『湯正』- Asia Macro and Strategy Outlook

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AsiaMacro and Strategy Outlook: Rising US Rates - How Much Should We Worry?

• This is not your usual Fedexit. Fed policy should adjust from its accommodative stance as the USeconomy recovers, but there are caveats: the Fed exit strategy has shiftedtowards keeping its balance sheet “larger for longer” and our (and market)expectations of Fed Funds adjustment remains more gradual vis-à-vis pastcycles.
• Asia should cyclically benefitfrom DM recovery. EM Asia’s share of USnon-petroleum imports has been stable since 2009 (i.e. Asia is not losingmarket share), and should benefit from a pick-up in US domestic demand, albeitat a lower beta than before. Compared to other EM regions, an IMF study arguesEM Asia’s slowdown is more cyclical than structural, though vulnerability fromChina’s dramatic rise of corporate leverage is a key source of structuralgrowth concern.
• Previous Fed hiking cycles havenot been disruptive from the onset. Whilehistory does not always foretell the future given varying macro situations, wedo not find convincing evidence that Fed hiking cycles have been disruptive tocapital flows into EM from the onset. The 1994 Fed hiking cycle was moredisruptive than the 2004 one, but the disruption on the former centered more onLatAm (in fact, capital flows to EM Asia kept rising well after Feb 1994 hike,fueling a lengthened expansionary credit cycle and external imbalances in EMAsia that led to the Asian financial crisis much later (~13-14 quarters later).The 2004-06 Fed hiking cycle was more benign towards EM growth, with even moreamplified capital flows into EM that were only disrupted much later when the USsubprime crisis hit. The differing EM responses to the Fed hiking cycle couldbe attributed to better Fed exit communication and better EM balance sheets in2004 vs. 1994.
• Impact of Fed hiking cycle in2015 needs to be qualified given differing conditions. Asia’s export “beta” to better US growth prospects is weaker now(especially vis-à-vis mid 2000s), BUT beta is still positive. Corporateleverage issues are now more skewed towards CN (fewer issues elsewhere) but, atleast in CN’s case, it still has policy buffers to mitigate the risk of anexternal liquidity shock or abrupt tightening of domestic financial conditions.We see a risk that the Fed hiking cycle will trigger some BoP crisis in Asia asunlikely, given more flexible FX and IR policies and fewer financialimbalances, and serious currency mismatch risk among the “few” Asian CADcountries (e.g. IN & ID). Another risk is on property prices and negativefeedback for domestic demand—a relatively bigger issue in SG.
• MarketOutlook– We are still in acarry-friendly bias, but more selective now. Within Asia FX, we still stickwith overweight on IDR, KRW and MYR, add CNH and pare down INR. On rates, weare wary of chasing KRW rates and stay neutral, alongside INR & IDR bonds,underweight the rest. On external debt, we cut Mongolia even further (after wecut last month) and would substitute it for Sri Lanka.
  

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关键词：Strategy Outlook Strateg outloo Macro