asia in search of low hanging fruit? - ing.com
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February 2018
Asia Research team
Asia – In search of low hanging fruit?
Photo source: Somodevilla/Getty Images
Team, coverage and contacts
2
Rob Carnell - Singapore Chief Economist, and Head Of Research – Asia Pacific (Global / Pan Asia themes, Singapore, Japan, Korea, Australia, New Zealand) robert.carnell@asia.ing.com
Prakash Sakpal - Singapore Economist (India, Malaysia, Thailand) prakash.sakpal@asia.ing.com
Iris Pang – Hong Kong Greater China Economist (Mainland China, Hong Kong, Taiwan) iris.pang@asia.ing.com
Joey Cuyegkeng - Manila Senior Economist (Philippines, Indonesia) joey.cuyegkeng@asia.ing.com
It’s not just about churning out publications: Call us, e-mail us or arrange for one on one visits, or just watch them on TV
3
Asia- in a global context
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2008-2010 2011-2013 2014-2016 2017-2019 (F'casts)
World and Regional GDP
World US Euro area Asia-Pacific
NICE Economy…
4
Non-inflationary – consistently expanding
Globally and regionally, growth is good.
Source: World Bank, ING
And inflation is hardly in evidence…
5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2008-2010 2011-2013 2014-2016 2017-2019 (F'casts)
Global inflation
World US Euro area Asia-Pacific
YoY%
Source: World Bank, ING
6
Asia- regional trends and outlook
7
Trade weighted FX – not many stand-outs
• Most Asian currencies appreciated in 2016 and 2017 on a trade weighted basis • The Philippine peso and Indonesian rupiah stand out as exceptions on the downside • Taiwan dollar and Thai baht appreciated more than the others
85
90
95
100
105
110
115
120
Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17
Trade weighted exchange rates
TW
TH
AU
SG
JP
MY
IN
ID
PH
NZ
8
Real currency valuations – mostly fair
85
90
95
100
105
110
115
120
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
REER North Asia
China Japan Korea Taiwan 85
90
95
100
105
110
115
120
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
REER SE Asia
Indonesia Malaysia Philippines Singapore Thailand
85
90
95
100
105
110
115
120
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Other Asia Pacific
Australia India New Zealand
• There are few stand-out misalignments in Asian FX space
• China could appreciate some more without becoming overvalued
• Malaysia is becoming fair value or maybe now exceeding it…
• Indonesia has declined to approximately fair value
• Philippines looks cheap, Singapore fair value
9
Export competitiveness
• A more direct way to look at competitiveness, and room for CB policy changes is export growth • 2017 export strength was partly a function of 2016 weakness. • Most of ASEAN has seen very robust export growth even accounting for base effects • The export story for Singapore is less impressive - suggests policy hangs in the balance • Indonesia’s exports are not a problem – it is cutting for other reasons • China on the other hand has seen a USD export bounce in line with the decline in 2016 • Taiwan and Korea are the stand-out N Asia economies for export growth • But that could all be about to change…
-10
-5
0
5
10
15
20
Thai Phil Sing Malay Indon
ASEAN Export growth (full year cumulative YoY%*)
2016 2017
-10
-5
0
5
10
15
20
China Hong Kong Japan Taiwan Korea
North Asia Cumulative full year Ytd YoY%
2016 2017
10
Inflation – a mixed bag
• North Asian inflation is stable, and in a Goldilocks range (1-2%) – allowing policymakers to focus on other targets (growth – Korea; deleveraging, de-polluting – China)
• Inflation in SE Asia falls into 2 camps 1. Those for whom inflation is a bit high (Indonesia, Malaysia, Philippines) though typically
inflation targets are also a bit higher 2. And those for whom it is a bit low (Thailand, Singapore)
Likely policy response varies across both groups
-2.0
0.0
2.0
4.0
6.0
8.0
Jan 15May 15Sep 15Jan 16May 16Sep 16Jan 17May 17Sep 17
SE Asia
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17
North Asia
China
Hong Kong
Korea
YoY%
11
Real policy rates – how much policy leeway?
• Real rates for most of Asia are close to zero, and negative for some.
• Positive real rates (China, Philippines, India) probably justified, could rise further
• Negative real rates (Japan, Malaysia) have room to rise
-1
0
1
2
3
4
5
6
7
Policy rates and inflation
Inflation Rates
%
12
Asian growth boom – thanks to oil?
• Asian trade slumped in 2015 / 2016, and the pick up in 2017 has been flattered by what was a very
weak base
• One explanation rests on terms of trade for the oil exporting regions – weak oil prices left them with no
spending power for Asian produced exports
• This is no longer a drag, but how long does it last….?
• If oil resumes its fall, maybe this year but not 2019
-15
-10
-5
0
5
10
15
-60
-40
-20
0
20
40
60
80
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Asian export total and Crude oil Price
Brent crude, lhs
Asian exports, rhs
YoY% YoY%
-15
-10
-5
0
5
10
15
0
20
40
60
80
100
120
140
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18
Asian export total and Crude oil Price
Brent crude, lhs
Asian exports, rhs
$/bbl 3mma YoY%
13
Chips Ahoy! Asia leads Semiconductor surge
0
5
10
15
20
25
30
35
40
10 11 12 13 14 15 16 17
Semiconductor billings
Asia Pacific Japan Americas Europe
Bllions (per month)
Its all Asia
• A good chunk (not much less than 50%) of semiconductor production is coming from China
• Demand led by new generation communications devices / flagships and internet of things
• Handsets could take over from Chips as this product cycle matures
The key events for Asia in 2018/19
14
Indonesia June 2018 elections for 17 regions, 39 cities and 115 districts
Indonesia August 2018 Filing of candidacies for President And Vice President
Indonesia April 2019 National Elections
Philippines May 2019 Mid-term elections
Indonesia Sept/Oct 2019 Run-off elections
India: Legislative assembly elections in eight states in 2018
India: National elections in April-May 2019
Malaysia: General elections to be held by August 2018
Thailand: General elections expected to be held by November 2018, the first since military coup in May 2014
China: CPPCC* and NPC** sessions held 1st week March
* Chinese People’s Political Consultative Conference and ** National People’s Congress
15
Long-run – some good, some bad
0%
20%
40%
60%
80%
100%
1994 1997 2000 2003 2006 2009 2012 2015
Global GDP
US
China
Non-China, non-Japan AsiaJapan
Europe
Middle East AndAfricaLatam
Other
16
Asia – taking over the world
• The US is the world’s largest single economy, and will remain so for many years to come
• But Asia is catching up, especially China
• As a proportion of the global total, the US accounts for only about 20% of total global GDP (measured in USD)
• China accounts for about 12% • And non-China non-Japan Asia about 7%, with
Japan about 5% • Pan-Asia is bigger than either the US or Europe • And as the Middle East declines, the relative
proportion is likely to get bigger still
0
20,000
40,000
60,000
80,000
1994 1997 2000 2003 2006 2009 2012 2015
Global GDP
US
China
Non-China, non-JapanAsiaJapan
Europe
Middle East And Africa
Latam
Other
$UStr
17
Asia – thanks for all the global growth
-1.0
-0.5
0.0
0.5
1.0
1.5
2010 2015 2016
US
China
Non-China, non-Japan
Asia
Japan
Europe
Middle East And Africa
Latam
Contributions to World GDP
Growth (pp)
Trailing 5 year averages
EURUSD rises from 0.85 to 1.60
Regional contribution to global growth (USD terms) pp
Contribution to global growth from China consistently exceeds that of the US
Europe only contributes when EUR surges
Non-China, non-Japan Asia a consistent contributor
18
Growth relative to “expected”
• Using a relative “catch-up” model to gauge how fast Asian countries should grow:
• Over the last 4 years: Most of ASEAN has grown on track, INDON and TH notable underperformers
• SK and HK the Asian outperformers, along with India
• (China outlier)
• Looking at the most recent growth rates:
• Singapore has slipped , as has TW, TH and INDON still underperforming
• JP actually doing OK on latest measures
• India also still outperforming
• China still outlier
y = -1.107ln(x) + 13.199
R² = 0.7168
0
1
2
3
4
5
6
7
8
1000 10000 100000
Asia - relative GDP per capita (4Y avg)
Outperformance
UnderperformanceAusSing
HK
JP
SK
TW
MAL
CH
TH
SRIINDON
VN
IN
PH
MNG y = -1.342ln(x) + 15.31R² = 0.8253
0
1
2
3
4
5
6
7
8
1000 10000 100000
Asia - relative GDP per capita (latest)
Outperformance
UnderperformanceAus
Sing
HKJP
SK
TW
MAL
CH
TH
SRI
INDON
VN
IN
PH
19
Asia – It’s not just Japan that’s ageing!
0 10 20 30 40 50 60 70 80
Philippines
Laos
India
Myanmar
Indonesia
Mongolia
Malaysia
Vietnam
Japan
China
Thailand
Hong Kong
Singapore
Taiwan
Korea
Old Age dependency Ratio Now and in 2030
2030 2015
Wrinkly
Spritely and youthful
20
China – qualitative and quantitative growth
Economy, loan market, bond market, stock market
Nominal GDP
CNY 74.4 trillion in 2016
CNY 82.7 trillion in 2017 +11%
Domestic bond market capitalisation
CNY 49.6 trillion
as of Dec 2017
+11.5%
RMB loan outstanding
Aggregate financing
(incld bank loan, trust loan,
entrusted loans, net chg in bond
and stock capitalization)
CNY 156 trillion in 2016
CNY175 trillion in 2017 +12% SHSZ300
Market capitalization: CNY 11.7 trillion 2017
+27.5% vs 2016
CNY 12.25 trillion as of 11 Jan 2018
(H-share :
HKD 3.1 trillion 2017 +21.8 vs 2016)
CNY 106.6 trillion in 2016 CNY 119.0 trillion in 2017 +13%
3
Source: Bloomberg, ChinaBond.com.cn
Xi has set the scene for China’s economic growth He may be too humble… we believe by 2035 China’s input in international issues would be taken very seriously
6
Expected hurdles from the aggressive plan
23
We are not particularly worried because Xi has consolidated his power, this increases execution ability so the plan can be achieved earlier
Technology needs more infrastructure investment
Preparation stage of being a high tech nation in the area of goods and services consumption and business
This needs a lot of money spending, probably from central and local governments
Other countries could feel the threat
in terms of economy size, development of
technology, and beefing up military power
1st hurdle: Build up of central and local government debt
3rd hurdle: Beware of trade and geopolitical conflicts and military competition
2nd hurdle: Not easy to narrow living standard of urban and rural given the wide gap today
China will face a lot of hurdles to fulfil what it plans
Disposable income was 2.8 times of rural
Consumption was 2.34 times of rural
Slightly higher income growth of 8.7% vs 8.3% in urban
Spending is growing at 8.6% while urban was behind at 6.2%
Urban
Rural
24
With infrastructure investment in the rural region as a supporting pillar
Implication of Xi’s new thought - consumption to drive growth
Consumption • Contributed 59% to GDP
growth
• Retail sales +10.2%
Investment • Contributed 32% to GDP
growth
• Fixed asset investment +7.2% YoY
2017
2017
• Deleveraging to put more pressure on investments in real estate
• But infrastructure investment will fill the gap to support growth
• Increase in consumption has changed growth structure of the Chinese economy from manufacturing driven to service driven
• We project that consumption would increase its contribution to GDP growth to above 75% by end of 2018
Main risk that could hurt consumption (though very unlikely)
• credit crunch that caused massive unemployment
• asset bubble burst reducing wealth accumulation
• Though we do not think a housing bubble burst is a likely scenario, credit deterioration in the manufacturing sector and the complex relationship between corporate bonds & loans and wealth management products should be a concern if deleveraging is either too fast or too slow
Forecasts China GDP to grow 6.8% in 2018 because we expect the service sector would continue to outgrown investment.
25
At the same time, corporate default cases would still be a headache in terms of possible contagion
Xi’s new thought needs leverage from government
China’s high leverage problem originates from corporates but will move towards government in order to fulfil Xi’s plan
Although household debt rose due to increase in property investment the government has imposed measures to limit this risk.
This has come down, yes, still high, but overcapacity cuts will keep this falling
Total credit in China
Total credit is 258% of GDP down from 262% in Feb 2017
Corporate credit 159% GDP down from 170% in Feb 2017
¥213trn or
$33trn
Nominal GDP ¥82trn or $12.6trn in 2017
Gross government debt 50% GDP Up from 50% in 2016
This is a new risk on our radar To improve rural living standards, local governments will raise debts, and the central government would eventually bear some burden
Household debt 49% GDP Rising from 40% in Feb 2017
Updated on 25th Jan 2018
26
Deleveraging in shadow banking requires more restrictions on the underlying products of securitisation
Potential risks from tackling financial leverage:
Total social financing (TSF) outstanding 211% of GDP At CNY175trillion in 2017 with nominal GDP at 82.7trillion in 3Q17
Of which, core shadow banking 33% of GDP
At CNY 27 trillion contributed 15% to TSF 14.5%
14.7%
14.9%
15.1%
15.3%
15.5%
15.7%
Apr-16 Oct-16 Apr-17 Oct-17
Core shadow banking / TSF (%)
Core shadow banking = Trust + Entrusted loans+ Undiscounted bankers acceptance
Trust loans, entrusted loans, un-discount bills are off-balance sheet items.
Whenever there has been tight liquidity in the bank loan market, corporates tends to go for these loans
So corporates and local government debts are the rotten apples in the underlying basket of securitised products
Moreover, these could be packed into wealth management products (WMP), some WMP are off-balance sheet items
The interlinked relationship between corporate, bank liquidity, business of wealth management products has complicated regulators’ efforts to shrink these off-balance sheet items.
Since 1Q17’s MPA off-balance sheet wealth management products started to be included in broad credit on banks books.
That means more stringent risk control on wealth management products.
However, we are still aware that the underlying assets of the securitised products could default even they are brought on-balance sheet. It all depends on how banks balance profitability to risks.
27
Don’t worry, no bubble burst thanks to flexible macro prudential policies
Potential risk from housing? We don’t worry Housing bubble deflating
Regulators don’t tighten all the time, may start to relax housing policies in 2018
Location, location, location
It is a long way to destock housing inventory
Equivalent to 65 months
in 2014
50 months in
2015
41 months in 2016
37 months in Dec 2017
Third tier cities lagging Most of the destocking has not yet taken place in the third and fourth tier cities as buyers prefer buying brand new apartments rather than buying abandoned flats. Ghost towns are still ghost towns until they are torn down for rebuilding.
Recent rental measures: Our view is that luring potential buyers to rent instead of buying would push up rents in the short term but could divert some buying demand into the rental market for the longer term, which would keep prices in prime locations rising more slowly than before.
-10
-5
0
5
10
15
20
25
30
35
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
China 70 cities newly built residential property price YoY%
First tier cities
Second tier cities
Third tier cities-8
-6
-4
-2
0
2
4
6
8
10
12
14
-50
-30
-10
10
30
50
70
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Residential floor space sold (12-month rolling average, YoY%)
China 70 cities newly built residential property price %YoY (rhs)
History tells us that the government relaxes policies when home prices fall, e.g. number of flats each household can buy, down-payment ratio
To avoid capital outflows, the central
bank needs to stabilise the spread against USD interest
rates
“Prudent neutral monetary policy
stance” is too general to give a hint on monetary policy
Tightening liquidity during financial
reforms is necessary and is already the
trend via daily open market operations.
That alone would push up interbank interest
rates.
Follow the Fed’s rate hike path but only
slightly
Monetary policy in 2018: Keep interest rate spread stable against USD
28
Follow Fed rate hike, but to what extent?
3 x 5 bps rate hike on 7D reverse repo in 2018 (also the same extent on other interbank
rates)
Too bullish on CNY? We have good reasons
Exchange rate policy in 2018 USDCNY – How strong can it go?
Strong yuan in 2017 and
getting stronger in
2018
PBoC pushing interest rates higher by lending longer to
banks
Net capital inflows possible for the government
The PBoC is scared to see capital flight.
USDCNY to follow more closely with the dollar index
after the counter-cyclical factor is reset to zero
Do not worry about negative impacts on trade -
EUR still stronger against CNY
29
6.5 4Q 2017 6.1 4Q 2018 USDCNY forecast
But if yuan appreciation is too fast then it would attract hot money inflows! So we expect sporadic interventions in the yuan when dollar is weakening very quickly
USDCNH… if you still care about the difference We don’t expect CNY and CNH spread to widen for a long duration
During 2015, when CNY depreciated, CNH demonstrated even stronger depreciation, and vice versa.
The CNH and CNY spread has been small. The PBoC has realised that the small liquidity RMB pool offshore would make the CNH interest rate very volatile if there are arbitrage opportunities between CNY and CNH. After early 2017, CNY-CNH spread has narrowed again, with spreads becoming less frequent, and lasting less time. In the 5th Financial Working Conference, liberalising the Rmb is one of the missions for the 5 year ahead. For us, it means CNY and CNH would move even closer, with fewer interventions intraday except near the closing to set the scene for next day’s fixing
30
-1000
-500
0
500
1000
1500
2000
6.0
6.2
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6.8
7.0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
CNH-CNY USD/CNH USD/CNY
Hong Kong – ample liquidity
31
32
A balanced economy, from consumption to trade of goods and services.
Hong Kong
• The economy has improved - thanks to a better global environment that supports not only the trade sector but also the financial sector.
• Local unemployment rate hit its low at 2.9% in Dec 2017 falling from 3.4% in 2016. That has given room for domestic consumption under low inflation environment.
• These two factors should continue in 2018 unless there is a big jump in energy prices. • Infrastructure investments, including Hong Kong-Zhuhai-Macau Bridge and various new metro and train
lines also supported the economy in 2017. However, infrastructure investment will fade as large projects are about to be completed in 2019.
• Overall, it is a stable, balanced economy. • However, its wealth gap is large, and amplified by the hot real estate market.
3.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
4 1 2 3 4 1 2 3 4 1 2 3 4
2015 2016 2017
% Consumption InvestmentNet export of goods Net export of servicesGDP %YoY
2.5
2.7
2.9
3.1
3.3
3.5
0
1
2
3
4
5
Dec
15
Feb
16
Apr
16
Jun
16
Aug
16
Oct
16
Dec
16
Feb
17
Apr
17
Jun
17
Aug
17
Oct
17
Dec
17
Headline CPI inflation
Underlying inflation exclude government relief
Unemployment rate (%)
%
33
Fuelling the hot property market
Ample liquidity means rates will lag US
• Liquidity is still ample, even after HKMA actively drained the interbank market by issuing exchange fund bills. That has pushed the HKD stronger.
• HKD interest rates are still lower than USD rates. • Liquidity is so ample that rate differential between HKD and USD
is difficult to arbitrage away. • With Chinese money crossing the border into HK, this will
continue. • And HKMA will eventually need the mop again.
7.75
7.77
7.79
7.81
7.83
7.85
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2002 2004 2006 2008 2010 2012 2014
3M Libor
3M Hibor
Fed funds rate
USDHKD (rhs)
%
40000
70000
100000
130000
Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17
Home price (HKD per sqm) (40sqm at Kowloon, representing
the median)
(Source: Land Registry Hong Kong from Bloomberg)
• Home prices in Hong Kong keep rising, low interest rates are one of the factors
• Another is that investor demand comes from local as well as Mainland
• Newly built residential flats are small in size so that the overall amount is “affordable” to the Hong Kong public and this has pushed up the per sq m price.
• Most of the newly built flats are small, which trigger comments that there is oversupply of small flats. But under the current down payment ratio of 40% for most flats, the median public can only afford such small size flats. “Oversupply” would only occur if HKMA relaxed the down payment ratio (unlikely).
• As restrictive policies are in place most investors are not highly leveraged, so the scale of bubble burst would be moderate if there is one.
Taiwan – carried along by trade flows
34
35
Luckily, the world is on an upward trend
Taiwan: Small open economies depend on trade
• Taiwan’s economy has been very reliant on its trade sector. This makes Taiwan a typical small open economy which is prone to the global economic cycle.
• Luckily, the world is in an up trend and Taiwan has benefited from this. • Inflation has fluctuated with food prices. • Economic growth should be slower in 2018 (2.0%) due to a high base effect in 2017 (2.6%) and also
slightly higher inflation (1.2% in 2018 vs 0.6% in 2017) due to a mixture of higher food prices (due to adverse weather) and energy prices.
-6
-4
-2
0
2
4
6
8
10
2016 1Q 2Q 3Q 4Q 2017 1Q 2Q 3Q 4Q
Consumption
Government
Gross capital formation
Chg in Inventories
Exports
Imports
GDP %YoY
%
2.5%
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
3.5
3.6
3.7
3.8
3.9
4.0
Dec 15 Jun 16 Dec 16 Jun 17 Dec 17
Taiwan Unemployment and Inflation
Unemployment rate
CPI inflation (rhs)
CPI food inflation (rhs)
% % % % GDP by expenditure YoY%
36
Similar to Mainland China, imports are turned into export after value add production, so a strong TWD may not hinder export
Weak dollar would strengthen TWD but would it hurt trade?
• A strong TWD would make imports of parts cheaper and therefore may not hurt exports. • We expect export and import growth rates in the “mid-teens” in 2018. • However, Taiwan’s reliance on exports, of which, 41% go to Mainland China and Hong Kong, could be a
hidden risk for Taiwan and its electronics sector. Mainland China could try to force Taiwan to admit the One-China policy, using trade as their tool.
Mainland China
28%
Hong Kong
13%
USA
12%
Europe
9%
Japan
6%
Singapore
6%
S.Korea
5%
Others
21%
Taiwan export destinations in 2017
25
27
29
31
33
35
37
Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Nov 17
USD/TWD
TWD appreciated over 7.5% against the USD in 2017
Korea – Sweet spot is over
37
38
Korean Exports – something old, something new
• Year-on-Year measures are very popular in Asia, but they can be very misleading
• Semi-conductors top the export charts, mobile phones also top the charts but petroleum and petrochemicals also doing well and steel doing OK
• These results broadly hold even when you smooth the data (3 month moving average YoY%)
-60 -40 -20 0 20 40 60 80
Mob phone parts
Wireless comms
Autos
Flat Panel LCDs
Home Apps
Auto Parts
Flat Panels
Fiber
Steel
Gen Machines
Computers
Vessels
Mob phones
Petrochem
Petrol
Semiconductors
%YoY
-60 -40 -20 0 20 40 60 80
Mob phone parts
Home Apps
Wireless comms
Flat Panel LCDs
Auto Parts
Vessels
Autos
Fiber
Flat Panels
Steel
Gen Machines
Computers
Petrochem
Mob phones
Petrol
Semiconductors
YoY% 3MMA
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
40,000.0
45,000.0
08 09 10 11 12 13 14 15 16 17
Total Exports$mn
39
Korean Exports – very narrowly based
-3 -2 -1 0 1
Wireless comms
Autos
Mob phones
Vessels
Petrol
Flat Panel LCDs
Home Apps
Mob phone parts
Gen Machines
Semiconductors
Steel
Flat Panels
Petrochem
Fiber
Computers
Auto Parts
...compared to 15m earlier (Sept 2016)
% contribution to total growth of minus 8.9%YoY
-10 -5 0 5 10 15
Autos
Wireless comms
Mob phone parts
Flat Panel LCDs
Auto Parts
Flat Panels
Home Apps
Fiber
Mob phones
Computers
Steel
Vessels
Gen Machines
Petrochem
Petrol
Semiconductors
Dec 17 Contribution to Export growth
0
2000
4000
6000
8000
10000
12000
Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Exports by type
Semiconductors
Gen Machinery
Vessels
Autos
Steel
Petrol
$m
40
Korean GDP – exports not doing much
• So export strength is heavily reliant on semi-conductor growth, but exports aren’t doing the heavy lifting for the economy – domestic demand is.
• Net exports have reverted to being the drag on the economy they have been in three out of the last four quarters
• Government spending has been one of the more consistent though weak pushes for growth
• Consumer spending is mediocre, but would have been worse without benefits increases and minimum wages gains – at least it is consistent.
-0.5
0.0
0.5
1.0
1.5
2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
06/2017 09/2017 12/2017
GDP contributions (QoQ%)
Govt cons Govt FCF GOVT
PCE Facilities Construction
Stocks Net Exp GDP, rhs85.0
90.0
95.0
100.0
105.0
110.0
115.0
120.0
125.0
Mar 13Sep 13Mar 14Sep 14Mar 15Sep 15Mar 16Sep 16Mar 17Sep 17
GDP components
Construction
GOVT
Imports
Facilities
Exports
GDP
PCE
1Q 2015 = 100
41
Korean production – slowing…
107
108
109
110
111
112
113
114
115
104
106
108
110
112
114
116
Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Production capacity index and output
IPI: sa: Manufacturing (Mfg)
Manufacturing ProductionCapacity Index (MPCI)
• So far, export growth has had quite a limited effect on manufacturing output…maybe because it is focused on a narrow base
• Meantime, facilities investment has caused capacity to rise at a much faster pace, and operating ratios (and presumably profit per unit output) have declined.
• Manufacturing output appeared to soar in September 2017, but this is all due to different timings for lunar holidays, and reversed in October
• Inventory ratios suggest a slower period ahead for production, even after last month’s decline
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Production and inventory ratios
IPI: Manufacturing (Mfg)
Inventory to shipments, rhs, inv
YoY% YoY%
42
BoK hiked, now they have to live with it
9
9.5
10
10.5
11
11.5
12
12.5
13
90
100
110
120
130
140
150
160
2002 2004 2006 2008 2010 2012 2014 2016
Household debt (% income)
Debt to incomes ratio (%) lhs
Debt service costs, rhs
% %
• Despite all the uncertainty and arguments for unsustainable exports and production, GDP growth is close to 3.0% YoY and could come close to that in 2018
• But inflation is some way below the BoK’s target and could remain below it through until 2019
• Another reason to hike is household debt, which is high and rising fast…
• …but debt service costs are another reason not to hike…this is difficult. Scope for a policy error is high – best leave it alone…
1,000.0
1,050.0
1,100.0
1,150.0
1,200.0
1,250.0
1.0
2.0
3.0
4.0
5.0
10 11 12 13 14 15 16 17
BoK inflation, rate target, rates and KRW Policy Rate: Month End: Base Rate: Bank of KoreaInflation target Lower
target UpperUSD/KRW
% USD/KRW
43
Japan – Unusually strong
Japan - Abe’s gamble paid off
44
Coalition supermajority in the House of Representatives
LDP 284
Komeito 29
Constitutional Democrats 55
Party of Hope 50
Others 23
But what does he do with victory? 1. Push forward with consumption tax
hike in April 2019
2. Pressure corporates to pay higher wages
310 seats needed for supermajority
313 seats for LDP / Komeito coalition
Japan – consumption tax hike 2019 – we’ve been here before…
45
…and it didn’t end well
LDP 284
Party of Hope 50
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03/2013 03/2014 03/2015 03/2016 03/2017
Consumption tax III: What can we expect this time round?
CPI YoY%
GDP, YoY%
Prices front-run
3 pp hike delivers2pp inflation spike for 12M
Consumption front-run
boom followed by bustinflation returns to "normal"
bust followed by slow recovery
Prices peak
• A consumption tax hike will deliver a front-run boom in consumption, a spike in inflation…
• …and then a bust in both, followed by slow recovery – there are better ways to do this.
46
Japan: Profits – strong, Mfg based
• Something is happening to Japan, and that probably starts at the corporate profit level.
• Profits are surging, driven by a 40%+ gain in recurring profits at manufacturing firms
• This is itself driven by soaring operating profits, which are driven by strong sales (global demand)
• Suggests corporate Japan can weather some JPY appreciation, USD/JPY100 not a problem
-30
-20
-10
0
10
20
30
40
50
14 15 16
Operating Profits
Interest & Other Received
Other Non Operating Income
Other Non Operating Expenses
Expenses: Interest & Discounting
4Q/4Q %
-200
-150
-100
-50
0
50
100
150
13 14 15 16
sales
cost of goods sold
Selling and admin
4Q/4Q %
Recurring Profits Operating Profits
47
Japan: If it all goes well….
• If Abe succeeds in strong-arming corporate Japan and causing them to pay faster wages than the glacial improvement seen until now…
• …and if growth and inflation expectations pick up…
• …and the BoJ begins to unravel QQE, then as well as seeing a stronger JPY, JGB yields will also rise, spelling rising debt service costs – up to 3.5% of GDP
• This is perhaps the best reason for expanding the tax base with a consumption tax hike
0
0.5
1
1.5
2
2.5
3
3.5
4
1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026
high
medium
Low
%
Scenarios
Debt Service costs (% GDP)
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
2014 2015 2016 2017
Cash earnings
Scheduled
Hours worked, rhs
YoY% YoY% 3mmaCash wages
48
Japan: Inflation missing target – who cares?
• Who cares that the BoJ is missing its inflation target? Not the BoJ, if their asset purchasing is anything to go by
• The current run rate is only about JPY45-50tr pa
• This could be a hint at how they eventually stop doing QQE…”stealth taper”
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2013 2014 2015 2016 2017 2018
Consumer Price Index: YoY
Target
core
Tokyo headline
YoY% Inflation missing BoJ's 2% target
0
20
40
60
80
100
120
Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17
JGBs
Total assets (inc ETFs, JREITS,
etc)
Cumulative asset total if BoJ
achieving JPY80tr asset
purchase pace
BoJ cumulative asset growth, JPY tr
49
Singapore – slowly improving
50
Singapore: Output driven by inventories and chips
• Whichever way you look at it, Singapore’s GDP (expenditure basis) is predominantly driven by rising inventories
• That is rarely a sustainable position
• On the output side, computer electronics, of which semiconductors are a large part, is the only convincingly growing element.
• This leaves output looking vulnerable to any shocks
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
GDP Contributions to YoY Growth (ppt)
Cons Govt cons CW Invest and IP Invent Net Exp GDP
4Q16 1Q17 2Q17
70.0
90.0
110.0
130.0
150.0
170.0
190.0
Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Chemicals
Pharma
Computer, electronics etc
index 2015 = 100 Singapore Production - main items
51
Singapore: Exports losing momentum
• Singapore’s export story has lagged behind some of its Asian neighbours
• A quick look at NODX cuts through the flattering YoY comparisons that gave rise to optimism in 2017
• 6M annualised figures show machinery exports falling, pharma is a big drag and few other components are growing strongly
• A similar picture is evident from year-to-date comparisons.
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
06/2016 12/2016 06/2017 12/2017
NODX 6m/6m annualised
NODX
Electronics
Pharma
Petrochem
Circuits
Machinery
Other
-40
-30
-20
-10
0
10
20
30
40
50
60
70
06/2016 12/2016 06/2017 12/2017
NODX YTD%
NODX
Electronics
Pharma
Petrochem
Circuits
Machinery
Other
52
Singapore – inflation looks worse than it is
• At 0.4%YoY, inflation is still running “too low” • But the heavily-weighted accommodation index is clearly the main factor keeping inflation low • And that is beginning to turn the corner, even if it is still negative YoY • Stripping out accommodation, or looking at the MAS core measure, inflation looks quite normal,
and stable… • …no hint at any need to change policy…in either direction
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Contribution to YoY% inflation
10/2017 11/2017 12/2017
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Inflation ex-accommodation and MAS core
Ex-accommodation
MAS Core CPI measure
YoY%
53
Singapore – SGD NEER and rates
• The SGD NEER is the MAS’ main tool for balancing the economy
• We have seen that the export backdrop is fairly ordinary, though overall growth at about 3.0% is reasonable.
• The currency too is close to the mid-point of its NEER range
• We were looking for a marginal tightening of policy from the MAS at their April meeting.
• But soft production data, disappointing exports, and softer than anticipated inflation mean this forecast now hangs in the balance.
• The recent spike in short-term interest rates suggests that liquidity may have been tightened deliberately.
• Most likely, this would be to keep the SGD from weakening against its trading peers and runs counter to the notion that official policy adopts a slight (1% pa) NEER appreciation in April 18, which we had previously thought likely.
• If the NEER band is to resume appreciation, this will likely require further sharp increases in short-term rates
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2012 2013 2014 2015 2016 2017 2018
3 month SIBOR%
MAS policy shifts
110
112
114
116
118
120
122
124
126
128
130
2012 2013 2014 2015 2016 2017 2018
SGD NEERIndex
54
Indonesia – pushing growth higher
55
Indonesia: Breaking above 5% growth?
• GDP growth has averaged 5.1% from 2013- 2017, below the 2005-2012 5.9% average • Recovery in public spending growth needed – fiscal leeway is available by pushing deficit spending
closer to 3% of GDP rather than keeping it at programmed 2.2% • Business spending slowed to 4.7% growth in last five years and lagged the 2005-2012 average
growth of 8% - 15 policy reforms have not generated significant business investments • But regional elections mid-year ushering in presidential elections in April 2019 may be in the way
0
1
2
3
4
5
6
7
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F
% C
H Y
oY
GD
P
% C
h Y
oY
HH
, Go
vt &
Bu
sin
ess
Sp
en
din
g
GDP (rhs) HH Spend Govt Spend Gros Invt
GDP YoY%
56
Indonesia: Steady policy rate and easing rules
• Bank Indonesia regarded the two 25bp rate cuts in 3Q 2017 after 100bps cut in 2016 as “sufficient”
• Vigilantly watching the inflation path, Indonesian rupiah movements and activity indicators to keep inflation within target range of 2.5% - 4.5% or close to point target of 3.5%
• To spur the economy - tweaked macro-prudential measures to encourage bank lending such as two-week average to calculate banks’ reserve requirement ratio
• Bank’s non-performing loan ratio has eased to 3% (with loan growth of 8%) but still above 2.2% in 2014 (when loan growth was 16%)
8000
9000
10000
11000
12000
13000
14000
15000
2
3
4
5
6
7
8
9
10
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
US
D/I
DR
% C
H Y
oY
; % p
.a.
Inflation BI Pol. Rate IDR
Inflation Target
Range
Inflation and policy rates (%)
57
Philippines – inflation worries
58
Philippines: Keeping growth at close to 7%
• GDP growth during the Duterte administration: average of 6.7% (government's target is 7-8%) • Domestic driven: Household, government and business spending growth higher than in past • Philippines just at beginning of the demographic window • Fiscal leeway (created through fiscal prudence from 2005 to 2016) now exploited with deficit
spending at 3% of GDP from 1.6% in previous administration • Infrastructure renaissance with roll out of major projects last year and in next few years
-2
-1
0
1
2
3
4
5
6
7
8
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
F
20
20
F
20
22
F
% Y
oY
Source: NSCB; ING
59
Philippines: Challenging External Balances
• Forget an environment of excess remittances against the trade deficit that existed before 2016 • The new norm is very tight, sometimes inadequate USD inflows • This results in a shortfall of cover for the wider trade deficit and near balance or deficits in the
current account lately • Before 2016, Philippine peso weakness mainly from external developments including taper turmoil
and US Fed shift in monetary policy, weak global growth etc • Now add the challenging external payments situation to external developments
40
42
44
46
48
50
52-1500
-1000
-500
0
500
1000
1500
2000
2500
Jan
-11 A J O
Jan
-12 A J O
Jan
-13 A J O
Jan
-14 A J O
Jan
-15 A J O
Jan
-16 A J O
Jan
-17 A J O
Jan
-18
US
D/P
HP
(in
re
vers
e o
rde
r)
OFW
less
Bo
T (
in U
SD
mm
)
OFW net BoT PHP
60
Malaysia – bounce back
61
Malaysia – A positive terms of trade shock
• Recovery in commodity prices since 2016 supported an uptrend in Malaysia’s trade
• There was a large positive swing in USD exports growth to +15% in 2017 from -5% in 2016
• Strong domestic demand and high import content of exports boosted imports
• Widening current account surplus; close to 3% of GDP in 2017, up from 2.1% in 2016
• Strong economy => strong Malaysian Ringgit. Asia’s second-best in 2017 with 11% appreciation vs. USD
• But this this wasn’t enough to recover 15% MYR-REER (real effective exchange rate) depreciation in the commodity crash
• Trade growth may have peaked but the MYR level does not undermine exports
• Trade wars the main threat to Malaysia’s robust trade performance
62
Malaysia – Outlook for 2018
Why BNM should tighten? • Strong growth; rising oil prices and election
spending to support growth above 5%. ING forecast 5.3% (5.8% in 2017)
• Elevated CPI inflation – key drivers - high food and transport prices - likely to remain in play ING forecast 3% (3.9% in 2017)
• Negative real interest rates, undervalued currency, tightening in developed countries
What may keep BNM from tightening? • Increasingly populist economic policy in run up
to general elections to be held by Aug-18
• Potential growth risks from trade, geopolitics, and domestic political uncertainty
• Possibly muted inflationary pressure due to high base and appreciating currency
• Still accommodative policy in developed countries
63
Thailand – where is the growth?
64
Thailand – Slow growth-low inflation trap…
• The pick up in GDP growth in 2017 from 3.2% in 2016 is an inventory story
• Private consumption contribution to GDP remains steady but much-touted infrastructure spending is missing in action
• The inventory story too lacks substance without obvious pick-up in manufacturing…
• … and it means de-stocking will weigh down production, and GDP growth
• Export performance has improved but not an exception given the trend elsewhere
• And manufacturing hasn’t really benefitted from exports
• Against this backdrop, the rise of GDP growth above the 3% average pace it had been on since 2011 could be transitory…
• … unless supported by a recovery in domestic demand, which needs greater policy easing
65
Thailand – … warrants more policy stimulus
• The economy is flirting with deflation, albeit returning to positive inflation in 2017…
• … thanks to strong farm production keeping food prices (36% in CPI weight) in check…
• …and appreciating THB keeping imported inflation at bay
• The BoT’s 1-4% medium-term inflation target needs to be scaled back
• And why is the THB appreciating? It’s a large current account surplus story - Two years of over 10% of GDP current surplus
• Wide current surplus signals gross economic imbalances, thanks to weak domestic demand
• 10% THB appreciation vs. USD in 2017 looks excessive for weak economic fundamentals
• The BoT is unlikely to do anything about it, with our forecast of on-hold rate policy in 2018
66
Vietnam economy – balanced mix
67
Vietnam – Economic structure
68
Vietnam – Domestic economy
69
Vietnam – External sector
70
Vietnam – Financial markets
India – ready to roar?
71
72
India – A mixed state of the economy in 2017
What was good? • Accelerated economic reforms
• drive to curb black economy • tax reforms, recapitalization of public
sector banks • boost to infrastructure spending
• … improved long-term prospects for the
economy and investors’ confidence
• Positive global growth story – strong exports
• Pro-growth macro policies – 200bp RBI policy rate cut since 2015
• Moody’s upgrade of sovereign rating
• Confidence sensitive capital inflows – rallying stock market
• Appreciating rupee, barring a bad stretch of a couple of months – still strong carry trade
What went wrong? • Two main shocks in 2017…
• De-monetization of late-2016 • Poorly planned goods and service tax
launch in mid-2027
• … depressed GDP growth through hit to consumer spending.
• 6% GDP growth in the first half of FY2017/18 (Apr-Mar), down from 7.1% in FY2016/17
• Tight liquidity post-demonetization hit lending and investment
• Rising domestic fuel prices halted a downward trend in CPI inflation
• The fiscal policy geared toward supporting growth raised risk of overshoot in fiscal deficit.
• Oil-related surge in imports widening external trade deficit
73
India – Cyclical risks, growth-inflation dynamics
-3
0
3
6
9
12
15
2012 2013 2014 2015 2016 2017
% YoY
Financial year starting April
Upward inflation pressure
Total CPI
Food, utilities and transport
74
India – What to look out for in 2018
The macro policy
• With inflation in target zone, the RBI will prefer to maintain the current neutral policy stance throughout 2018…
• … while the government is likely to struggle to stay on the course of fiscal consolidation
The markets
• Rising inflation and government borrowing needs will weigh on government bonds and the INR performance in 2018
• Investors start to build in risk premium for rise
of political uncertainty in the run up to general elections in 2019
• ING’s USD/INR forecast for end-2018 at 64.5
The economy
• Further stabilisation of the economy from dual shocks, albeit some tapering of export strength
• Boost from public spending => announcement
in late 2017 of US$108 billion investment plan for building highways in next five years
• Fiscal slippage and transmission of rising global oil price to domestic fuel prices will pressure CPI inflation higher
• But inflation is unlikely to break above the RBI’s 4-6% medium-term policy goal
• ING forecast of FY2018-19 GDP growth of 7.1% and inflation of 4.8%, up from 6.5% and 3.8% in FY2017-18
75
India – The market risks in 2018
76
India – Structural risks
India
77
India – Potential shocks to financial sector
Source: International Monetary Fund, Article IV Consultation, Feb 2017
Australia – Damned if they do…
78
79
Australia: Housing myths
90
110
130
150
170
190
210
230
250
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15 Sep 17
Sydney, Melbourne House price index
Sydney Melbourne
0 20 40 60 80 100 120 140
Sydney
Melbourne
Canberra
Brisbane
Darwin
Adelaide
Perth
Hobart
Affordability
EXPENSIVE CHEAP
2.95%
9.4% 6.9%
13.8%
13.2%
4.8% -2.4%
-6.3% House Prices, YoY%
It’s more complicated than just asking, is this or is this not a bubble? No single housing market and starkly different valuations and directions. Just one of the problems for the RBA to consider
80
Australia: RBA should have hiked, but now what?
GDP growth, employment growth and house price growth suggest that the RBA should be hiking. Wages and inflation as yet do not. But every day the RBA waits, household debt rises, making the ultimate reckoning more difficult
100
120
140
160
180
200
220
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total household debt
Household housing debt
% disposable personal income
A bigger bite for every % rate hike
-50
0
50
100
150
200
250
300
350
400
450
2014 2015 2016 2017
Total
Full time
Part time
Cumulative full year change (000s)
Australia: Total annual employment change
0.0
1.0
2.0
3.0
4.0
5.0
6.0
07 08 09 10 11 12 13 14 15 16 17
Wage and inflation still soft
CPI Hourly Wages
YoY%
Forecasts – Asia-Pacific
81
82
Forecast summary – China, Hong Kong
Sources: ING, Bloomberg
China 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 6.7 6.9 6.8 6.8 6.7 6.7 6.8 6.7
CPI (% YoY) 2.0 1.6 2.0 1.6 1.6 1.7 1.7 1.9
PBOC 7D reverse repo rate (%, eop) 2.25 2.50 2.50 2.55 2.60 2.65 2.65 2.80
10Y govt. bond yield (%, eop) 3.06 3.91 4.00 4.10 4.20 4.30 4.30 4.55
CNY per USD (eop) 6.945 6.507 6.300 6.250 6.200 6.100 6.100 5.800
Hong Kong 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 1.9 3.8 3.0 3.5 3.5 3.8 3.5 3.5
CPI (% YoY) 2.4 1.5 1.4 1.8 2.0 2.0 2.0 2.2
3M interbank rate (%, eop) 1.02 1.30 1.40 1.70 1.90 2.10 2.10 2.50
10Y govt. bond yield (%, eop) 1.97 1.83 1.98 2.00 2.20 2.40 2.40 2.50
HKD per USD (eop) 7.756 7.815 7.810 7.810 7.780 7.790 7.790 7.760
83
Forecast summary – Japan, Korea
Sources: ING, Bloomberg
Japan 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 0.9 1.6 2.0 1.6 1.5 2.1 1.8 1.3
CPI (% YoY) * 0.8 0.5 1.3 1.1 1.2 0.9 1.1 2.0
Excess reserve rate (%, eop) -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10
3M interest rate (%, eop) 0.02 0.05 0.10 0.10 0.10 0.10 0.10 0.10
10Y govt. bond yield (%, eop) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
JPY per USD (eop) 112.00 112.69 113.00 113.00 111.00 110.00 110.00 105.00
* Assuming a consumption tax hike in 2019.
Korea 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 2.7 3.3 3.7 3.5 2.9 2.9 3.3 3.2
CPI (% YoY) 1.0 1.9 1.1 1.6 2.2 2.2 1.8 1.9
BoK base rate (%, eop) 1.25 1.50 1.50 1.75 1.75 2.00 2.00 2.00
3M CD rate (%, eop) 1.52 1.66 1.65 1.88 1.90 2.13 2.13 2.62
10Y govt. bond yield (%, eop) 2.09 2.47 2.60 2.80 2.90 2.90 2.90 3.10
KRW per USD (eop) 1206 1067.4 1050 1030 1020 1000 1000 1000
84
Forecast summary – Taiwan
Sources: ING, Bloomberg
Taiwan 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 1.5 2.6 2.0 2.5 2.0 2.0 2.1 2.0
CPI (% YoY) 1.4 0.6 1.1 1.5 1.0 1.0 1.2 1.0
CBC discount rate (%, eop) 1.38 1.38 1.38 1.38 1.38 1.38 1.38 1.38
3M CP rate (%, eop) 0.66 0.65 0.65 0.65 0.65 0.65 0.65 0.65
10Y govt. bond yield (%, eop) 1.19 0.95 0.95 0.95 0.95 0.95 0.95 0.95
TWD per USD (eop) 32.33 29.73 29.50 29.30 29.00 28.80 28.80 28.00
85
Forecast summary – Australia, India
Sources: ING, Bloomberg
Australia 2016 2017F 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 2.6 2.3 2.7 2.3 2.4 2.7 2.5 2.9
CPI (% YoY) 1.3 1.9 1.9 2.1 2.2 2.1 2.1 2.2
RBA policy rate (%, eop) 1.50 1.50 1.50 1.50 1.50 1.75 1.75 2.25
3M bank bill rate (%, eop) 1.65 1.65 1.65 1.65 1.65 1.90 1.90 2.40
10Y govt. bond yield (%, eop) 2.77 2.66 2.90 3.10 3.20 3.30 3.30 3.10
USD per AUD (eop) 0.72 0.76 0.80 0.80 0.83 0.85 0.85 0.85
India (FY April-March) 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 7.1 6.5 7.3 7.3 7.1 6.9 7.1 7.4
CPI (% YoY) 4.5 3.8 5.5 6.5 5.0 4.0 4.8 4.5
RBI repo rate (%, eop) 6.25 6.00 6.00 6.00 6.00 6.00 6.00 6.50
3M T-bill rate (%, eop) 6.20 6.20 6.30 6.30 6.30 6.30 6.30 6.30
10Y govt. bond yield (%, eop) 7.97 7.23 7.70 7.90 7.90 7.80 7.80 7.20
INR per USD (eop) 67.92 63.87 64.50 64.80 64.80 65.00 65.00 64.00
Note: Annual growth and inflation forecast on financial year basis, rest on calendar year basis.
86
Forecast summary – Indonesia, Philippines
Sources: ING, Bloomberg
Indonesia 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 5.0 5.1 5.2 5.4 5.5 5.5 5.4 5.8
CPI (% YoY) 3.5 3.8 3.6 3.5 3.6 3.7 3.6 3.6
BI 7D reverse repo rate (%, eop) 4.75 4.25 4.25 4.25 4.25 4.25 4.25 4.75
3M interbank rate (%, eop) 7.46 5.48 5.20 5.30 5.50 5.50 5.50 6.00
10Y govt. bond yield (%, eop) 7.973 6.320 6.300 6.200 6.500 6.500 6.500 6.800
IDR per USD (eop) 13473 13555 13450 13480 13450 13500 13500 13400
87
Forecast summary – Singapore, Malaysia
Sources: ING, Bloomberg
Singapore 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 2.0 3.5 3.6 4.1 3.1 2.0 3.2 3.2
CPI (% YoY) -0.5 0.6 0.4 0.8 0.8 1.0 0.8 1.2
3M interbank rate (%, eop) 0.97 1.50 1.40 1.60 1.80 1.80 1.80 1.80
10Y govt. bond yield (%, eop) 2.47 2.00 2.20 2.40 2.60 2.60 2.60 2.90
SGD per USD (eop) 1.447 1.337 1.310 1.280 1.270 1.250 1.250 1.200
Malaysia 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 4.2 5.8 5.1 5.0 5.2 5.8 5.3 5.2
CPI (% YoY) 2.1 3.9 2.8 3.0 3.1 3.2 3.0 2.5
BNM o/n policy rate (%, eop) 3.00 3.00 3.25 3.25 3.50 3.50 3.50 3.50
3M interbank rate (%, eop) 3.41 3.44 3.70 3.70 3.85 3.85 3.85 3.85
10Y govt. bond yield (%, eop) 4.23 3.91 4.10 4.30 4.50 4.50 4.50 4.80
MYR per USD (eop) 4.49 4.05 3.86 3.82 3.78 3.72 3.72 3.62
88
Forecast summary – Thailand, Vietnam
Sources: ING, Bloomberg
Thailand 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F
Real GDP (% YoY) 3.2 3.8 3.8 3.5 3.4 3.3 3.5 3.7
CPI (% YoY) 0.2 0.7 0.5 1.3 1.2 1.0 1.0 1.4
BOT 1D repo rate (%, eop) 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50
3M interbank rate (%, eop) 1.59 1.57 1.60 1.60 1.60 1.60 1.60 1.60
10Y govt. bond yield (%, eop) 2.65 2.32 2.45 2.50 2.50 2.50 2.50 2.70
THB per USD (eop) 35.84 32.58 31.70 31.50 31.40 31.30 31.30 31.00
Vietnam 2013 2014 2015 2016 2017 2018F 2019F
Real GDP (% YoY) 5.4 6.0 6.7 6.2 6.5 6.5 6.5
CPI (% YoY) 6.6 4.1 0.6 2.7 3.6 4.3 4.0
Central bank policy rate (%, eop) 7.00 6.50 6.50 6.50 6.25 6.50 6.50
3M interbank rate (%, eop) 4.85 4.20 4.93 4.97 4.37 4.70 4.70
10Y govt. bond yield (%, eop) 9.00 7.00 6.95 6.30 5.20 5.70 5.70
VND per USD (eop) 21095 21388 22485 22761 22698 22500 22500
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