SEB's Asia Strategy Focus: Top 5 FAQ on Japanese Yen

7/28/2019 SEB's Asia Strategy Focus: Top 5 FAQ on Japanese Yen

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Asia Strategy Focus

Focus: Top 5 FAQ on Japanese Yen

After an explosive 2012, Yen weakness is taking a breather. Is the short Yen trade over? We answer the 5 most frequentlyasked questions.

1) Which flows are driving Yen weakness?

We now have complete set of balance of payments or flow data for May, which covers the timeframe after Bank of Japandecided to double the size of its monetary base on April 4 th known as Kuroda Shock day. What do the flows tell us?

First, we have not had the massive outflows from Japanese purchasing foreign securities in hunt for yield (red and green line inChart 1). Japanese retail characterized by the term Mrs. Watanabe is missing in action. Instead, the outflows are led by theblack line known as other investment, which are mostly short term bank credit flows and typically speculating on currencymovements. The flow data matches with the speculative positioning data by the commitment of traders report assembled byour Senior Quantitative Strategist Karl Steiner (see FX Quant and Positioning Weekly) where JPY short positions are in the topquartile relative to the last 12 months.

The flows tell us that JPY is still extremely vulnerable to risk sentiment. If we get a risk off event from European political risk

or US growth scares, the leveraged community will have to reduce positions by buying Yen and strengthen the Yen. Since verylittle underlying flows are supporting the weaker Yen, the moves will be rapid and volatile. We think Yen vols will remain highrelative to its G10 colleagues (Chart 60).

Chart 1: This time outflow is only short term speculation Chart 2: Japanese are sending money home led by banks

Japan BOP 12 month rollin sum as % of GDP

-10

-8

-6

-4

-2

0

2

4

6

8

04 05 06 07 08 09 10 11 12 13

Current Account FDI Equity Inv

Debt Inv Other Inv

-4

-3

-2

-1

0

1

2

3

4

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Total

Public

BanksLife Insurance

Inv Trusts/Retail

Portfolio flow, JPY trn Flows to Japan, JPY +

Flows out of J apan, JPY

Source: Bloomberg, CEIC, SEB

2) What is Mrs. Watanabe doing?

An aggressive Japanese monetary policy was supposed to start the hunt for yield by Mrs. Watanabe (retail) and domesticinstitutions. We were looking for similar flow pattern to 2005 and 2006 circled in red in Chart 1 where debt investmentoutflows would match the speculative flows but this isnt happening. Chart 2 shows the flow breakdown by investor groups

and the purple line, representing investment trusts and retail are sending money abroad and looking for yield and higher risk.However, life insurance companies, also yield hunters have hardly allocated money abroad and most importantly, banks havebeen selling large amounts of foreign bonds, which is translating to capital inflows and preventing Yen weakness. One morething to notice is that the public pension funds allocation (e.g. Government Pension Investment Fund, GPIF) gets lots ofattention in the press but as you can see from the red line in Chart 2, it has very little influence. We recommend ignoring thedevelopments by public institutions. The conclusion is that Mrs. Watanabe is shopping abroad but she has a smaller walletcompared to the banks and preventing Yen weakness.

3) Where are the Japanese shopping?

As you saw from Chart 2, there are some outflows happening and we can see which assets in which economies are the winnersand losers from Japans monetary easing. Table 1 below shows the net purchases of securities between Japan and the rest of

the world as of May 2013. A negative number is a net outflow from Japan and a positive number is net inflow in billion of Yen.There are three main findings from the below table.

First, global equities are losers. Japanese and the rest of the world are attracted to the rising Nikkei equity market and creatinglarge inflows into Japan, which strengthen Yen.

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Second, bond performance varies by location. For example, Asian and high yielding emerging market bonds are winners. Thehunt for yield is happening. European bonds are also winners as Japanese investors find the pressures in the European crisiseasing. The losers are Australia and US. Selling Australian bonds is going against historical behavior. We are hearing that thedomestics a) do not like the falling yield and the risk of it going lower b) the weakening Australian dollar and c) the positioningwhere foreigners own 70% of the total Australian government bonds. The other big loser is US bonds. Japan has been sellingUS Treasuries and mortgage backed securities in fear of the Fed exiting Quantitative Easing. When looking strictly at USTreasuries holdings on Chart 4, Japan has sold only about US$30bn since the peak in September 2012. If we assume that US10 year yield rises towards 3% reached in July of 2011, Japan still has to sell another US$200bn worth of US Treasuries.

Lastly, the biggest inflow Japan is currently receiving is into the money market from UK. The flows are channeled throughLondons financial center. Our best guess is that these are from international money market funds where problems inEuropean banks have left no choice but to invest in Japanese money markets. In a world of low yield on short term moneymarket instruments, safety is the only concern.

Table 1: Japans net purchases of securities (negative figure means net outflow from Japan)

(bn J PY)Last 6m Last 3m Last 6m Last 3m Last 6m Last 3m Last 6m Last 3m

Total 20,482 12,759 14,911 8,598 284 3,667 936 494Asia -1,679 -421 2,684 1,596 -451 -801 -3,913 -1,217

China -22 37 118 84 -100 -642 -39 599

HongKong 1,088 911 2,111 1,412 -173 -97 -851 -404

Taiwan 5 -14 4 -8 7 -2 -6 -4

Korea -20 60 47 10 -45 69 -21 -19

Singapore -1,609 -734 437 211 139 36 -2,185 -982

Thailand -726 -399 8 -48 -134 -59 -600 -293

Indonesia -245 -153 1 -19 -52 -37 -195 -97

Malaysia -110 -101 -33 -33 -76 -64 0 0

Philippines -14 -7 -16 -14 -7 0 9 7

India 14 4 19 10 -4 -5 0 0

Vietnam -21 -19 -8 -8 -4 -2 0 0USA 14,139 9,130 6,432 3,652 8,502 5,384 -795 94

Mexico -187 -82 -7 19 -181 -102 0 0

Brazil 225 169 9 4 215 165 1 0

Caymans -2,630 -1,132 -130 -150 -1,397 -365 -1,103 -618

Australia 1,184 612 247 108 1,400 405 -463 99

New Zealand -491 -325 1 -3 -38 -44 -453 -278

Norway 259 284 -2 -10 801 606 -540 -312

EU 18,217 8,278 5,072 3,040 -4,055 -1,846 17,200 7,083

UK 41,167 21,583 4,501 3,013 -470 -215 37,136 18,785

Germany 148 8 213 105 -320 -195 255 98

France -6,904 -3,265 330 6 -1,359 -444 -5,875 -2,827

Netherlands -1,307 -254 41 6 -1,455 -287 107 27Italy 311 231 46 32 119 139 -77 -18

Belgium -1,356 -852 25 13 -78 -117 -1,302 -748

Luxembourg -13,994 -9,217 -291 -226 -1,040 -1,051 -12,663 -7,940

Sweden 558 272 72 46 405 193 81 33

Spain -211 -91 54 33 -32 1 -235 -126

Ireland -121 11 21 -16 -95 54 -47 -28

Austria 90 -100 0 0 -87 -145 172 43

Russia -253 -135 N/A N/A N/A N/A N/A N/A

South Africa -33 6 N/A N/A N/A N/A N/A N/A

Money MarketsBonds & NotesTotal Equity

Source: CEIC, SEB

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Chart 3: Japan is selling some US Treasuries Chart 4: Abes Approval rating remains high

18%

19%

20%

21%

22%

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

% of Total (LHS)

J apan (RHS, trn USD)

Holding of US Treasury Securities

62.0

69.0

76.0

66.068.0

70.0

68.0

59.0

55

60

65

70

75

80

Dec-12 J an-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13

Abe Cabinet Approval rating %, Nikkei

Source: CEIC, Nikkei, SEB

4) What should we look for in the upcoming Upper House election on July 21?

First, here is the election math. 121 seats or half of the 242 total seats in the Upper House are up for election on July 21. PrimeMinister Abes ruling coalition already has 58 seats and needs 63 seats to gain the majority. Abes LDP party has 49 seats and

a win of 72 seats would give his party the majority without relying on coalition partners. LDP already controls the lower houseand winning the upper house is crucial to take control of both houses and pass reforms.

Abes coalition party should have no problems winning the election on the 21 st. Hes cabinets approval rating remains high at59% even though it has fallen from the peak of 76% in April (Chart 4). To put things into perspective, the former DPJgovernment lost the last election when its approval rating fell to 27% so Abe has a large cushion. In addition, in this election,the opposition partys inability to organize and poor rating make this election a sure win for Abe. Abe will have control of theunited government for 3 years.

The policy environment appears positive going forward but two main risks remain. One, Abe may shift his focus away fromeconomics to politics. Abe is known to have urges to adjust Japans view on historical issues and international relations.Second, Abe has pushed back the timing of the consumption tax hike, which is a short term relief for the economy. Anypremature tightening of fiscal policy via tax hikes can quickly reverse the momentum in economic recovery and Bank ofJapans intentions of exiting deflation. The further the tax hike is pushed back, the better it is for the Yen weakening trade.

5) Is the short Yen trade over? What needs to happen to make Yen weaker from here?

The longer term view on a weaker Yen is straightforward. Fundamentally, growth in the US should recover faster than Japan andmakes USD more attractive than Yen. However, this longer term view is difficult to trade for shorter term players. We are looking forthe following to push Yen weaker from here.

First, continued stabilization in Europe will help Yen weakness. As mentioned above, one of the big inflows to Japan is in the moneymarket. A healthier European banking sector would slow these flows to Japan.

Second, we need to see clearer direction from the Fed. Typically, rise in US yields is negative Yen but this relationship is not holdingbecause Japan is already long US bonds and higher yields lead to selling USD and buying Yen. In addition, the rise in US yield ishurting emerging markets and delays domestic institutions and retail from investing heavily abroad. Lastly, short term, end to US QEwould lead to deleveraging and speculators would need to cut their short Yen positions. Therefore, we dont have a short Yenposition in our portfolio now and look for a flush out in positions before accumulating. USDJPY around 95 looks attractive to us.

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India (INR)Macro: India is and has been about the current account deficit and inflation. Despite a slowdown in the domestic economy, importshave not slowed enough and the current account deficit remains. Imports and the trade deficit remain high from populist policiessuch as subsidize fuel prices that have prevent price responses on demand. In a world of volatile capital flows from troubles inEurope and uncertainty in US monetary policy, current account deficit economies like India become vulnerable. That is the badnews. The good news is that inflation has been coming down and with a steady monsoon season, WPI will remain in check.

FX: RBI has followed Brazil and Turkey and hiked the discount rate by 200bps to protect against capital outflow and constantpressure on INR. This will remove liquidity and prevent speculative shorts on INR and make intervention by RBI more effective.INR depreciation will take a breather. It also helps that US yields have stopped rising. However, going forward, the measuresdont address Indias core issue of weak exports relative to its strong demand for oil and imports. Over the longer 12 monthtimeframe, we think INR will have problems appreciating and see the current move as temporary.

Chart 12: No reprieve in trade deficit Chart 13: Indias inflation easing

-22-20-18-16-14-12-10-8

-6-4-202468

10

05 06 07 08 09 10 11 12 13

Trade Balance

ex oil

bn USD

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6

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10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13

-6

-4

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0

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12

US PPI WPI India

3mma yoy %


Indonesia (IDR)Macro: The cyclical growth has likely peaked. Indonesia benefited from a clean balance sheet allowing for credit growth thatgenerated domestic demand (Chart 14). However, credit growth will slow as the central bank is forced to hike interest rates toprevent 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 ofsubsidized fuel and current account deficit can lead to a sudden capital outflow and destabilize the economy. The second slowdownwill come in form of exports since China is going through monetary tightening. As a commodity exporter, the fall in prices andquantity demanded will slow exports and the domestic investments that went into infrastructure associated with mining.

FX: The spot market, which was stable from central bank intervention but now it is slowly moving upwards with the NDF market.NDF IDR weakened due to risk aversion and investors hedging their FX exposure of their bond holdings. The NDF now providesattractive yields to go long IDR but we remain sidelined because of Chart 15. EM local currency bond index shows that year to dateas turned negative and almost erasing the gains from 2012. Redemption pressures are on the rise and investors may have sell theunderlying bonds than just hedge their FX exposure, which can hurt the spot market and lead to further sell-off in the NDF market.

Chart 14: Strong loan growth Chart 15: EM bond redemption pressures on the rise

0

5

10

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30

35

40

45

03

04

05

06

07

08

09

10 1

112

13

Loan growth % yoy

100

105

110

115

120

125

J an-12 Apr-12 J ul-12 Oct-12 J an-13 Apr-13 J ul-13

Citi Rafi local currency bond index


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Korea (KRW)Macro: If Mr. Bernanke is right and the US economy recovers, this should help Korea and exports. However, the domestic recoverywill 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 willlikely 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: KRW will face headwinds from relative rise in US yields. First, the bond inflows will slow since US yields are catching up to Koreanbonds. Second, Korea is also the most impacted by JPY weakness (from USD strength) since it competes head on in autos,construction and ship building with the Japanese. Also, Bank of Korea wont mind having a weaker currency since thecompetitiveness with JPY wont erode. The central bank as usual will be intervening in the markets to prevent rapid weakness inKRW but it will not stop the general direction.

Chart 16: High private debt level Chart 17: Yield differential will weaken KRW

debt % of GDP

0

50

100

150

200

Korea

Japan

EU

Malaysia

US

China

Singapore

Thailand

Brazil

India

Philippines

Indonesia

Corp Debt

Household Debt

US Korea 5 year yield spread 100bps

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

05 06 07 08 09 10 11 12 13

Source: CEIC, SEB

Malaysia (MYR)Malaysias economy will go through a mild slowdown from fiscal contraction. PM Najib gave cash handouts to influence the latestelection and now those impacts will weigh on growth. We would also watch for him to pass unfavourable but positive long term

economic measures such as increase fuel prices, which are also negative short term. Over the medium term, we expect Najib tocontinue with his liberalization plans and especially help the equity market. Malaysias equity market is often expensive sincedomestic funds and public institutions buy and hold Malaysian stocks, which make foreigners reluctant to buy as it is over-priced anddiscourages Malaysian companies from aggressively increase profitability. With domestic institutions divesting, that will force moreforeign inflows and should lead to more efficient Malaysian companies.

MYR will weaken with USD strength. Usually, MYR sell-off is limited because of its strong current account surplus but that ischanging as the trade surplus is rapidly diminishing from a strong domestic economy (imports) relative to exports. MYR can weakenmore than usual. Lastly, we are a bit worried if things like fuel price hikes are not passed since that can lead to a sell-off in the bondmarket and foreign bond positioning in Malaysia is relatively high and can lead to foreigners selling.

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 ratingupgrade to investment grade by S&P and Fitch and becomes another support for PHP. We are worried short term about PHP sinceinterest rates are very low and unlike Indonesia, the central bank is not turning hawkish to prevent capital outflow.

Singapore (SGD)Singapore looks to be turning better. Exports and growth have finally turned where 2Q GDP accelerated to 3.7%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 byincreased auction price to own a car) and for housing, more cooling measures have been introduced such as increasing stamp dutyon home purchases by 5-7 percentage points. Singapores inflation was outpacing its trading partners but it has converged (Chart20). We think Singapore will join China and choose to sacrifice high growth for a stronger currency. Growth is recovering but will notreach the previous levels of close to 10% and settle around 4-5%. Inflation has eased but will likely pick up since strict immigrationpolicies will keep underlying inflation in tact. SGD NEER has corrected and it is trading 80bp above mid. Once it starts to dip to mid,we think there is value to enter into long SGD. Currently, it is still too early.

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Chart 20: Singapores high inflation easing towards Asia avg Chart 21: SGD NEER has corrected but still strong

-2

0

2

4

6

8

08 09 10 11 12 13

Singapore Asia AverageCPI % yoy

112

113

114

115

116

117

118

119

120

121

122

123

Jan

-12

Fe

b-1

2

Mar-

12

Apr-

12

May

-12

Jun

-12

Ju

l-12

Aug

-12

Sep

-12

Oc

t-12

Nov

-12

Dec

-12

Jan

-13

Fe

b-1

3

Mar-

13

Apr-

13

May

-13

Jun

-13

Ju

l-13

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 around8%yoy and credit growth is at 9.3%yoy. The domestic economy is strong considering exports are growing less than 1%yoy.

TWD has a two step appreciation process in a cycle. Appreciation at the beginning of the cycle is slow while inflation is low andaccelerates towards the end of the cycle once interest rate hikes are well underway. We think the approach will be similar this timearound. Inflation is currently running low (Chart 22) as the effects of a one time boost in energy prices in early 2012 wear off andreduce the need for currency appreciation. In this environment of USD strength and capital outflow, TWD will weaken but relative toother 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 sinceThailand 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 postthe election of Prime Minister Yingluck Shinawatra in July 2011 that that removed the political uncertainty. However, the currencyhas lagged the equity performance since the floods required increase in imports for reconstruction and hurt the trade balance andperiodically put Thailand in a current account deficit (Chart 23). Going forward, we think THB will be the more vulnerable currency inthe region since it has very little support from the current account and deleveraging can lead to capital outflow. We would changeour minds if the central bank started to sound more hawkish but that has yet to happen.

Chart 22: Taiwan: lower inflation = less TWD appreciation Chart 23: Thailand: trade balance will improve

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Credit% yoy 3mma Taipei Property prices

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07 08 09 10 11 12 13

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Trade Balance (RHS)

Exports (LHS)

Imports (LHS)

% yoy 3mma bn USD


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Asia FX Portfolio 2013

We have had a tough month in June and are down -1.4% for the year. All of our losses came in the JPY short correction where welost 2.4% in the portfolio (seeAsia Strategy Comment: Japan: The Silent Treatment; June 13, 2013). On other Asian currencies, wemade gains being long USDMYR (+3.7%) and gained carry in being short USDCNH (+6bp).

We are looking to short JPY around 95 and look to put on relative value trades such as long CNY vs THB, long SGD vs MYR or PHP.PHP is seasonally weak in August and become a candidate for short since it also has very little carry cost.

Open Trades

Date of

Entry

Weight

in PF

Spot at

Entry

Fwd at

Entry Target Stop

Current

Spot Price

Price at

Exit

Date of

Exit Profit*

Weighted

Profit**

Closed Trades

Long MYR vs USD 1M NDF 11-Jan-13 17% 3.0165 3.021 3.06 28-Jan-13 -1.29% -0.2%

Long KRW vs USD 1M NDF 28-Jan-13 33% 1087.5 1089 1103.2 14-Mar-13 -1.30% -0.4%

Short J PYKRW 14-Mar-13 33% 11.532 12.11 4-Apr-13 -5.01% -1.7%

Long USDJ PY 4-Apr-13 33% 92.91 98.58 26-Apr-13 6.10% 2.0%

Short AUDUSD 27-Mar-13 17% 1.0484 0.9985 13-May-13 4.76% 0.8%

Short USDINR 1M NDF 13-May-13 33% 54.94 55.20 56.17 23-May-13 -1.77% -0.6%

Short USDINR 1M NDF 16-Apr-13 33% 54.44 54.67 56.20 23-May-13 -2.79% -0.9%

Long USDMYR 1M NDF 8-May-13 50% 2.976 2.98 3.091 6-J un-13 3.70% 1.9%

Long USDJ PY 21-May-13 33% 102.45 95 13-J un-13 -7.27% -2.4%Short USDCNH 1M fwd 21-May-13 166% 6.1268 6.138 6.1348 19-Jun-13 0.06% 0.1%

Year to Date Return 2013 -1.45%*Profit is calculated as spot at entry to current spot plus carry. We are assuming that carry is earned evenly, every day for simplicity.

** Weighted Profit is the profit of the trade multiplied by the weight in the portfolio.

Monthly performancePerformance (%)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2013 -0.19 0.17 -0.99 1.29 -0.87 -0.86 -1.45%

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FX Tracker

Performance

What stands out? 1) The cyclical Korea and Taiwan are starting to outperform. They lagged the region over the last 12 months andwere likely the least crowded 2) Indonesia hiked interest rates and yields are rising much faster than the rest. We think it still hasfurther to rise. 3) Despite more stable yields, the 2s5s part of the yield curve is steepening. Short term rates can fall and rise fromFed comments and US data but we think the longer yields will remain anchored since the Fed has pushed up term premium bymaking QE exit a higher probability. Also, higher oil prices despite fall in other commodities may be keeping long end yields in check.

Chart 30: Currencies Chart 31: Equity markets

(5.5)

(4.5)

(3.5)

(2.5)(1.5)

(0.5)

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2.5

3.5

DXY

KRW

TWD

CNH

CNY

ADXY

SGD

PHP

THB

MYR

IDR

EUR

INR

AUD

JPY

1M change from 17/06 to 16/07(% vs USD)

(4)

(2)

02

4

6

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12

14

Nikkei

PCOMP

TWSE

SENSEX

SPX

STI

KLCI

MSCIAxJ H

SI

EuroStoxx

Kospi

SET

JCI

HSCEI

SHCOMP

1M return from 17/06 to 16/07(%)

Chart 32: 5 year rates Chart 33: 2 year rates

(20)

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160

180

IDR

INR

PHP

UST

CNY

MYR

SGD

AUD

THB

TWD

KRW

Bunds

JPY

1M change from 17/06 to 16/07(bp)

(20)

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6080

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IDR

INR

PHP

CNY

THB

MYR

TWD

UST

KRW

JPY

SGD

AUD

Bunds


Chart 34: 2 year 5 year slope Chart 35: Commodities

(5)

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10

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20

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30

35

40

IDR

PHP

UST

SGD

AUD

MYR

INR

CNY

TWD

THB

KRW

Bunds

JPY


3.5

-2.2

-5.2 -5.2

-7.6(10)

(8)

(6)

(4)

(2)

0

2

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6

Oil brent Copper Nat gas Palm oil Gold

1M change from 17/06 to 16/07(%)

Source: Bloomberg, SEB

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ForwardsChart 41: 3 month implied carry annualized vs. 1 month ago vs USD

(2)02

46

810

121416

18

2022

24

IDR

INR

CNY

AUD

CNH

THB

MYR

KRW

EUR

SGD

HKD

JPY

PHP

TWD

(1)01

23

45

678

9

1011

12

7/16/2013 6/17/2013 change over the last 1mth, (rhs)

(%) (ppts)

What stands out? Carry has settledlower as USD strength fears subside withthe exception of IDR.

CNH carry has fallen in the short end as

the liquidity crunch subsides but NDFyields remain high and hence we like NDFbetter than CNH currently.

INRs 1M carry has collapsed with theinterest rate hikes and looks too rich.

PHPs negative carry makes it an attractivetarget for shorts.

Chart 42-1: CNH Outright Chart 42-2: CNH forward fwd curve Chart 42-3: CNH forward fwd curve ann.

6.12

6.17

6.22

6.27

6.32

Spot 1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

0.00

0.50

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1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

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1.0

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1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 43-1: CNY NDF Outright Chart 43-2: CNY NDF fwd curve Chart 43-3: CNY NDF fwd curve ann.

6.05

6.10

6.15

6.20

6.25

6.30


Current (16-Jul )

1-mth ago (17-Jun )

0.0

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Current (16-Jul )

1-mth ago (17-Jun )

(%)

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1M 3M 6M 9M 12M

Current (16-Jul )1-mth ago (17-Jun )

(%)

Chart 44-1: CNY Onshore Outright Chart 44-2: CNY onshore fwd curve Chart 44-3: CNY onshore fwd curve ann.

6.12

6.15

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6.21

6.24

6.27


Current (16-Jul )

1-mth ago (17-Jun )

0.0

0.5

1.0

1.5

2.0

2.5

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

0.0

1.0

2.0

3.0

4.0

5.0

1M 3M 6M 9M 12M


(%)


11


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Asia Strategy Focus

Chart 45-1: HKD Outright Chart 45-2: HKD forward fwd curve Chart 45-3: HKD forward fwd curve ann.

7.74

7.75

7.76

7.77


Current (16-Jul )

1-mth ago (17-Jun )

-0.14

-0.12

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-0.20

-0.15

-0.10

-0.05

0.00

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 46-1: IDR Outright Chart 46-2: IDR forward fwd curve Chart 46-3: IDR forward fwd curve ann.

9,000

9,500

10,000

10,500

11,000

11,500


Current (16-Jul )

1-mth ago (17-Jun )

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

0.0

5.0

10.0

15.0

20.0

25.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 47-1: INR Outright Chart 47-2: INR forward fwd curve Chart 47-3: INR forward fwd curve ann.

53

55

57

59

61

63

65


Current (16-Jul )

1-mth ago (17-Jun )

0

1

2

3

4

5

6

7

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

0

5

10

15

20

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 48-1: KRW Outright Chart 48-2: KRW forward fwd curve Chart 48-3: KRW forward fwd curve ann.

1,105

1,110

1,1151,120

1,125

1,130

1,135

1,140

1,145


Current (16-Jul )

1-mth ago (17-Jun )

0.00

0.20

0.400.60

0.80

1.00

1.20

1.40

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

0.0

0.5

1.01.5

2.0

2.5

3.0

3.5

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)


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Asia Strategy Focus

Chart 49-1: MYR Outright Chart 49-2: MYR forward fwd curve Chart 49-3: MYR forward fwd curve ann.

3.02

3.07

3.12

3.17

3.22

3.27


Current (16-Jul )

1-mth ago (17-Jun )

0.0

0.5

1.0

1.5

2.0

2.5

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

0.0

0.5

1.01.5

2.0

2.5

3.0

3.5

4.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 50-1: PHP Outright Chart 50-2: PHP forward fwd curve Chart 50-3: PHP forward fwd curve ann.

42.4

42.642.8

43.0

43.2

43.4

43.6


Current (16-Jul )

1-mth ago (17-Jun )

-0.2

0.0

0.2

0.4

0.6

0.8

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart51-1: SGD Outright Chart 51-2: SGD forward fwd curve Chart 51-3: SGD forward fwd curve ann.

1.248

1.251

1.253

1.256

1.259

1.261


Current (16-Jul )

1-mth ago (17-Jun )

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

1M 3M 6M 9M 12M


(%)

Chart 52-1: THB Outright Chart 52-2: THB forward fwd curve Chart 52-3: THB forward fwd curve ann.

30.0

30.5

31.0

31.5

32.0


Current (16-Jul )

1-mth ago (17-Jun )

0.0

0.5

1.0

1.5

2.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

1.5

2.0

2.5

3.0

3.5

4.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)


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Asia Strategy Focus

Chart 53-1: TWD Outright Chart 53-2: TWD forward fwd curve Chart 53-3: TWD forward fwd curve ann.

28.5

29.0

29.5

30.0


Current (16-Jul )

1-mth ago (17-Jun )

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-2.0

-1.5

-1.0

-0.5

0.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 54-1: EUR Outright Chart 54-2: EUR forward fwd curve Chart 54-3: EUR forward fwd curve ann.

1.290

1.300

1.310

1.320

1.330

1.340


Current (16-Jul )

1-mth ago (17-Jun )

0.00

0.20

0.400.60

0.80

1.00

1.20

1.40

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-0.24

-0.22

-0.20-0.18

-0.16

-0.14

-0.12

-0.10

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 55-1: JPY Outright Chart 55-2: JPY forward fwd curve Chart 55-3: JPY forward fwd curve ann.

92.0

94.0

96.0

98.0

100.0

102.0


Current (16-Jul )

1-mth ago (17-Jun )

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

-0.5

-0.4

-0.4

-0.3

-0.3

-0.2

-0.2

-0.1

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

Chart 55-1: AUD Outright Chart 55-2: AUD forward fwd curve Chart 56-3: AUD forward fwd curve ann.

0.86

0.88

0.90

0.92

0.94

0.96


Current (16-Jul )

1-mth ago (17-Jun )

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)

2.0

2.2

2.4

2.6

2.8

3.0

1M 3M 6M 9M 12M

Current (16-Jul )

1-mth ago (17-Jun )

(%)


14


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Asia Strategy Focus

Volatility

Chart 60: 3 month annualized implied volatility

(4)

(2)

0

2

4

6

8

10

12

14

16

JPY

INR

AUD

IDR

KRW

EUR

MYR

PHP

THB

SGD

TWD

CNH

CNY

(2)

(1)

0

1

2

3

4

5

6

7

87/16/2013

6/17/2013change over the last 1mth, (rhs)

(%) (ppts)

What stands out? Vol is declining frommore stable US yields but still rising in INR,AUD and EUR while JPY vol has fallen. JPYvol will likely remain high from the large

speculative positions.

Chart 61: CNH Chart 62: CNY NDF Chart 63: HKD

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

Implied Realized

0.0

0.5

1.0

1.5

2.0

2.5


Implied Realized

0.0

0.2

0.4

0.6

0.8

1.0


Implied Realized

Chart 64: IDR Chart 65: INR Chart 66: KRW

0

5

10

15

20


Implied Realized

0

2

4

6

8

10

12

14


Implied Realized

0

4

8

12

16


Implied Realized

Chart 67: MYR Chart 68: PHP Chart 69: SGD

0

3

6

9

12


Implied Realized

0

2

4

6

8

10


Implied Realized

0

2

4

6

8

10


Implied Realized


15


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Asia Strategy Focus

Chart 70: THB Chart 71: TWD Chart 72: EUR

0

2

4

6

8

10


Implied Realized

0

2

4

6

8


Implied Realized

0

3

6

9

12


Implied Realized

Chart 73: JPY Chart 74: AUD

0

5

10

15

20


Implied Realized

0

3

6

9

12

15


Implied Realized


16


17/18

Asia Strategy Focus

ForecastsFX Spot 3M 6M 9M 12M

USD/CNY 6.13 6.11 6.10 6.08 6.07

USD/CNH 6.14 6.11 6.10 6.08 6.07

USD/HKD 7.76 7.80 7.80 7.80 7.80

USD/IDR 9953 10150 10200 10200 10200

USD/INR 60.2 60.0 61.5 61.5 61.0

USD/KRW 1151 1175 1200 1200 1200

USD/MYR 3.21 3.28 3.30 3.30 3.30

USD/PHP 43.6 44.5 45.3 45.3 45.3

USD/SGD 1.28 1.29 1.30 1.30 1.30

USD/THB 31.4 32.0 32.5 32.5 32.5

USD/TWD 30.1 30.4 30.8 30.8 30.8

EUR/USD 1.28 1.26 1.24 1.22 1.20

USD/J PY 101 105 108 112 115

EUR/SEK 8.76 8.43 8.35 8.27 8.20

EUR/NOK 8.02 7.70 7.65 7.57 7.50

USD/SEK 6.83 6.68 6.73 6.78 6.83

USD/NOK 6.26 6.10 6.17 6.20 6.25

AUD/USD 0.91 0.92 0.91 0.89 0.88

Policy Rates Current 3M 6M 9M 12M

CH lending 6.00 6.00 6.00 6.25 6.25

CH deposit 3.00 3.00 3.00 3.25 3.25

KR 2.50 2.50 2.50 2.50 2.50

IN 7.25 7.50 7.75 7.75 7.75

ID 6.50 7.00 7.25 7.25 7.25

MA 3.00 3.00 3.00 3.25 3.25

PH 3.50 3.50 3.75 3.75 3.75

TH 2.50 2.75 2.75 3.00 3.00

TW 1.88 1.88 1.88 1.88 2.00

US 0.25 0.25 0.25 0.25 0.25EU 0.50 0.25 0.25 0.25 0.25

SW 1.00 1.00 1.00 1.00 1.00

NO 1.50 1.50 1.50 1.50 1.75

AU 2.75 2.75 2.75 2.75 2.75

Real GDP % yoy 2011 2012 2013 2014

China 9.3 7.8 7.5 7.5

India 7.5 5.4 5.7 6.0

Indonesia 6.5 6.2 6.0 6.0

Korea 3.6 2.0 2.8 3.6

Singapore 5.3 1.3 2.6 4.1

US 1.8 2.2 2.0 3.2

Euro zone 1.6 -0.6 -0.7 0.7

Sweden 3.7 0.8 1.3 2.5

Norway 1.2 3.1 1.7 2.4

CPI % yoy 2011 2012 2013 2014

China 3.3 3.5 3.3 3.5

India WPI 9.5 6.5 5.9 6.5

Indonesia 5.1 4.3 6.0 5.5

Korea 2.9 2.2 2.6 2.6

Singapore 2.8 4.5 3.3 3.5

US 3.1 2.1 1.6 1.6Euro zone 2.7 2.5 1.4 0.9

Sweden 3.0 0.9 -0.1 0.8

Norway 1.2 0.8 1.5 1.7

Source: Bloomberg, CEIC, SEB.

17


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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 constituteindependent, 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 otherwiseindicated, any reference to a research report or research recommendation is not intended to represent thatreport/recommendation and is not in itself considered a recommendation or research report.

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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 extentpermitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this document or itscontents.

The information contained herein is subject to change without notice and may differ from the views, opinions and estimates held orexpressed by other SEB personnel. Any forward-looking statements, opinions, and expectations are subject to risk, uncertainties andother factors that may cause actual results to differ materially from those set forth in any forward-looking statements herein. Pastperformance is no guarantee of future results. SEB does not express any opinion on legal, tax, accounting or similar consequences ofthe transactions contemplated by this Communication. CLIENT is strongly advised to inform themselves about, and retain separateexpertise in respect of, such consequences.

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