencies. We think NDF will outperform CNH in a period of USD strength and global deleveraging from higher US Treasury yields. CNH underlying performance such as bonds is weakening and with an open capital account for CNH products, it will sell-off more than the fixing sensitive NDF market. We have a short USD/CNY 1 month NDF position in our Asia FX Portfolio.
Chart 10: Construction rollover is stabilizing
50 % yoy 3mma 40
1.5

Chart 11: Monetary tightening is subsiding


2.0 RMB trn 3mma New Total Financing New Bank Lending

SEB China construction indicator

30 20 10 0 -10 -20 07 08 09 10 11 12 13
0.5 1.0

0.0 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13

Source: Bloomberg, CEIC, SEB

Hong Kong (HKD)


We dont like HKD and look to use it as a hedge for USD strength. USDHKD is trading at the very bottom of the peg at 7.75 and cannot get any stronger from a more positive macro environment. Hong Kong inherits US interest rate policy from the peg to the USD and low rates have pushed up asset prices in Hong Kong. Chinas growth and return of CNY appreciation has also helped Hong Kong. However, there are risks that HKD can weaken. One, as the US economy recovers, Feds balance sheet can be reduced and US yields may rise further. The rise in rates through the peg will pressure Hong Kong rates to rise and lower Hong Kong priced assets. Both of these will make HKD weaker. Furthermore, long USDHKD can act as hedge if China or general global risk re-emerges. Long USDHKD is also a small positive carry hedge.

Asia Strategy Focus

India (INR)
Macro: India is and has been about the current account deficit and inflation. Despite a slowdown in the domestic economy, imports have not slowed enough and the current account deficit remains large. Imports and the trade deficit remain high from populist policies such as subsidize fuel prices that have prevented price responses on demand. In a world of volatile capital flows from US monetary policy pushing up global yields and cost of funding, current account deficit economies like India become vulnerable. This is also preventing the central bank from cutting interest rates to reignite the economy since higher rates are needed to prevent capital outflow. Lastly, inflation was heading lower but that appears to have stopped. Global disinflation has also stopped and prevents the chances of big monetary stimulus by the central bank.

FX: INR has depreciated by over 20% this year. RBI and the government has been passed multiple measures to prevent further weakness in INR by reducing gold imports, implementing partial capital controls and reducing fuel subsidies but they dont address Indias core issue of weak exports relative to its strong demand for oil and imports. The new RBI Governor, Raghuran Rajan has set some new guidelines, which have helped stabilize INR short term. However, as long as US yields continue rising and the government doesnt tackle the fiscal and growth issues, INR will continue to be under pressure.
Chart 12: No reprieve in trade deficit
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 -20 -22 05 bn USD

Chart 13: Indias inflation easing


12 10 8 6 4 2 0 -2 3mma yoy % 12 10 8 6 4 2 0 -2 US PPI WPI India -4 -6 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Trade Balance ex oil 06 07 08 09 10 11 12 13

-4 -6

Source: Bloomberg, CEIC, SEB

Indonesia (IDR)
Macro: The cyclical growth has peaked. Indonesia benefited from a clean balance sheet allowing for credit growth that generated domestic demand (Chart 14). However, credit growth will slow as the central bank is forced to hike interest rates to prevent capital outflow and rise in inflation from fuel price hikes by 44%. This combination of tighter policy and higher fuel prices is positive long term but short term will crimp economic activity. Indonesia is likely taking the cue from India where combination of subsidized fuel and current account deficit can lead to a sudden capital outflow and destabilize the economy. FX: The spot market, which was stable from central bank intervention, is slowly moving upwards with the NDF market. IDR NDF weakened due to risk aversion and investors hedging their FX exposure of their bond holdings. The NDF now provides attractive yields to go long IDR but we remain sidelined since EM local currency bond index shows that year to date as turned negative and almost erasing the gains from 2012. Redemption pressures are on the rise and investors may have sell the underlying bonds than just hedge their FX exposure, which can hurt the spot market and lead to further sell-off in the NDF market. In addition, BI is finally letting spot move upwards since protecting the currency is draining their FX reserves. We expect 50bps more hikes in the next 6 months from BI to protect the currency.
Chart 14: Strong loan growth
45 40 35 30 25 20 15 10 5 0 03 04 05 06 07 08 09 10 11 12 13
5 4 3 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-13

Chart 15: Hiking started


10 9 8 7 6 JIBOR overnight rate Policy rate FASB

Loan grow th % yoy

Source: Bloomberg, CEIC, SEB

Asia Strategy Focus

Korea (KRW)
Macro: If Mr. Bernanke is right and the US economy recovers, this should help Korea and exports. However, the domestic recovery will be slower because of Koreas high private debt. As Chart 16 shows, Korea has one of the highest private debt levels in the world. The high debt is the result of relying on credit to sustain a high growth level. With everyone leveraged up, trend domestic growth will likely fall since Korea has limited room to borrow and grow. In addition, Korea will likely have lower inflation. With less investment, demand for funding will decrease and creates excess savings, which will drive interest rates lower. By identity, this should also keep the current account surplus stable. FX: see focus above.
Chart 16: High private debt level
200 150 100 50 0 India Singapore Philippines Indonesia US Korea Malaysia Thailand Japan China Brazil EU debt % of GDP Corp Debt Household Debt

Chart 17: Yield differential will hit KRW


3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 05 06 07 08 09 10 11 12 13 US Korea 5 year yield spread 100bps

Source: CEIC, SEB

Malaysia (MYR)
Malaysias economy will go through a mild slowdown from fiscal contraction. Prime Minister Najib gave cash handouts to influence the last election and now those impacts will weigh on growth. We would also watch for him to pass unfavourable but positive long term economic measures. He raised the fuel prices by almost 10% this month, which is a start. Over the medium term, we expect Najib to continue with his liberalization plans and especially help the equity market. Malaysias equity market is often expensive since domestic funds and public institutions buy and hold Malaysian stocks, which make foreigners reluctant to buy as it is overpriced and discourages Malaysian companies from aggressively increase profitability. With domestic institutions divesting, that will force more foreign inflows and should lead to more efficient Malaysian companies. MYR has been hurt from USD strength and rising US yields. It has also been hit from rapid reduction in the current account surplus. However, with the export outlook improving, Chinas domestic demand recovering and fuel price hikes to limit imports, we think MYR can outperform in Asia.

Philippines (PHP)
Philippines had grabbed the attention of many investors from strong performance in the equity, bond and currency market. Low inflation, abundant global liquidity and credit growth was helping domestic demand. Philippines has also recently received a rating upgrade to investment grade by S&P and Fitch and becomes another support for PHP. We are worried short term about PHP since interest rates are very low and unlike Indonesia, the central bank is not turning hawkish to prevent capital outflow. We are short PHP vs USD.

Singapore (SGD)
Singapore looks to be turning better. Exports and growth have finally turned where 2Q GDP accelerated to 3.8%yoy from 0.2%. Inflation has eased from over 5% in the middle of 2012 to below 2%. Inflation is mostly housing and autos (autos are inflated by increased auction price to own a car) and for housing, more cooling measures have been introduced such as increasing stamp duty on home purchases by 5-7 percentage points. Singapores inflation was outpacing its trading partners but it has converged (Chart 20). We think Singapore will join China and choose to sacrifice high growth for a stronger currency. Growth is recovering but will not reach the previous levels of close to 10% and settle around 4-5%. Inflation has eased but will likely pick up since strict immigration policies will keep underlying inflation in tact. SGD NEER is trading 120bp above mid and looks too expensive currently but we would recommend buying on dips.

Asia Strategy Focus

Chart 20: Singapores high inflation easing towards Asia avg


8 6 4 2 0 -2 08 09 10 11 12 13 CPI % yoy Singapore Asia Average

Chart 21: SGD NEER strong


123 122 121 120 119 118 117 116 115 114 113 112 SGD NEER

Source: CEIC, Bloomberg, SEB

Taiwan (TWD)
Taiwan should benefit from an export recovery in the US heading into year end and the tech heavy equity market should receive foreign inflow and the economy should continue to recover. Unlike Seoul, Korea, Taipei property prices are still growing around 8%yoy and credit growth is above 10%yoy. The domestic economy is strong considering exports are still at the early stages of a recovery. TWD has a two step appreciation process in a cycle. Appreciation at the beginning of the cycle is slow while inflation is low and accelerates towards the end of the cycle once interest rate hikes are well underway. We think the approach will be similar this time around. Inflation is currently running low (Chart 22) as the effects of a one time boost in energy prices in early 2012 wear off and reduce the need for currency appreciation. In this environment of USD strength and capital outflow, TWD will weaken but relative to other currencies such as KRW, We think TWD can outperform.

Thailand (THB)
Similar to Philippines, Thailand has caught investor interest from a stellar equity performance in 2013. This made sense since Thailand was experiencing a) a V shaped recovery early in the year post the floods b) fiscal boost from a minimum wage hike and reduction in the corporate tax rate to 23% from 30% and c) light foreign positioning since Thailand only started receiving flows post the election of Prime Minister Yingluck Shinawatra in July 2011 that that removed the political uncertainty. However, the currency has lagged the equity performance since the floods required increase in imports for reconstruction and hurt the trade balance and periodically put Thailand in a current account deficit (Chart 23). Going forward, we think THB will be the more vulnerable currency in the region since it has very little support from the current account and deleveraging can lead to capital outflow. We would change our minds if the central bank started to sound more hawkish but that has yet to happen.
Chart 22: Taiwan: lower inflation = less TWD appreciation
30 25 20 15 10 5 0 -5 -10 06 07 08 09 10 11 12 13 Credit% yoy 3mma Taipei Property prices

Chart 23: Thailand: trade balance will improve


70 60 50 40 30 20 10 0 -10 -20 -30 -40 07 % y oy 3mma bn USD Trade Balance (RHS) Ex ports (LHS) Imports (LHS) 7 6 5 4 3 2 1 0 -1 -2 -3 -4

Source: Bloomberg, CEIC, SEB

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

08

09

10

11

12

13

Asia Strategy Focus

FX Tracker

Performance
What stands out? 1) The cyclical Korea and Taiwan continue to outperform. They lagged the region over the last 12 months and were likely the least crowded. China is rebounding. Indonesia has finally started adjusting the spot market and has taken the first step towards improvement 2) Indias rates have broken the trend from favorable monetary policies. Indonesia started hiking interest rates and yields are rising. We think it still has further to rise. 3) Yields are steepening from rise in US longer term yields but we think this will start to flatten where short term rates need to rise to stem capital outflows.
Chart 30: Currencies
4 3 2 1 0 (1) (2) (3) (4) (5) (6) (7) (8) (9) (% v s USD) 1M change from 12/08 to 10/09

Chart 31: Equity markets


10 8 6 4 2 0 (2) (4) (6) (8) (10) (%) 1M return from 12/08 to 10/09

HSCEI

SHCOMP

TWSE

HSI

STI

KLCI

SENSEX

MSCIAxJ

ADXY

DXY

TWD

CNH

PHP

KRW

AUD

SGD

THB

CNY

EUR

Chart 32: 5 year rates


(bp) 100 80 60 40 20 0 (20) (40) IDR PHP KRW AUD Bunds MYR UST TWD THB CNY SGD JPY INR 1M change from 12/08 to 10/09

MYR

JPY

INR

IDR

Chart 33: 2 year rates


(bp) 100 80 60 40 20 0 (20) (40) (60) PHP IDR KRW AUD Bunds MYR UST CNY TWD THB SGD JPY INR 1M change from 12/08 to 10/09

Chart 34: 2 year 5 year slope


(bp) 35 30 25 20 15 10 5 0 (5) IDR AUD KRW UST Bunds MYR TWD SGD THB PHP INR JPY CNY 1M change from 12/08 to 10/09

Chart 35: Commodities


(%) 10 8 6 4 2 0 (2) Nat gas Palm oil Oil brent Gold -1.4 Copper 3.2 2.1 1.9 8.3 1M change from 12/08 to 10/09

Source: Bloomberg, SEB

Euro Stoxx

PCOMP

Nikkei

Kospi

SPX

SET

JCI

Asia Strategy Focus

Forwards
Chart 41: 3 month implied carry annualized vs. 1 month ago vs USD
16 14 12 10 8 6 4 2 0 (2) (4) IDR HKD KRW CNH CNY MYR EUR TWD THB AUD SGD PHP INR JPY (%) 9/10/2013 8/12/2013 change ov er the last 1mth, (rhs) (ppts) 3 2 1 0 (1) (2) (3)

What stands out? Carry is falling in most places as risk off sentiment eases. CNY NDF carry has fallen from move lower in fixing. Going long CNY in onshore looks attractive. TWD and PHP negative carry has increased as sentiment improves on these two currencies.

Chart 42-1: CNH Outright


6.27 6.22 6.17 6.12 6.07 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 42-2: CNH forward fwd curve


2.50 2.00 1.50 1.00 0.50 0.00 1M 3M 6M 9M 12M
(%)

Chart 42-3: CNH forward fwd curve ann.


3.0 2.5 2.0 1.5 1.0 0.5 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )
(%)

Current (10-Sep ) 1-mth ago (12-Aug )

Chart 43-1: CNY NDF Outright


6.28 6.26 6.24 6.22 6.20 6.18 6.16 6.14 6.12 6.10 Spot 1M 3M

Chart 43-2: CNY NDF fwd curve


2.0 1.5 1.0
( %)

Chart 43-3: CNY NDF fwd curve ann.


2.5 2.0 1.5
( %)

Current (10-Sep ) 1-mth ago (12-Aug )

Current (10-Sep ) 1-mth ago (12-Aug )

Current (10-Sep ) 1-mth ago (12-Aug )

1.0 0.5 0.0 1M 3M 6M 9M 12M 1M 3M 6M 9M 12M

0.5 0.0

6M

9M

12M

Chart 44-1: CNY Onshore Outright


6.27 6.24 6.21 6.18 6.15 6.12 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 44-2: CNY onshore fwd curve


2.0 1.5 1.0
( %)

Chart 44-3: CNY onshore fwd curve ann.


2.5 2.0 1.5 1.0 Current (10-Sep ) 1-mth ago (12-Aug )
(%)

Current (10-Sep ) 1-mth ago (12-Aug )

0.5 0.0 1M 3M 6M 9M 12M

0.5 0.0 1M 3M

6M

9M

12M

Source: Bloomberg, SEB

Asia Strategy Focus

Chart 45-1: HKD Outright


7.77 Current (10-Sep ) 1-mth ago (12-Aug )

Chart 45-2: HKD forward fwd curve


0.00 ( %) -0.02 -0.04 -0.06 -0.08 Current (10-Sep ) 1-mth ago (12-Aug ) 1M 3M 6M 9M 12M

Chart 45-3: HKD forward fwd curve ann.


0.00 -0.02 -0.04 -0.06 -0.08 -0.10 -0.12 -0.14 1M 3M 6M 9M 12M
( %)

7.76

Current (10-Sep ) 1-mth ago (12-Aug )

7.75

7.74 Spot 1M 3M 6M 9M 12M

-0.10

Chart 46-1: IDR Outright


13,000 12,000 11,000 10,000 9,000 8,000 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 46-2: IDR forward fwd curve


14.0 (%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 46-3: IDR forward fwd curve ann.


30.0 (%) 25.0 20.0 15.0 10.0 5.0 0.0 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 47-1: INR Outright


73 68 63 58 53 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 47-2: INR forward fwd curve


10 8 6 4 2 0 1M 3M 6M 9M 12M
(%)

Chart 47-3: INR forward fwd curve ann.


14 12 10 8 6 4 2 0 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )
( %)

Current (10-Sep ) 1-mth ago (12-Aug )

Chart 48-1: KRW Outright


1,140 1,130 1,120 1,110 1,100 1,090 1,080 1,070 1,060 Spot 1M 3M

Chart 48-2: KRW forward fwd curve


2.00 1.50 1.00
Current (10-Sep ) 1-mth ago (12-Aug ) 6M 9M 12M
( %)

Chart 48-3: KRW forward fwd curve ann.


5.0 4.0 3.0 2.0
( %)

Current (10-Sep ) 1-mth ago (12-Aug )

0.50 0.00 1M 3M

Current (10-Sep ) 1-mth ago (12-Aug ) 6M 9M 12M

1.0 0.0 1M 3M 6M 9M 12M

Source: Bloomberg, SEB

10

Asia Strategy Focus

Chart 49-1: MYR Outright


3.37 3.32 3.27 3.22 3.17 3.12 3.07 3.02 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 49-2: MYR forward fwd curve


2.5 2.0 1.5 1.0 0.5 0.0 -0.5 1M 3M 6M 9M 12M
(%)

Chart 49-3: MYR forward fwd curve ann.


3.0
( %)

Current (10-Sep ) 1-mth ago (12-Aug )

2.0 1.0 0.0 -1.0 -2.0 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 50-1: PHP Outright


44.0 43.9 43.8 43.7 43.6 43.5 43.4 Spot 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )

Chart 50-2: PHP forward fwd curve


0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 1M 3M 6M 9M 12M
( %)

Chart 50-3: PHP forward fwd curve ann.


1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 1M 3M 6M 9M 12M Current (10-Sep ) 1-mth ago (12-Aug )
(%)

Current (10-Sep ) 1-mth ago (12-Aug )

Chart51-1: SGD Outright


1.269 1.267 1.264 1.261 1.259 1.256 Spot Current (10-Sep ) 1-mth ago (12-Aug ) 1M 3M 6M 9M 12M

Chart 51-2: SGD forward fwd curve


0.00 -0.02 -0.04 -0.06 -0.08 1M Current (10-Sep ) 1-mth ago (12-Aug ) 3M 6M 9M 12M
( %)

Chart 51-3: SGD forward fwd curve ann.


0.00 -0.02 -0.04 -0.06 -0.08 1M 3M 6M 9M 12M
(%)

Current (10-Sep ) 1-mth ago (12-Aug )

Chart 52-1: THB Outright


33.5 33.0 32.5 32.0 31.5 31.0 30.5 30.0 Spot 1M 3M Current (10-Sep ) 1-mth ago (12-Aug ) 6M 9M 12M

Chart 52-2: THB forward fwd curve


3.0 2.5 2.0 1.5 1.0 0.5 0.0 1M 3M 6M 9M 12M
( %)

Chart 52-3: THB forward fwd curve ann.


5.0 4.0 3.0 2.0 1.0 0.0 1M 3M 6M 9M 12M
( %)

Current (10-Sep ) 1-mth ago (12-Aug )

Current (10-Sep ) 1-mth ago (12-Aug )

Source: Bloomberg, SEB

11

Asia Strategy Focus

Chart 53-1: TWD Outright


30.5 30.0 29.5 29.0 28.5 Spot 1M 3M 6M 9M 12M Current (20-Aug ) 1-mth ago (19-Jul )

Chart 53-2: TWD forward fwd curve


0.00 -0.20 -0.40 -0.60 -0.80 -1.00 1M Current (20-Aug ) 1-mth ago (19-Jul ) 3M 6M 9M 12M
( %)

Chart 53-3: TWD forward fwd curve ann.


0.0 -0.5 -1.0 -1.5 -2.0 -2.5 1M 3M 6M 9M 12M Current (20-Aug ) 1-mth ago (19-Jul )
(%)

Chart 54-1: EUR Outright


1.340 1.330 1.320 1.310 1.300 Spot 1M 3M Current (20-Aug ) 1-mth ago (19-Jul ) 6M 9M 12M

Chart 54-2: EUR forward fwd curve


0.00 -0.05 -0.10 -0.15 -0.20 -0.25 1M Current (20-Aug ) 1-mth ago (19-Jul ) 3M 6M 9M 12M
( %)

Chart 54-3: EUR forward fwd curve ann.


-0.10 -0.12 -0.14 -0.16 -0.18 -0.20 -0.22 1M Current (20-Aug ) 1-mth ago (19-Jul ) 3M 6M 9M 12M
(%)

Chart 55-1: JPY Outright


101.0 100.0 99.0 98.0 97.0 96.0 95.0 94.0 Spot 1M 3M 6M 9M 12M Current (20-Aug ) 1-mth ago (19-Jul )

Chart 55-2: JPY forward fwd curve


0.0 -0.1 -0.2 -0.3 -0.4 1M Current (20-Aug ) 1-mth ago (19-Jul ) 3M 6M 9M 12M
( %)

Chart 55-3: JPY forward fwd curve ann.


-0.1 -0.2 -0.2 -0.3 -0.3 -0.4 -0.4 1M Current (20-Aug ) 1-mth ago (19-Jul ) 3M 6M 9M 12M
( %)

Chart 55-1: AUD Outright


0.92 0.91 0.90 0.89 0.88 0.87 0.86 Spot 1M 3M 6M 9M 12M Current (20-Aug ) 1-mth ago (19-Jul )

Chart 55-2: AUD forward fwd curve


3.0 2.5 2.0 1.5 1.0 0.5 0.0 1M 3M 6M 9M 12M
( %)

Chart 56-3: AUD forward fwd curve ann.


2.8 2.6 2.4 2.2 2.0 1M 3M Current (20-Aug ) 1-mth ago (19-Jul ) 6M 9M 12M
( %)

Current (20-Aug ) 1-mth ago (19-Jul )

Source: Bloomberg, SEB

12

Asia Strategy Focus

Volatility
Chart 60: 3 month annualized implied volatility
20 18 16 14 12 10 8 6 4 2 0 (2) (4) (%) (ppts) 9/10/2013 8/12/2013 change ov er the last 1mth, (rhs) 8 7 6 5 4 3 2 1 0 (1) (2)

What stands out? Vol and carry are moving in different directions, which typically means that vol is too high, especially in IDR and INR.

KRW

TWD

AUD

PHP

THB

SGD

CNH

IDR

INR

Chart 61: CNH


3.0 2.5 2.0 1.5 1.0 0.5 0.0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

MYR

Chart 62: CNY NDF


2.5 2.0 1.5 1.0 0.5 0.0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

CNY

JPY

EUR

Chart 63: HKD


1.0 0.8 0.6 0.4 0.2 0.0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 64: IDR


25 20 15 10 5 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 65: INR


25 20 15 10 5 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 66: KRW


16 12 8 4 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 67: MYR


12 9 6 3 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
Source: Bloomberg, SEB

Chart 68: PHP


Realized

Chart 69: SGD


Implied Realized
10 8 6 4 2 0 Implied Realized

Implied

10 8 6 4 2 0

Sep-12 Dec-12 Mar-13

Jun-13 Sep-13

Sep-12 Dec-12 Mar-13

Jun-13 Sep-13

13

Asia Strategy Focus

Chart 70: THB


10 8 6 4 2 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 71: TWD


8 6 4 2 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 72: EUR


12 9 6 3 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Implied Realized

Chart 73: JPY


20 15 10 5 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13

Chart 74: AUD


15 12 9 6

Implied

Realized

3 0

Implied

Realized Jun-13 Sep-13

Sep-12 Dec-12 Mar-13

Source: Bloomberg, SEB

14

Asia Strategy Focus

Forecasts
FX USD/CNY USD/CNH USD/HKD USD/IDR USD/INR USD/KRW USD/MYR USD/PHP USD/SGD USD/THB USD/TWD EUR/USD USD/JPY EUR/SEK EUR/NOK USD/SEK USD/NOK AUD/USD Policy Rates CH lending CH deposit KR IN ID MA PH TH TW Spot 6.12 6.12 7.76 11649 66.1 1096 3.31 44.5 1.28 32.4 29.8 1.33 98 8.71 8.08 6.53 6.06 0.89 Current 6.00 3.00 2.50 7.25 7.00 3.00 3.50 2.50 1.88 3M 6.10 6.10 7.80 12000 65.0 1100 3.40 45.3 1.30 33.0 30.2 1.29 102 8.69 7.93 6.78 6.15 0.88 3M 6.00 3.00 2.50 7.50 7.50 3.00 3.50 2.75 1.88 6M 6.08 6.08 7.80 11500 64.5 1080 3.35 45.0 1.28 32.5 30.0 1.27 103 8.65 7.80 6.81 6.14 0.87 6M 6.00 3.00 2.50 7.75 7.50 3.00 3.75 2.75 1.88 9M 6.07 6.07 7.80 11200 63.5 1070 3.35 45.0 1.26 32.0 29.8 1.26 104 8.54 7.75 6.80 6.16 0.87 9M 6.25 3.25 2.50 7.75 7.50 3.25 3.75 3.00 1.88 12M 6.06 6.06 7.80 11000 63.0 1060 3.30 44.5 1.25 31.5 29.6 1.25 108 8.47 7.72 6.79 6.18 0.86 12M 6.25 3.25 2.50 7.50 7.50 3.25 3.75 3.00 2.00

Real GDP % yoy China India Indonesia Korea Singapore US Euro zone Sweden Norway CPI % yoy China India WPI Indonesia Korea Singapore US Euro zone Sweden Norway
Source: Bloomberg, CEIC, SEB.

2011 9.3 7.5 6.5 3.6 5.3 1.8 1.6 3.7 1.2 2011 3.3 9.5 5.1 2.9 2.8 3.1 2.7 3.0 1.2

2012 7.8 5.4 6.2 2.0 1.3 2.8 -0.6 0.7 3.1 2012 3.5 6.5 4.3 2.2 4.5 2.1 2.5 0.9 0.7

2013 7.5 5.0 6.0 2.8 2.6 1.6 -0.5 1.2 1.1 2013 3.3 5.9 6.0 2.6 3.3 1.7 1.5 0.0 2.0

2014 7.4 5.6 5.3 3.6 4.1 3.3 0.8 2.6 2.7 2014 3.5 6.5 5.5 2.6 3.5 1.6 1 1.0 1.8

2015 7.0 6.0 5.5 3.5 4.0 3.7 1.7 3.2 2.3 2015 3.4 6.5 5.5 2.5 3.2 1.7 0.9 2.0 2.3

15

Asia Strategy Focus

DISCLAIMER
This communication is issued by a member of the Trading & Capital Markets department of Skandinaviska Enskilda Banken AB (publ), Singapore Branch (SEB). The information in this communication (the Communication) does not constitute independent, objective investment research, and is not therefore protected by the arrangements which SEB has put in place designed to prevent conflicts of interest from affecting the independence of its investment research. Unless otherwise indicated, any reference to a research report or research recommendation is not intended to represent that report/recommendation and is not in itself considered a recommendation or research report.
This Communication is exclusively intended for institutional investors only (CLIENT) and may not be distributed to any other parties without the prior written consent of SEB. This Communication is intended for informational purposes only. Nothing in this Communication shall constitute an offer or a solicitation of an offer to enter into any transaction, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever. Although SEB has used all reasonable endeavours to ensure that the information presented in this Communication is correct, no representation or warranty is made as to its accuracy, adequacy, completeness, fairness or timeliness of the contents. To the extent permitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this document or its contents. The information contained herein is subject to change without notice and may differ from the views, opinions and estimates held or expressed by other SEB personnel. Any forward-looking statements, opinions, and expectations are subject to risk, uncertainties and other factors that may cause actual results to differ materially from those set forth in any forward-looking statements herein. Past performance is no guarantee of future results. SEB does not express any opinion on legal, tax, accounting or similar consequences of the transactions contemplated by this Communication. CLIENT is strongly advised to inform themselves about, and retain separate expertise in respect of, such consequences. SEB, its affiliates or employees may, to the extent permitted by law, have positions in, buy/sell in any capacity, or otherwise participate in, any financial instrument referred to herein or related securities/futures/options or may from time to time perform or seek to perform investment banking or other services to the companies mentioned herein. SEB makes no warranty that the Communication will not be distorted as a result of technical or other malfunctions, including but not limited to incorrect transfer, technical inadequacies, disconnection, access, tampering and/or alteration by an unauthorised third party. The distribution of this document may be restricted in certain jurisdictions by law, and persons into whose possession this documents comes should inform themselves about, and observe, any such restrictions. Skandinaviska Enskilda Banken AB (publ) is incorporated in Sweden as a Limited Liability Company. It is regulated by Finansinspektionen, and by the local financial regulators in each of the jurisdictions in which it has branches or subsidiaries.

16