Entries for 'Asia Pacific'

On April 3 the Chinese authorities added a weaker USDCNY exchange to its arsenal of responses to US tariffs. This shift in PBOC policy should push Asia currencies weaker in the coming weeks. Most Asia currencies have a high (and positive) correlation with movements in USDCNY.

Vietnam, Taiwan, Malaysia, and Thailand have the largest export exposure to the US market. Significant space exists for monetary easing to help mitigate the negative impact of US tariffs on growth. FX weakness could, however, constrain policy easing unless commodity price declines are significant.

• China’s resilient export growth last year was driven by both weak demands at home and strong demand from abroad. • For example, the strong steel exports were pushed by domestic supply while global demands pulled copper exports. • The links between export growth, capacity utilization, and overcap

• The approved 2025 budget projects a higher deficit of 4% of GDP, up from 3% in previous years. • The combined deficit of the general fiscal and government fund accounts is significantly higher, ranging from 8.7% to 9.9%. • The outcome depends on the use of carryovers and transfers

This piece discusses the growth, issuance, investment, regulation, and market conditions of China's Panda bonds. We expect great growth potential for this bond market thanks to more friendlier regulation and attractive RMB funding costs.

The BoK paused its rate cutting cycle in January in the face of heightened FX volatility in large part driven by a surge in domestic political uncertainty. We see the BoK resume its cutting cycle in February to a (below-consensus) low of 2% in 2025 as downside growth risks continue to dominate.

• We examine various explicit and implicit industrial subsidies, including those for electricity, land, and credit. • Subsidies to listed industrial firms peaked in 2022 and have been declining since then. • While state-owned companies enjoy many privileges, they do not appear to receive disproport

The USDCNY is facing pressure from the upcoming U.S. tariffs and widening yield spreads.

The RBI is set to kick off a rate cutting cycle in Feb and possibly with a jumbo 50bps cut in response to the growth slowdown. At the same time, we expect the RBI to manage a relatively swift nominal exchange rate depreciation that is consistent with a more competitive real exchange rate.

• The Politburo and the annual Economic Work meeting have called for "more proactive" fiscal policies. • They have also advocated for "properly accommodative" monetary policies for the first time since 2008. • However, monetary easing faces challenges such as weakened banking earnings and increased

China's response to an imposition of higher tariffs by the Trump Administration will likely use a number of tools, including trade and investment diversification, retaliatory tariffs, and exchange-rate depreciation. That said, Chinese manufacturers have limited capacity to reduce exports.

We expect India's growth to slow back to trend in FY25/26 of 6.5% and see the RBI cutting its policy rate by a cumulative 100bps to 5.5% by the end of 2025. Over the medium term, if strong reforms are implemented as envisaged by the government, potential growth could rise to a new range of 7-8%.

Beijing recently unveiled its fiscal package, which ended up mostly mitigating financial risks from local governments and banks. Although additional borrowing and fiscal spending are limit, the hope is to improve banks' and LGs' financial conditions and, thus, their lending and spending capacity.

We see the Bank of Korea delaying the next rate cut to 2025Q1 and delivering a terminal policy rate of 2.25% by 2025Q3. Our analysis finds that structural forces have driven Korea's neutral rate to below the U.S. thus keeping the policy rate and 10y bond yield below the U.S. over the economic cycle.

A weaker $CNY under a Trump 2.0 presidency would have spillover effects on other EM-Asia currencies. Our analysis indicates that MYR and KRW are more sensitive to $CNY movements, while VND and TWD may be able to mitigate some negative impact as beneficiaries of supply chain diversification.

There is a growing gap between the goods trade surplus reported by Customs and BoP data, raising doubts about the authenticity of China’s trade and GDP data. We find that the growing “in China for China” production by foreign firms is likely the main driver of this widening gap.

The 3rd Plenum held in July proposed significant reforms to help local government finances but still left a lot untouched.

Since late September, Beijing has delivered significant policy support, with greater emphasis on demand-side stimulus. However, a sustained growth recovery requires further significant fiscal support and bold structural reforms.