economics - nomura direct · 2019-01-18 · capital nomura securities public company limited...

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Uncertainty rules

Capital Nomura Securities Public Company Limited

Investment Research and Investor Services

Economics

19 January 2019

Nuchjarin Panarode (+66 638 5776)

[email protected]

Capital Nomura Securities Public Company Limited Economics - 1

Executive Summary

Global: Uncertainty rules

US: Transitioning to slower growth

Euro area: Downside materialising

UK: Another fine mess

Japan: Closing window of opportunity

China: After winter comes the spring

Asia: The Phoenix rising from the ashes

Thailand: One and done


Global : Synchronised slowing down

Source : Nomura ,”Global Annual Economic Outlook : Uncertainty Rules ( 12 December 2018) ; Japan Economic Weekly: Events in 2019 ( 30 November 2018)”


Global : Uncertainty rules

Source : Nomura ,.”Global Economic Outlook Monthly : Global growth forecast downgraded ( 15 January 2019)”

Note : EEMEA = Czech Republic, Hungary, Poland, Romania, South Africa, Turkey, Russia Israel and Egypt

China-US trade war and peace/ Brexit

Mounting headwinds for global growth in 2019 to leave policymakers even more data dependent.


FX : Dollar in 2019 - Yield vs deficits

2019 should see a renewed focus on growing US current account and budget deficits, yields not being

high enough to compensate for these risks, a reconvergence of US and rest of the world growth and

capital repatriation by other countries.

Source : Nomura ,.”FX Insights/ Dollar in 2019: Yield vs deficits (3 December 2018); “FX portfolio update (3 January and 17 January 2018)”


US : Transitioning to slower growth

Source : Nomura ,”Global Economic Outlook Monthly : Global growth forecast downgraded (15 January 2019) ;

Waning fiscal stimulus, tighter monetary policy and increased supply constraints will slow growth over

2019 and into 2020.

We expect two hikes in 2019 but the timing is uncertain as decision become more “data-dependent”.

Risk : Trade policy uncertainty; a sharp deterioration in financial conditions


Source : Nomura, “ Economics Insights /US : Upcoming Fiscal Deadlines and Their Implication (9 November 2018)”

Nomura , “ Global Annual Economic Outlook : Uncertainty rules (12 December 2018)

US: Waning fiscal policy


Euro Area : Downside materialising

Source : Nomura , “ Global Annual Economic Outlook : Uncertainty rules (12 December 2018)” ; Nomura, ”European Perspectives : ECB Preview and Presidential race (7 December 2018)”

While we see some recovery in economic growth back to trend, it should remain well below 2017 rates.

We see core inflation rising gradually thanks to capacity pressures, but headline rates should fall due to

lower oil prices.

We expect the ECB to start raising interest rates in September 2019, though recent data outturns raise the

risk of delay.


Euro Area: The big four

Germany is at risk from slowing global growth.

Further French reforms could prove tricky.

The Italian recession could widen the fiscal deficit.

A snap election is a risk in Spain


UK : Another fine mess

Source : Nomura , “ Global Annual Economic Outlook : Uncertainty rules (12 December 2018)” ; Nomura , “UK Perspectives: Probability rising of “Referendum 2.0” (7 December 2018)”

The rejection in parliament of May’s Brexit deal raises the risk of both a no-deal outcome but also of

remaining in the EU.

Bank of England and Treasury : A disorderly no deal/ no transition outcome would mean GDP close to 8%

lower in five year times, inflation peaking at 6.5% and Bank Rate (mechanically) rising to 5.5%


Brexit : Tail risk scenario

Source : Nomura ,“ UK Perspectives : No sense of an ending ( 17 January 2019) ; “Anchor Report : The Brexit Guide for 2019 ( 8 January 2019)”


Japan : Brace for downside risks

The recovery in economic activity is still rolling on, but the growth momentum is likely to weaken.

We expect core CPI inflation to remain below the targeted 2% level as it turns into deceleration in 2019.

As inflation momentum subsides, the likelihood that the Bank of Japan will normalize monetary policy

has fallen sharply.

Risk : Renewed yen appreciation caused by concerns over a global recession and US protectionism

Source : Nomura ,.”Global Economic Outlook Monthly : Global growth forecast downgraded *12 December 2018)”


Asia : A story of two halves

Source : Nomura, “Asia in 2019: Always darkest before the dawn (10 December 2018) ”

Nomura expect Asia to soon enter the third and final wave of a bear market –a credit crunch, as an

accelerated growth slowdown interacts with property market corrections.

An economic recovery in H2 2019 will be Emerging Asia’s time to shine, with a widening growth

differential over slowing advanced economies in 2020.

We are more downbeat on China, India and Malaysia, and more upbeat on Indonesia and the Philippines.


Asia : Always darkest before the dawn



China: After winter comes the spring

Source : Nomura, “Global Economic Outlook Mohthly (15 January 2019) ”

Economic growth to bottom in Q2. More policy stimulus/easing measures could be rolled out by then,

which should help underpin a rebound in growth in H2


Asia : The Phoenix rising from the ashes



Asia : Fiscal stance to support growth

Source : Nomura, “Asia Economic Monthly : The widening growth gulf in Asia (10 December 2018) ”


Asia : Interest rate hiking cycle is over

Source : Nomura, “Asia Economic Monthly : The widening growth gulf in Asia (10 December 2018) ”


Thailand: Q3 GDP growth decelerated to 3.3%y-o-y (Q2 :4.6%)

Source : NESDB


Thailand : Favorable domestic expansion

Source :Nomura, “Asia Insights/Thailand : Rising risks of below-target inflation in 2019 (2 January 2019)” ; The Bank of Thailand


Thailand : Favorable domestic expansion

Source :The Bank of Thailand


Thailand : One and done

We expect the GDP growth of 4.3% in 2018 before slowing down to 3.7% in 2019.

We expect the BOT to keep policy unchanged in 2019-20 in the light of slower growth and low inflation.

Risks: A worsening global economic outlook and renewed political uncertainty.

Source : Nomura ,.”Global Economic Outlook Monthly : Global growth forecast downgraded (15 Janauary 2019)”


Thailand forecast : BoT vs. NESDC

Source : The Bank of Thailand ; NESDB

The Bank of Thailand ( as of 19 Dec 18) NESDB ( as of 19 Nov 18)


ANALYST CERTIFICATION FOR REGULATION

I, Nuchjarin Panarode , a research analyst employed by Capital Nomura Securities, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and

all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that I have expressed in this research report, nor is it

tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or by any other Nomura Group company or affiliate thereof.

Explanation of CNS rating system for Thailand companies under coverage published from 2 March 2009:

Stocks:

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the

Fair Value will equal the analyst’s assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if

the analyst doesn’t think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases,

therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless

specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the

recommendation.

• A "Buy” recommendation indicates that potential upside is 15% or more.

• A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%.

• A "Reduce" recommendation indicates that potential downside is 5% or more.

Sectors:

A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.

A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.

A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

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economics - nomura direct · 2019-01-18 · capital nomura securities public company limited...

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