Friday

Aug 21 2015

wwwbloombergbriefscom

Caixin China PMI Korean Tensions Tsipras ResignsJUSTIN JIMENEZ AND BEN BARIS BLOOMBERG BRIEF EDITORS

WHAT TO WATCH The flash reading of the atCaixin China manufacturing PMI945 am will show how the economys factories fared in August The median estimateis for a reading of 482 up from the 478 print in July though still below the 50 mark thatseparates improving from deteriorating conditions The ruling partyrsquosNorth Koreancentral military commission held an emergency meeting late Thursday after North and

exchanged fire across the demilitarized zone in one of the worst incidentsSouth Koreabetween the two since 2010

ECONOMICS The for August is released at 935Nikkei Japan manufacturing PMIam central bank will update on its through Aug 14 as theMalaysias foreign reservescentral bank defends the ringgit (See chart below) for July isMacaus composite CPI reported

GOVERNMENT Greek Prime Minister Alexis Tsipras said he will step down with aneye to snap elections asked ministries and localTaiwanese Premier Mao Chi-kuogovernments to stay on high alert and start preparing for heavy rain the cabinet said in astatement as the fifth typhoon of the year approached the island packing strong winds

MARKETS An rout spread and strained pegged currencies The emerging market fell out of its seven-month trading range in its worst day since February 2014SampP 500

(All times local for Hong Kong)

IN THIS ISSUE

Following Kazakhstans tenge what othercurrencies may tumble are 10 toHerewatch and Paul Wallace Srinivasan

Sivabalan Bloomberg News

Chinas travelers who account for 10percent of global are changingtourismtheir habits and Deborah Aitken Maja

of Rakic Bloomberg Intelligenceprovide insight into this demographic

African nations resistingFX market pressureswith maycapital controls be fighting a losing battleand even extending theirown economic painMark Bohlund

NUMBER OF THE DAY

mdash 73 The drop in Japanesegovernment bond trading from as high as 574 trillion yen in April 2012 a yearbefore BOJ Governor Haruhiko Kurodabegan unprecedented debt purchases Trading volume sank to a record-low 156trillion yen in July according to figuresfrom the Japan Securities DealersAssociation on Thursday Read more onthe Bloomberg terminal

EQUITY MONITOR

FX WATCH

Malaysia FX Reserves Have Dropped Amid Ringgit Dive

Bank Negara Malaysiarsquos efforts to defend the ringgit mdash Asiarsquos worst performer against thegreenback this year mdash contributed to the countryrsquos foreign-exchange reserves droppingbelow $100 billion in July for the first time since 2010 ldquoWe have high levels of reserves andthat is what reserves are for mdash to represent buffers during this periodrdquo central bankGovernor Zeti Akhtar Aziz said Thursday ldquoWe have held more than the amount of reservesour country needs precisely for reversalsrdquo She also said there are no plans to move to aless flexible currency regime such as a peg Figures for the first two weeks of August aredue today

mdash Choong En Han and Manirajan Ramasamy Bloomberg NewsSource Bloomberg

Aug 21 2015 Bloomberg Brief Economics Asia 2

FX WATCH

Ten Currencies That May Follow Tenge In Tumble Triggered by ChinaBY PAUL WALLACE AND SRINIVASANSIVABALAN BLOOMBERG NEWS

Thursdayrsquos 23 percent plunge in thetenge after Kazakhstan abandonedcontrol of its exchange rate revealed asense of urgency among policy makersthey had tried a managed depreciationjust a day earlier The escalation signaledthat it has become too costly fordeveloping nations to defend theircurrencies

The trigger for the wave ofdepreciations was Chinarsquos decision toweaken the yuan on Aug 11 leavingcountries competing with the worldrsquossecond-largest economy in exportmarkets and those selling goods to it at adisadvantage That added to the woes ofemerging markets already reeling from alooming increase in US interest ratesand weakness in oil prices Some like thecountries of the former Soviet Unionmust deal with ruble weakness that putsthem in an unfavorable position in theirtrade with Russia

Herersquos a look at the currencies that areamong those most at risk from thisconflux of global developments

Saudi Arabiarsquos riyal Armed with $672billion in foreign reserves Saudi Arabiathe worldrsquos largest oil exporter hasenough capacity to hold the pegaccording to Deutsche Bank AGNonetheless speculators are betting on abreak of the currency regime as crude oiltumbled to a seven-year low The forwards contracts used by traders to bet

on or hedge against future price moves fell to the weakest since 2003 implying

about a 1 percent decline in the riyal overthe next 12 months

Turkmenistanrsquos manat This oilexporter with close ties to Russiadevalued its currency by 19 percent inJanuary Stockholm-based SEB ABforecasts a further weakening of as muchas 20 percent in the next six months

The nation hasTajikistanrsquos somoni close ties with Kazakhstan whichaccounts for about 11 percent of tradeand SEB expects a depreciation of 10 to20 percent

The currency has lostArmeniarsquos dram 15 percent in the past 12 months

compared with a 46 percent drop in theruble A quarter of the countryrsquos trade iswith Russia

The weaker tengeKyrgyzstanrsquos som will put pressure on the som because ofthis countryrsquos ties to Kazakhstanaccording to BMI Research

The country hasEgyptrsquos pound limited investorsrsquo access to foreigncurrencies amid a shortage since the2011 Arab Spring protests Traders arebetting the pound will weaken about 22percent in a year according to 12-monthnon-deliverable forwards

Itrsquos one of the worldrsquosTurkeyrsquos lira worst-performing currencies since Chinarsquosdevaluation on Aug 11 An escalation inpolitical violence and the probability ofearly elections compound the issues

Policy makers in thisNigeriarsquos nairaoil-exporting nation are trying to hold thecurrency at a level most investors see astoo high Trading in forwards indicates thecurrency will fall more than 20 percentagainst the dollar over the next year

Also an oil exporter ItsGhanarsquos cediproblems are mainly fiscal imbalancesrising inflation and increasing debt

The country isZambiarsquos kwacha heavily exposed to China as copperaccounts for about 70 percent of exports

The currency slid toMalaysiarsquos ringgit a 17-year low on Thursday Forexreserves fell below the $100 billion markfor the first time since 2010

Click to for a live version of this chart on thehere

Bloomberg terminal

Click to for a live version of this chart on thehere

Bloomberg terminal

Click to for a live version of this chart on thehere

Bloomberg terminal

Click to for a live version of this chart on thehere

Bloomberg terminal

SPOTLIGHT CHINESE TOURISM DEBORAH AITKEN amp MAJA RAKIC BLOOMBERG INTELLIGENCE

Saudi Riyal

Egyptian Pound

Nigerian Naira

Malaysian Ringgit

Aug 21 2015 Bloomberg Brief Economics Asia 3

SPOTLIGHT CHINESE TOURISM DEBORAH AITKEN amp MAJA RAKIC BLOOMBERG INTELLIGENCE

Chinas Travelers Alter Plans as Japan Europe More AttractiveChinese mainland travelers representing 10 percent of global tourism and more than 25 percent of luxury spending are venturing

beyond Hong Kong Europe Japan and Australia have become popular destinations because of their weaker currencies relaxed visaprocedures better air connections and shopping offers Sales of luxury brands that have large presence in these locations may benefit

Chinese Independent TravelGains as Habits Shift FromTour-Trips

Chinese tourists are shunninglarge-group package tours in favor ofindependent trips This is better for manyluxury stores which can offer a dedicatedservice to each shopper It meanstravelers have access to boutique-styleshops often found in Europes smallercities The share of independent Chinesetravel to Japan Malaysia and Germanygained the most since the end of 2013By contrast package-trips to Macau andthe US were the only proportionalgainers among the top 12 Chinese touristdestinations

Independent Travel ( of All Chinese Traveling to Locale)

CountryChange

Since 4Q13( Point)

Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013

Australia 2 45 47 47 43 42 43 43

France 2 55 56 58 58 54 53 53

Germany 9 40 38 35 33 31 31 31

Hong Kong 0 89 92 91 91 91 89 89

Japan 26 53 49 57 58 56 36 27

Macau -12 55 57 47 50 68 70 67

Malaysia 11 40 42 40 38 36 29 29

Singapore 55 55 55

South Korea 53 47 45 45 49

Taiwan 1 51 46 48 60 50 50 50

Thailand 4 60 58 58 55 60 56 56

US -6 76 76 77 77 80 82 82Source China Outbound Tourism Research Institute (COTRI)

Japan Thailand Lure MoreChinese as Hong KongMacau Charm Dims

Chinese travelers are increasinglyheading to destinations beyond HongKong and Macau Relaxed visa rulesfrequent flights and short journey timesmake Japan and Thailand popular travelhot-spots Japan welcomed 116 percentmore Chinese doubling its share of alltraveling Mainlanders to 4 percent asThailand recorded 108 percent moreChinese in the first half of 2015 (6 percentshare versus 4 percent in the first half of2014) The appeal of Hong Kong andMacau continues to wane as the share ofthe 533 million traveling Chinese in thefirst half of last year fell 700 basis pointsto 53 percent in the first half of this yearaccording to COTRI

Chinese Outbound Travel (Totals in Thousands)

Share(1H15)

Growth 1H15 vs 1H14 ()

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Total Chinese OutboundTourists 16 32400 29500 30900 32069 26260 27112

Top 12 Destinations 11 23517 25262 24663 26285 21476 22400

Australia 1 16 191 300 175 218 154 268

France 2 28 550 520 456 608 456 380

Germany 1 35 317 213 247 350 243 148

Hong Kong 37 5 10563 12283 12585 12840 10416 11407

Japan 4 116 1255 924 621 781 529 478

Macau 16 -4 4759 5026 5440 5599 5041 5173

Malaysia 1 -16 320 361 350 398 312 502

Singapore 2 11 425 544 390 461 314 557

South Korea 5 12 1575 1426 1443 2014 1623 1047

Taiwan 3 5 1040 1007 1027 998 1026 931

Thailand 6 108 1902 2033 1510 1221 856 1037

US 2 27 620 625 419 798 505 472Source China Outbound Tourism Research Institute (COTRI)

Read more about Chinese travel trends on the Bloomberg terminal at BIltGOgt

AFRICA MARK BOHLUND BLOOMBERG INTELLIGENCE ECONOMIST

Aug 21 2015 Bloomberg Brief Economics Asia 4

AFRICA MARK BOHLUND BLOOMBERG INTELLIGENCE ECONOMIST

African FX Controls a Quick Fix to Devaluation Woes With Long-Term PainFaced with slumping exchange rates

some central banks in Sub-SaharanAfrica are restricting access to USdollars to alleviate downward pressure ontheir currencies and reduce the chancesthat inflation will rise above target This isunlikely to deliver a lasting solutionbecause currency weakness reflects afundamental shift in the regions balanceof payments Besides weaker currenciesmight also improve longer-term growthprospects in the continent

Monetary policy makers in Sub-SaharanAfrica have traditionally had a differentpolicy bias compared with peers in otherdeveloping regions most notably EastAsia This reflects differences in theireconomic structure

East Asian central bankers are wary oftheir currencies strengthening especiallyversus the Chinese yuan Vietnam forexample devalued the dong this week forthe third time this year so as to safeguardjobs in export-focused manufacturingindustries after China devalued itscurrency on Aug 11

Protecting an export-oriented industrialbase is not so much of a problem forSub-Saharan African countries on thewhole the sector makes up a muchsmaller percentage of their GDP Thebias of monetary policy makers hasleaned toward keeping the currencystrong in order to keep inflation low

A high dependency on imports for basicgoods such as food means that theimpact of FX depreciation quickly feedsthrough to prices reducing real incomesHigher food prices have caused urbanriots most notably in Mozambique in2010 and in Uganda in 2011

This policy bias left currenciesovervalued from a real effective exchangerate perspective and prevented a build-upin foreign-exchange reserves similar tothose accumulated by emerging marketcountries seeking to theirweakencurrencies When faced with seriouspressure on their exchange rate this canbe a problem

For instance Angola and Nigeria havespent more than 20 percent of their FXreserves over the past year despiteraising interest rates and the downwardmanagement of their dollar pegs

Click to read this analysis with more interactive charts on the Bloomberg terminalhere

Higher interest rates damage domesticdemand while depleting FX reserveslimits policy makers ability to smoothfuture market moves Another policyinstrument is capital controls Angola and

recently reintroduced these withNigeriaspeculation that Zambia could follow suitBut this policy option comes at a cost

Evidence is building of the damagedone to the Nigerian economy by capitalcontrols put in place to limit the import ofgoods competing with local manufacturesCentral bankers such as NigeriarsquosGodwin Emefiele have been criticized forintervening in this way

Interventionist industrial policy remainsa contested topic but efforts to supportspecific industries have generally resultedin more failures than successes Africanpolicy makers are not exceptions on thisscore The result is added costs for thegovernment economic inefficiency andrent-seeking activities such assmuggling

A less rigid approach would be to allowtheir currencies to depreciate On thisscore development economist DaniRodrik that countries withassertsundervalued currencies systematicallygrow faster than their peers although thebenefits of a lower exchange rate have

been contested by other scholars Whileother factors undoubtedly play a role in

determining economic growth trajectoriesfew would disagree that weakercurrencies will help stimulate growth inSub-Saharan Africa

Weaker currencies would incentivizeself-sufficiency in low value-added goodssuch as as well ascementexport-focused such as textilesindustriesmanufacturing Foreign-owned brewersactive in Sub-Saharan Africa are alreadystarting to source more raw materialsfrom local markets

These developments have begun toprovide alternative sources of economicgrowth to the mining and service sectorswhich have expanded most rapidly overthe past decade Weaker currencieswould lend further impetus by makinglocal producers more competitive withforeign imports A diversified economicgrowth policy would also attract inflows onthe financial account which are likely tohave dropped this year as Eurobondissuance and foreign direct investment inthe natural-resources sector have fallen

Thus weaker currencies are needed tohelp African economies find a newexternal account balance in a world withlower commodity prices and reducedinvestment in natural-resource industriesCapital controls are not only likely toprove costly and ultimately futile but willdelay the needed economic readjustment

TODAYS DATA

Nigerias Reserve Rebound Belies Pressure on Naira Peg

Aug 21 2015 Bloomberg Brief Economics Asia 5

TODAYS DATA

TIME COUNTRY EVENT SURVEY PRIOR

645 New Zealand Net Migration SA mdash 4800

935 Japan Nikkei Japan PMI Mfg mdash 512

945 China Caixin China PMI Mfg 482 478

1100 New Zealand Credit Card Spending MoM mdash 030

1100 New Zealand Credit Card Spending YoY mdash 650

1300 Japan Supermarket Sales YoY mdash 030

1530 Thailand Foreign Reserves mdash $1553B

1530 Thailand Forward Contracts mdash $179B

1600 Euro Area Markit Eurozone Manufacturing PMI 522 524

2145 US Markit US Manufacturing PMI 538 538

2200 Euro Area Consumer Confidence -69 -71

mdash Malaysia Foreign Reserves mdash $967B

mdash Macau CPI Composite YoY mdash 491

August 21-27 Thailand Car Sales mdash 60322

August 21-24 Sri Lanka Exports YoY mdash -010

August 21-24 Sri Lanka Imports YoY mdash 1720Source BloombergemspemspBCAL ltGOgt

All times local for Hong Kong Survey figures updated at 450 amClick on the to see a range of economist forecasts on the terminalhighlighted release

CURRENCIES

CALENDAR

OVERNIGHT

Purchases of previously owned US homes unexpectedly rose in July to thehighest level since February 2007consistent with further strength in thehousing market Contract closingsincreased 2 percent to a 559 millionannualized rate from the prior monthrsquosrevised 548 million pace figures from theNational Association of Realtors showedThe median forecast in a Bloombergsurvey called for a drop to 543 millionPrices rose and inventory shrank

The number of Americans filing forunemployment benefits last weekremained historically low Jobless claimsincreased by 4000 to 277000 in theweek ended Aug 15 a Labor Departmentreport showed Applications have beenlower than 300000 a level typicallyassociated with an improving job marketsince early March

Mexicorsquos economy expanded morethan forecast in the second quarter after apickup in domestic demand boosted theeconomy in June Gross domesticproduct rose 22 percent from a yearearlier the national statistics institutesaid compared with the 21 percentmedian forecast of 24 economistssurveyed by Bloomberg From theprevious quarter GDP advanced 05percent

The is seekingEuropean Commissionto cut the minimum risk weight onsecuritizations that qualify as simple andtransparent to 10 percent to helpjumpstart the blocrsquos capital markets Thefive percentage-point reduction in the riskweighting for securities backed by loansor receivables is contained in a draftregulation revamping the EuropeanUnionrsquos market for asset-backed debtobtained by Bloomberg News Theframework sets out rules for bundleddebt as well as criteria to allowshort-term asset-backed commercialpaper to get the simple transparent andstandardized label that allows for a lowercapital charge

Americas

Europe

MARKET INDICATORS

Format XXXUSD Curncy size of labels based on 30-day volatility As of 529 am

Aug 21 2015 Bloomberg Brief Economics Asia 6

MARKET INDICATORS

Source Bloomberg Updated at 523 am Hong Kong time

Aug 21 2015 Bloomberg Brief Economics Asia 7

ECONOCHAT

Aug 21 2015 Bloomberg Brief Economics Asia 8

ECONOCHATMARKET CALLS BLOOMBERG NEWS

Pacific Investment Management expects Chinese growth to slow to 6 percent overthe next few years The yuan devaluation is evidence of the Chinese economy slowingand a little bit of policy exhaustionrdquo said Executive Vice President Anthony Crescenzi He anticipates a further modest devaluation one that doesnrsquot destabilize marketsbecause itrsquos self-defeating for China if it does things that weaken the global economy

Employment growth in New Zealand looks set to stagnate according to ANZ Bank The banks July job advertisements report shows that the number of adsNew Zealand

fell 2 percent on a quarterly basis The data is consistent with the more modest growthoutlook that is increasingly apparent across a range of economic indicators said ANZ Itbelieves the unemployment rate will hover around 59 percent for the rest of the year

Nomura expects Indonesiarsquos GDP growth rate to slow to 43 percent in the second halffrom 47 percent in the first half The company said trade data for July showed furtherdeterioration in overall growth momentum and stuck to the view that there is limitedscope for rate cuts by Bank Indonesia despite weakening growth

RBC says outflows from Japan will persist for many quarters following the $1 trillionGovernment Pension Investment Fundrsquos decision to adjust its asset allocation in favor ofbuying more foreign stocks and bonds

has revised its ringgit projection to 42 per dollar from 37 by the end of 2015 toBMIreflect the slowing Chinese economy the dollars strength and political uncertainty

COMMENTARY ON THE WEB

Wenjie Chen of the InternationalMonetary Fund and co-authors DavidDollar and Heiwai Tang examine Chinarsquos

in a paperinvestment record in Africaposted on the rsquos site Brookings InstitutionThey say Chinarsquos direct investment isuncorrelated with a measure of the rule oflaw whereas Western investment favorsbetter governance environments ldquoAs aresult Chinese investment in strong andweak governance environments is aboutthe same but its share of foreigninvestment is higher in the weakgovernance statesrdquo they write

Chinas yuan devaluation is less anattempt to invigorate exports than amisstep on the path to creating a moremarket-oriented exchange rate DavidDollar a senior fellow at the Brookings

said in an interview with TheInstitutionNikkei

Bloomberg Brief Economics Asia

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Fielding Chen

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Yuki Masujima

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