Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2013 research.standardchartered.com Euro-area peripheral sentiment improving EU Commission sentiment survey
Sources: Eurostat, Standard Chartered Research Greece Portugal 70 80 90 100 110 120 Jan-07 Jan-09 Jan-11 Jan-13 Key data releases/events SC Prior Monday 24 June SG CPI, % y/y 2.0 1.5 TW IP, % y/y 0.40 -0.88 VN CPI, % y/y 6.60 6.36 DE IFO bus. climate indicator 106.2 105.7 Tuesday 25 June HK Exports, % y/y 3.4 7.7 PH Trade balance, USD bn -0.71 -0.59 US Case-Shiller housing, % y/y 10.50 10.87 US Durable goods orders, % m/m 3.6 3.5 US New home sales, '000s SAAR 465 454 Wednesday 26 June SG IP, % y/y 2.8 4.7 Thursday 27 June TW Lead. indicators index, % m/m 0.6 0.5 TW Benchmark interest rate, % 1.875 1.875 EA Economic sentiment 90.0 89.4 US Core PCE price index, % y/y 1.1 1.1 US Personal income, % m/m 0.2 0.0 Friday 28 June KR IP, % y/y -1.6 1.7 JP Hhold spending, % y/y 2.0 1.5 JP IP, % m/m, SA 1.2 0.9 JP Natl CPI ex-fresh food, % y/y -0.1 -0.4 JP Retail sales % y/y -0.1 -0.2 TH Current account, USD mn -1.64 -3.36 DE CPI, % y/y 1.6 1.6 US Chicago manufacturing PMI 55.0 58.7 25-30 June VN GDP YTD, % y/y 5.0 4.9
Key central bank policy calls Now Next Chg US 0.25 Q3-2015 +25 Euro area 0.5 Q3-2015 +25 China 6.00 Q1-2014 +25 India 7.25 Q4-2013 -25 Korea 2.50 Jul-2013 -25 Indonesia 6.00 11-Jul-13 +25 Thailand 2.50 H2-2014 +25 South Africa 5.00 Q2-2014 +50 Brazil 8.00 10-Jul-13 +50 Source: Standard Chartered Research
Economics Weekly | 19:45 GMT 20 June 2013 21-Jun In the aftermath of the Fed
Markets will look for further guidance from Fed speakers Euro-area surveys should confirm a positive trend Japanese data likely to continue to benefit from policy stimulus Elsewhere in Asia, activity is picking up, despite uncertainty in China
Overview Sarah Hewin, +44 20 7885 6251, Sarah.Hewin@sc.com
Fed speakers this week are likely to add colour to the 19 June FOMC statement and Chairman Bernankes comments. Bernanke warned that asset-purchase tapering could begin later this year though the path of the economy remains key. This week, durable goods orders, personal income and expenditure, and new home sales will be in focus. The monthly core PCE inflation is expected to remain near record lows, but Bernanke expressed confidence that inflation will move higher in the medium term.
Strong headline US durable goods orders (DGO) are likely, due to a surge in aircraft orders. But ISM new orders were weak, and a likely contraction in core DGO (ex-transportation) would suggest a softening investment trend. We expect modest growth in personal spending, but will be looking for signs that the fiscal squeeze is taking a toll. US housing data (the S&P Case-Shiller housing price index and new home sales) are likely to confirm the ongoing uptrend in the real estate market.
Competitiveness, jobs and growth will be the themes at the EU leaders summit on 27-28 June, with discussions on country-specific structural reforms and national budgets (concluding the 2013 European co-ordination semester). Banking union will also be on the agenda, with difficult questions on the restructuring and winding up of failing banks still to be resolved. Euro-area economic surveys have improved in the past couple of months, although they still point to weak activity. Sentiment indicators are expected to confirm that the regions economy is moving in the right direction, albeit at a very modest pace, with even the peripheral economies doing better. The IFO business climate index should indicate that Germany is leading the other major economies in the region, even though manufacturing remains soft.
It is a busy data week in Japan; we expect to see ongoing signs that policy stimulus, optimism over reforms and yen depreciation are supporting economic recovery. Industrial production, retail sales and household spending should continue to recover, while deflation is likely to have moderated in May.
Elsewhere in Asia, there should be further signs that activity is picking up gradually, despite nervousness about Chinas economy and the liquidity squeeze there. Industrial production should move higher in Singapore, South Korea and Taiwan, and GDP is likely to have accelerated in Vietnam in Q2-2013. Trade data in Hong Kong, the Philippines and Thailand may, however, reveal still-weak global demand. Taiwans central bank is expected to remain cautious at its policy meeting on 27 June; we have lowered our growth forecast to 3.0% from 3.9% in 2013, lowered our CPI forecast, and pushed back our first rate hike expectation to Q1-2014.
Economics Weekly
GR13AP | 21 June 2013 2 Key events/data in the week ahead Africa Economy Key data/event Period GMT Forecast Previous Wednesday 26 June Ghana CPI, % y/y May 10:00 10.5 10.6 Friday 28 June South Africa Trade balance, ZAR bn May 12:00 -10.00 -15.02
Asia Economy Key data/event Period GMT Forecast Previous Friday 21 June Vietnam National assembly releases economic assessment Monday 24 June Taiwan Unemployment rate, %, SA May 00:30 4.17 4.19 Singapore CPI, % y/y May 05:00 2.0 1.5 Taiwan Industrial production, % y/y May 08:00 0.40 -0.88 Vietnam CPI, % y/y Jun 6.60 6.36 Tuesday 25 June Philippines Trade balance, USD bn Apr 01:00 -0.71 -0.59 Philippines Imports, % y/y Apr 01:00 -0.5 -8.4 Philippines Total monthly imports, USD bn Apr 01:00 4.75 4.92 Hong Kong Trade balance, HKD bn May 08:30 -36.5 -42.7 Hong Kong Exports, % y/y May 08:30 3.4 7.7 Hong Kong Imports, % y/y May 08:30 3.5 9.0 Wednesday 26 June Singapore Industrial production, % y/y May 05:00 2.8 4.7 New Zealand Trade balance, NZD mn May 22:45 350 157 New Zealand Exports, NZD bn May 22:45 4.10 3.95 New Zealand Imports, NZD bn May 22:45 3.75 3.80 Thursday 27 June Taiwan Leading indicators index, % m/m May 08:00 0.6 0.5 Taiwan Benchmark interest rate, % 27-Jun 09:00 1.875 1.875 South Korea Industrial production, % y/y May 23:00 -1.6 1.7 South Korea Industrial production, % m/m, SA May 23:00 0.5 0.8 Japan Overall hhold spending, % y/y May 23:30 2.0 1.5 Japan Jobless rate, % May 23:30 4.2 4.1 Japan Job-to-applicant ratio May 23:30 0.89 0.89 Japan Natl CPI, % y/y May 23:30 -0.5 -0.7 Japan Natl CPI ex fresh food, % y/y May 23:30 -0.1 -0.4 Japan Natl CPI ex food, energy, % y/y May 23:30 -0.3 -0.6 Japan Industrial production, % m/m, SA May P 23:50 1.2 0.9 Japan Industrial production, % y/y May P 23:50 -0.9 -3.4 Japan Retail sales, % m/m, SA May 23:50 1.1 0.6 Japan Retail sales, % y/y May 23:50 -0.1 -0.2 Friday 28 June Thailand Current account, USD mn May 07:30 -1.64 -3.36 Thailand Private investment, % m/m May 07:30 -0.8 -1.6 Thailand Private consumption, % m/m May 07:30 1.0 -0.5 India Current account deficit, USD bn Q1 11:30 18.5 32.5 25-30 Jun Vietnam Retail sales YTD, % y/y Jun 12.7 11.9 Vietnam Industrial production, % y/y Jun 8.0 6.7 Vietnam GDP YTD, % y/y Q2 5.0 4.9 Vietnam Imports YTD, % y/y Jun 20.6 20.5 Vietnam Exports YTD, % y/y Jun 19.3 18.0 Vietnam Trade balance, USD mn Jun 927 -553 24-26 June Thailand Customs-based exports, % y/y May 07:30 -4.4 2.8 Thailand Customs-based imports, % y/y May 07:30 -4.0 8.9 Thailand Customs-based trade balance, USD mn May 07:30 -1.76 -4.14
Economics Weekly
GR13AP | 21 June 2013 3 Europe Economy Key data/event Period GMT Forecast Previous Friday 21 June UK PSNB ex interventions, GBP bn May 08:30 12.6 6.3 Euro area ECB announces 3Y LTRO payment Weekly 10:00 Monday 24 June Germany IFO business climate June 08:00 106.2 105.7 Wednesday 26 June Germany GfK consumer confidence July 06:00 6.5 6.5 UK CBI reported sales May 09:00 -6 -11 Thursday 27 June Germany Unemployment change, 000s June 07:55 10 21 Germany Unemployment rate, % June 07:55 6.9 6.9 Euro area M3 money supply, % y/y May 08:30 3.3 3.2 UK GDP, % q/q (final) Q1 08:30 0.3 -0.3 Euro area Economic sentiment June 09:00 90.0 89.4 Euro area Business climate June 09:00 -0.62 -0.76 EU EU leaders summit 13.45 Friday 28 June Switzerland KOF leading indicator June 07:00 1.15 1.10 Germany CPI, EU harmonised, % y/y June P 09:00 1.6 1.6
Latin America Economy Key data/event Period GMT Forecast Previous Friday 21 June Brazil IPCA-15 inflation % m/m Jun 14:00 0.36 0.46 Mexico Monetary policy meeting minutes Jun 15:00 Monday 24 June Brazil Central bank weekly economist survey 13:30 Mexico Bi-weekly CPI % bw/bw Jun-15 15:00 0.04 0.02 Tuesday 25 June Mexico IGAE economic activity index % y/y (m/m) Apr 15:00 1.6 (0.2) -1.8 (0.3) Friday 28 June Chile Monetary policy meeting minutes Jun 14:30 Colombia Monetary policy decision, % Jun 3.25 3.25
United States Economy Key data/event Period GMT Forecast Previous Monday 24 June United States Feds Fisher speaks in London 16:30 Tuesday 25 June United States Durable goods orders, % m/m May 12:30 3.6 3.5 United States Durable goods orders ex transportation, % m/m May 12:30 -0.5 1.5 United States S&P Case-Shiller 20-city housing price, % y/y Apr 13:00 10.5 10.87 United States Conference board consumer confidence Jun 14:00 75.2 76.2 United States New home sales, 000s SAAR May 14:00 465 454 Wednesday 26 June United States GDP, %q/q SAAR Q1 T 12:30 2.3 2.4 United States Core PCE, % q/q Q1 T 12:30 1.3 1.3 Thursday 27 June United States Initial jobless claims, 000s 21 Jun 12:30 345 354 United States Core PCE price index, % y/y May 12:30 1.1 1.1 United States Personal income, % m/m May 12:30 0.2 0.0 United States Personal spending, % m/m May 12:30 0.3 -0.2 United States Pending home sales, m/m May 14:00 1.1 0.3 United States Feds Powell speaks on monetary policy 14:30 United States Feds Lockhart speaks on the economy 16:30 Friday 28 June United States Feds Lacker speaks on economic outlook 13:15 United States Chicago manufacturing PMI Jun 13:45 55.0 58.7 United States U of Michigan consumer confidence Jun F 13:55 83.0 82.7 United States Feds Williams speaks on monetary policy 19:30
Economics Weekly
GR13AP | 21 June 2013 4 Recent macro publications (13-19 June 2013)
On the Ground Taiwan Still on the path to recovery Eddie Cheung | Lawrence Lai | Tony Phoo We lower our GDP growth forecast for 2013 to 3.0% (from 3.9%); keep 2014 forecast unchanged at 4.3% We revise down our 2013 inflation forecast to 1.4% (from 1.8%); revise up 2014 to 1.9% (from 1.3%) We expect policy makers to keep the benchmark rate unchanged in 2013 and resume hikes in Q1-2014 We revise up our USD-TWD forecasts, in line with our GDP growth and inflation forecasts We have an Underweight duration outlook on TWD bonds; curve to bear steepen on rising UST yields
On the Ground China The smog in Beijing Lan Shen | Li Wei | Stephen Green The really important trends to define 2013-14 growth in China resist analysis The bonfire of the chops has just started, again and Premier Li reportedly wants more Some are calling for a rate cut, but it is very unclear what help this would be We revise down our CPI inflation calls for 2013-14 and push our rate hike call into 2014
Economic Alert India RBI is cautious now, data-dependent later Anubhuti Sahay Nagaraj Kulkarni Priyanka Kishore Samiran Chakraborty The RBI leaves policy rates unchanged on recent INR weakness and upside risks to inflation We expect no rate cut in July on marginally higher inflation; a rate cut in H2-FY14 is data-dependent Supply pressure to offset support from rate-cut expectations; we remain Neutral duration A dovish RBI is positive for the INR but global conditions will determine the extent of recent gains
On the Ground Philippines Infrastructure boom to boost growth Jeff Ng We now expect the economy to grow faster 6.9% in 2013, 6.3% in 2014 and 7.0% in 2015 Core scenario: GDP growth to be boosted by PPP and non-PPP investment growth, and to peak in 2015 We expect more PPP projects to be finalised by end-2013, and PPP construction to peak in 2014-15
On the Ground United States Fed likely to emphasise gradualism John Calverley | John Davies | Sophii Weng | Thomas Costerg Chairman Bernanke is set to hint that policy tightening remains distant as the economy is still fragile We still expect the Fed to start reducing QE in January, although risks are skewed towards an earlier date The underlying momentum is softer than initially expected: we lower slightly our H2 growth forecast
Economic Alert India We expect a repo rate cut; it is a close call Anubhuti Sahay | Nagaraj Kulkarni | Priyanka Kishore | Samiran Chakraborty We expect the RBI to cut the repo rate by 25bps on 17 June Recent INR weakness and inflation worries pose risks to this view and may keep the RBI on hold Rates market does not expect a repo rate cut; stay Neutral GoISec duration Indication of no more rate cuts may stall INR gains ahead of the FOMC outcome on 19 June
Economic Alert Pakistan FY14 budget to stimulate growth Sayem Ali The PMLN governments first budget targets 4.4% growth and a 35% increase in investment spending The FY14 deficit target is 6.3% of GDP, down from 8.8% in FY13, on higher taxes and subsidy cuts The budget is in line with IMF requirements for approval of a new USD 5bn Extended Term Facility Positive for the PKR; bond yields are likely to rise on inflation concerns and increased deficit financing
Economics Weekly
GR13AP | 21 June 2013 5 Summary tables Central bank outlook
Bold, underlined: Change in forecast since last Economics Weekly Source: Standard Chartered Research Current 1Y change Next Benchmark rate (%) (bps) Meeting Date SC forecast Date Action Majors US Fed f unds target rate 0.25 0 31-Jul-13 Q3-2015 +25bps 15-Dec-08 -75bps Euro area Ref i rate 0.50 -50 4-Jul-13 Q3-2015 +25bps 2-May-13 -25bps UK Bank rate 0.50 0 4-Jul-13 Q1-2015 +25bps 5-Mar-09 -50bps Japan O/N call rate 0.0 - 0.1 0 11-Jul-13 Q1-2016 +10bps 19-Dec-08 -20bps Canada O/N lending rate 1.00 0 17-Jul-13 Q3-2014 +25bps 9-Sep-10 +25bps Australia Cash rate 2.75 -75 2-Jul-13 Q3-2013 -25bps 7-May-13 -25bps New Zealand Cash rate 2.50 0 25-Jul-13 Q4-2013 +25bps 10-Mar-11 -50bps Switzerland 3M LIBOR target 0.0-0.25 0 19-Sep-13 on hold -- 3-Aug-11 -25bps Asia China 1Y lending rate 6.00 -25 N/A Q1-2014 +25bps 6-Jul-12 -31bps Hong Kong Base rate 0.50 0 31-Jul-13 Q3-2015 +25bps 16-Dec-08 -100bps Taiwan Discount rate 1.88 0 27-Jun-13 Q1-2014 +12.5bps 30-Jun-11 +12.5bps Korea Base rate 2.50 -75 11-Jul-13 Jul-13 -25bps 9-May-13 -25bps Philippines Reverse repo rate 3.50 -50 25-Jul-13 Q4-2013 +25bps 25-Oct-12 -25bps Malaysia O/N policy rate 3.00 0 11-Jul-13 Q4-2013 +25bps 5-May-11 +25bps Indonesia BI rate 6.00 25 11-Jul-13 11-Jul-13 +25bps 13-Jun-13 +25bps Thailand 1-day repo 2.50 -100 10-Jul-13 H2-2014 +25bps 29-May-13 -25bps India Repo rate 7.25 -75 30-Jul-13 Q4-2013 -25bps 3-May-13 -25bps Pakistan Discount rate 9.50 -250 Jun-13 Jan-14 +50bps 7-Dec-12 -50bps Sri Lanka Repo rate 7.00 -50 12-Jul-13 Q1-2014 -25bps 10-May-13 -50bps Vietnam Ref i rate 7.00 -500 N/A Q3-2013 -50bps 13-May-13 -100bps Other Emerging Markets South Af rica Repo rate 5.00 -50 18-Jul-13 Q2-2014 +50bps 19-Jul-12 -50bps Kenya Central bank rate 8.50 700 July-2013 Q2-2014 +50bps 7-May-13 -100bps Nigeria Monetary policy rate 12.00 575 23-Jul-2013 Q1-2014 +100bps 20-Sep-11 +275bps Ghana Prime rate 16.00 200 19-Jul-13 Q1-2014 -50bps 22-May-12 +100bps Uganda Central bank rate 11.00 800 Jul-2013 Mar-14 +50bps 4-Dec-12 -50bps Brazil Selic rate 8.00 -50 10-Jul-13 10-Jul-13 +50bps May-13 +50bps Chile Overnight rate 5.00 0 11-Jul-13 Q4-2013 +25bps Jan-12 -25bps Colombia Min. repo rate 3.25 -200 28-Jun-13 Q4-2013 +25bps Mar-13 -50.bps Mexico TdF Rate 4.00 -50 12-Jul-13 Q3-2013 -50bps Mar-13 -50.bps Peru Ref erence rate 4.25 0 11-Jul-13 Q1-2014 +25bps May-11 +25bps Turkey 1-week repo 4.50 -125 23-Jul-13 Sept -13 -25bps 16-May-13 -50bps UAE Overnight repo rate 1.00 -50 N/A N/A +25bps 19-Dec-08 -25bps Saudi Arabia Reverse repo rate 0.25 -50 N/A N/A +25bps 16-Jun-09 -25bps Last change Forecast next change We expect QE to continue until year-end at USD 85bn/month, before being reduced slowly. The ECB is likely to utilise non-conventional policies to further stimulate growth We expect the asset-purchase total to rise to GBP 400bn by end Q3-2013. The monetary base target is an annual pace of about JPY60-70tn. We expect BI to hike the BI rate and the FASBI rate both by 50bps to 6.50%and 4.75% respectively in Q3-2013
Economics Weekly
GR13AP | 21 June 2013 6 Rates forecasts Forecasts in BLUE (RED) indicate upward (downward) revision
MSCI EM Data as of 18 Jun 2013 Aggregate Current 12-month index 12-month return Weight 1 EPS growth PE ratio PBV Dividend yield Dividend payout Performance Country local index forecast 2 forecast 2
GR13AP | 21 June 2013 10 FICC on-the-run Rates 10Y bond 3M 3-12M Fundamentals Current trades Majors United States 2.36
Fiscal tightening will weigh on Q2 growth, but we expect very gradual upward momentum to be maintained.
EU* 1.56
The economy remains weak; we expect the refi rate to stay low for a prolonged period following the cut on 2 May.
Asia ex-Japan China 3.46
Near-term performance will be affected by ultra-tight liquidity conditions; weaker-than-expected macro data, inflation likely to be contained for longer and potentially delay the rate-hiking cycle.
Hong Kong 1.66
We see HKD short rates as range-bound at current low levels on flush liquidity; long-dated bonds to track USTs; higher volatility expected.
India 7.35
Supply pressure to offset support from rate cut expectations.
Indonesia 6.73
Yields to rise on risk of higher supply, weak global demand and low real yields. Sell IDR 10Y bond Malaysia 3.50
Structural demand to limit foreign selling. We prefer the belly due to long-end supply risk. Receive 5Y MYR IRS Long 7Y MGS Pakistan 10.95
Concerns about higher bond supply to offset monetary policy easing.
Philippines 3.35
Fundamentals are positive, but yields are too low; we expect a sell-off, particularly at the long end. Sell PHP 20Y bond Singapore 2.11
Long-dated SGS to rise with USTs and near-term supply risk.
South Korea 3.24
Dovish BoK to mitigate Fed QE tapering fears, while IRS curve should bull steepen. 2/10 KRW IRS steepener Taiwan 1.39
Curve to bear steepen driven by rising yields on UST and recovering local macro outlook.
Thailand 3.75
We see a risk of a bond sell-off amid potential capital-flow measures. THB 3/10Y IRS steepener
Vietnam 7.75
Yields have bottomed ahead of the anticipated last policy rate cut by the SBV.
Sub-Saharan Africa Ghana** 19.35 Prospect of a larger sovereign bond to alleviate pressure on local yields. Long GHS 3Y Kenya 11.85
New fiscal-year supply outlook to weigh on sentiment. Nigeria 14.73 Supportive bond supply and inflation outlook. South Africa 7.59
Sell-off is overdone; valuations to revive offshore investor appetite.
Uganda 13.90 Increased bond supply weighs on sentiment.
Zambia 16.00 Range-trading amid an uncertain monetary stance. * German government bond yields; ** 3Y benchmark Source: Standard Chartered Research
Economics Weekly
GR13AP | 21 June 2013 11 FICC on-the-run Credit Sector 3M Rationale Picks Pans Sovereigns Tight spreads and higher susceptibility to a UST sell-off skew risk/reward to the downside. The PHILIP curve trades tight on a rating-adjusted basis; however, positive fundamentals and strong investor support will support the space. While the INDON curve offers a decent pick-up over the global BBB sovereigns, supply risk and fundamental concerns should limit spread tightening. The fundamental backdrop for HY sovereigns will remain challenging in the next 6-12 months, which could lead to volatility. INDON 18S PHILIP 19N MONGOL 18 INDON 23/43 PHILIP 24N/37 Financials
Senior Thai names appear slightly more attractive than Malaysian names. We prefer Korean policy banks over commercial banks, although they are rich in the Asian context. SBIIN 18 KOFCOR 17 MAYMK 17 SHNHAN 18 BCHINA 17 Tier 2 While liquidity can be patchy, some of the Indian UT2s offer an attractive yield pick-up over Indian seniors and other Asian sub-debt. We also like some of the HK LT2s, which are attractive from a spread vs. DV01 perspective. OCBC23 BCHINA 20 BNKEA 22 ICICI 22
Tier 1 Tier 1 names offer value on a rating-adjusted basis, though liquidity is an issue. SBIIN 7.14 49 High-grade corporates
China corporates While Chinese SOEs offer a pick-up over US credits on a rating-adjusted basis, they appear fairly valued versus the Korean and Hong Kong credits. Hence, we are Neutral on the space. CHINAM 22 VANKE 18 HAIAIR 20 SINOCH 20 SINOPC 43 Hong Kong corporates HK property-sector names have solid credit profiles, while the industrial names enjoy high ratings and a strong local bid. We believe some triple-B corporates offer good risk/reward. SUNHUN 22 LIFUNG 20 WHEELK 17 NOBLSP 20 CHINLP 23 CHEUNG 49 Korea corporates Korean quasi-sovereigns no longer trade very tight against China and Hong Kong credits. Korean private corporates face weakening fundamentals and ratings overhang (in most cases). KOSEPW 17 SKM 18 HIGHWY 17 POHANG 21 Other HG corporates While the Indonesian quasi-sovereigns offer some value, we think corporates in India and Malaysia are fairly valued. Singapore and Thai corporates are a bit rich, in our view. PERTIJ 22 NTPCIN 21 TOPTB 23 High-yield corporates
China corporates While most developers have reported strong 5M-2013 contracted sales, the sales of some may be negatively affected by policy controls in the coming months. We still expect most of them to achieve their full-year sales targets. The developers liquidity positions are strong, backed by offshore fund-raising this year. Similarly, refinancing pressure on the industrial corporates has eased, although their earnings and credit metrics will remain under pressure. We maintain our Overweight recommendation on the sector given that selected bonds still offer RV and/or good carry. Also, the recent market dislocation and correction have provided more attractive entry levels than before. EVERRE 15 YUZHOU 15 AGILE 16 CHINSC 17 SUNAC 17 CIFIHG 18 MIEHOL 16 MINMET 18 XIN 18 Other HY corporates HY bonds from the Philippines, India and Indonesia continue to provide a diversification opportunity for investors. ADROIJ 19 FIRPAC 19 CIKLIS 19 Middle East
Sovereigns We expect fundamentals to remain robust given supportive oil prices. That said, we see better value in the financials and quasi-sovereigns, with the exception of Dubai, where we like the sovereign. DUGB 17 QATAR 18 DUGB 23 Quasi-sovereigns We like the Abu Dhabi quasi-sovereigns, as they are a close proxy for the illiquid sovereign curve. While Dubai Inc. tightened considerably in 2012, HY Dubai corps. continue to offer value within the region. SECO 43 TAQAUH 21 MUBAUH 21 QTELQD 21 DEWA 20 EMAAR 16 INTPET17 QTELQD 43 Financials The NPL cycle in the UAE has bottomed out, in our view. Dubai financials look attractive at current levels and should perform in line with sovereign paper. Abu Dhabi financials have defensive qualities. FGBUH 2.862 17 GULINT 17 TAMWEE 17 EBIUH 23 EBIUH 49 NBADUH 17 QNBK 20 KWIPKK 20 Source: Standard Chartered Research
Economics Weekly
GR13AP | 21 June 2013 12 FICC on-the-run FX Spot 3M FX weighting 3-12M FX weighting Fundamentals Current trades Asia ex-Japan CNY 6.13 Mild CNY appreciation in 2013 and medium-term Buy 5M USD- CNH, Sell 5M USD-CNY NDF HKD 7.76 No peg change likely; downward pressure on USD-HKD to abate over time KRW 1,126 BoP surplus to limit KRW losses near-term, drive medium-term rebound TWD 29.85 TWD to stabilise and recover medium-term on strengthening fundamentals Sell USD-TWD 1Mx6M spread IDR 9,923 Current account deficit and FX policy to weigh on the IDR short-term MYR 3.12 MYR to outperform medium-term on current account and palm oil PHP 42.82 Stretched local asset valuations to counter strong fundamentals SGD 1.25 MAS to maintain gradual appreciation THB 30.56 THB vulnerable to UST rate move and heavy positioning VND 21,003 Further devaluation is unlikely given slowing inflation, narrowing trade deficit INR 57.74 Volatile flows vs. high carry to keep INR range-bound near-term Sub-Saharan Africa KES 85.65 Pick-up in economic activity to weigh on trade and current account deficit NGN 161 Oil export revenues and steady portfolio inflows remain supportive GHS 2.01 Vulnerable to swing in portfolio flows as the trade deficit remains wide ZAR 10.29 Vulnerable to a still-wide current account deficit Latin America ARS 5.34 Systemic currency depreciation continues; contado con liqui trades at 8.45 BRL 2.22 IOF removal is positive for future inflows once risk appetite stabilises CLP 500 Weakening copper prices eroding Chiles terms of trade; rate cuts mooted COP 1,896 Cyclical economic weakness is weighing more heavily on local sentiment MXN 13.31 Higher US rates and reduction in MXN positioning to keep MXN soft near-term PEN 2.74 Central bank may cut USD reserve requirements as onshore liquidity tightens Majors EUR 1.32 Strong current account position supports the EUR despite elusive growth JPY 98.03 BoJ easing and anticipated Japanese investor flows drive JPY weakness AUD 0.92 Slowing portfolio flows and USD strength to weigh on AUD NZD 0.78 Stable growth and positive rate differentials are supportive going forward CHF 0.93 Recurrent euro-area tensions and current account offset valuation concerns GBP 1.55 Sluggish growth and abysmal current account dynamics remain GBP bearish CAD 1.04 Weak growth and a fragile housing market will weigh on the CAD for now Buy USD-CAD 3M forward outright Source: Standard Chartered Research
Economics Weekly
GR13AP | 21 June 2013 13 FICC on-the-run Commodities Exchange 3-6M Fundamentals Energy Oil WTI NYMEX
We expect prices to remain well supported by tight supply fundamentals and tensions in the Middle East. Coal Newcastle (USD/t) globalCOAL
Thermal coal prices are likely to face downside risks due to persistent oversupply in the market. However, the marginal cost of production may provide a price floor. Agriculture Softs Cocoa (USD/t) NYBOT
Although the market is well off its lows for the year, a further rally is being limited by firming global supply. Coffee (USc/lb) NYBOT
We favour Robusta over Arabica, as Arabica prices are likely to remain under pressure given the large crop harvest in Brazil. Sugar (USc/lb) NYBOT
Prices have slumped close to cost-of-production levels and should start to trend higher as demand improves. Fibres (USc/lb)
Cotton NYBOT
Prices have plateaued for now, but underlying demand from Asia and moderately lower global output are supportive factors. Grains & oilseeds (USc/bu) Corn CBOT
Corn prices have regained momentum following planting delays in the US Midwest. Prices should now stay range-bound unless yields slump. Soybeans CBOT
The soybean market is being pressured by a large Latam harvest, but supported by logistical delays in Latam and low old-crop inventories. Wheat CBOT
Poor weather in the US is adversely impacting crop development. Metals Base metals (USD/tonne) Aluminium LME
Demand growth is strong and producers are cutting back, but high stock levels will limit the upside. Copper LME
We see some upside risks, but worries about a supply ramp-up are expected to limit the upside. Lead LME
Medium-term prospects look good as the automotive sector improves. Nickel LME
We expect fundamentals to remain weak and the complex to stay range-bound. Tin LME
Fundamentals are improving. Zinc LME
Medium-term fundamentals are turning. Precious metals Gold Spot
We see a range-bound market for now. Investors are still selling ETFs, but physical appetite has been very strong. Palladium Spot
Supply cuts in South Africa are combining with an improving auto market. Platinum Spot
Supply cuts in South Africa are denting supply, and margins are being squeezed by rising costs. Silver Spot
We see a range-bound market for now. Source: Standard Chartered Research
Economics Weekly
GR13AP | 21 June 2013 14 Disclosures Appendix Recommendations structure Standard Chartered terminology Impact Definition Issuer Credit outlook Positive Improve We expect the fundamental credit profile of the issuer to <Impact> over the next 12 months Stable Remain stable Negative Deteriorate
Standard Chartered Research offers trade ideas with outright Buy or Sell recommendations on bonds as well as pair trade recommendations among bonds and/or CDS. In Trading Recommendations/Ideas/Notes, the time horizon is dependent on prevailing market conditions and may or may not include price targets.
Credit trend distribution (as at 19-Jun-2013) Coverage total (IB%) Positive 4 (0.0%) Stable 204 (31.5%) Negative 77 (26.9%) Total (IB%) 285 (29.8%)
Credit trend history (past 12 months) Company Date Credit outlook - - -
Please see the individual company reports for other credit trend history
Regulatory Disclosure:
Subject companies: Abu Dhabi National Energy Co., Agile Property Holdings Ltd., Bank of China (HK), Bank of East Asia Ltd., BOC Aviation PTE Ltd., Cheung Kong Infrastructure Holdings Ltd., China Merchants Holdings International Ltd., China Petroleum and Chemical Corp., China South City Holdings Ltd., China Vanke Co. Ltd., CIFI Holdings Group, CLP Power Hong Kong Ltd., Dubai Electricity and Water, Emaar Properties PJSC, Emirates Islamic Bank, Evergrande Real Estate Ltd., First Gulf Bank PJSC, First Pacific Co. Ltd., Government of Dubai, Gulf International Bank, Hainan Airways Hong Kong Ltd., ICICI Bank, IPIC GMTN Ltd., Korea Expressway Corp., Korea Finance Corp, Korea South-East Power Co. Ltd., Kuwait Projects Company, Li & Fung Ltd., Malayan Banking Bhd., MIE Holdings Corp., Minmetals Land Ltd., Mongolian People's Republic, Mubadala Development Co., National Bank of Abu Dhabi PJSC, Noble Group Ltd., NTPC Ltd., Oversea-Chinese Banking, POSCO, PT Andaro Energy Tbk., PT Cikarang Listrindo, PT Pertamina Persero, Qatar National Bank, Qatar Telecom QSC, Republic of Indonesia, Republic of the Philippines, Saudi Electricity Co., Sinochem Group, Shinhan Bank, SK Telecom, State Bank of India, State of Qatar, Sun Hung Kai Properties Ltd., Sunac China Holdings Ltd., Tamweel PJSC, Thai Oil PCL, Wheelock & Co. Ltd., Xinyuan Real Estate Co. Ltd. Yuzhou Properties Co. Ltd.
SCB and/or its affiliates have received compensation for the provision of investment banking or financial advisory services within the past one year: Abu Dhabi National Energy Co., CLP Power Hong Kong Ltd., Dubai Electricity and Water, Emaar Properties PJSC, First Gulf Bank PJSC, Gulf International Bank, ICICI Bank, Mubadala Development Co., Noble Group Ltd., POSCO, Qatar National Bank, Shinhan Bank, Sun Hung Kai Properties Ltd., Wheelock & Co. Ltd.
SCB makes a market in securities issued by this company: Bank of China (HK), BOC Aviation PTE Ltd., Cheung Kong Infrastructure Holdings Ltd., China Petroleum & Chemical Corp., Evergrande Real Estate Ltd., Li & Fung Ltd., Sun Hung Kai Properties Ltd.
SCB and/or its affiliates owns 1% or more of any class of common equity securities of this company: China Petroleum & Chemical Corp., Sun Hung Kai Properties Ltd.
SCB was a lead manager of a public offering for this company within the past 12 months, for which it received fees: Sun Hung Kai Properties Ltd.
SCB has managed or co managed a public offering for this company within the past 12 months, for which it received fees: Gulf International Bank, Qatar National Bank, Republic of Indonesia, Thai Oil PCL
Economics Weekly
GR13AP | 21 June 2013 15 Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
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Document approved by John Calverley Global Head of Macro Economic Research Data available as of 19:45 GMT 20 June 2013
Document is released at 19:45 GMT 20 June 2013
Economics Weekly
GR13AP | 21 June 2013 16 World Wide Wrap Focus issues for next 3 months One year ahead outlook
In the US, the focus will be on the pace of growth, fiscal policy negotiations, and Fed thinking on monetary policy. In Asia, activity data will be key particularly Chinas economic upswing and property-sector prospects. In Europe, the evolution of ECB and government policies, the extent of the recession, and deficit reduction will be watched, as well as the overall political situation. We expect the current global economic weakness to gradually give way to faster growth in H2, helped by recent monetary policy easing and receding risks related to Europe and US fiscal policy. Asian central banks will finish easing and some will look to tighten. Inflation should be well behaved. Key risks are politics in Europe, US fiscal policy and Middle East instability.
The acceleration of Chinas 2013 economic growth is taking a little longer than we expected. A disappointing March was followed by a moderately weak April. We expect clearer signs of momentum to emerge in H2 as housing, infrastructure and exports become more supportive. We believe short-term stimulus is unlikely unless the employment situation deteriorates markedly. We forecast GDP growth of 7.7% for 2013 and 7.5% for 2014, reflecting the slower-than-expected recovery so far in 2013 and the new governments shift in focus to economic reform. We have also lowered our CPI inflation forecast to 2.8% y/y for 2013 and to 4.1% for 2014. We expect the rate-hiking cycle to resume in Q1-2014, followed by two more hikes in Q2-2014.
Recent INR weakness complicates Indias monetary policy as it can exacerbate inflationary pressures and strain fiscal health. We expect the RBI to keep the repo rate unchanged at its July policy meeting. While the C/A deficit is likely to narrow after a series of measures to curb gold imports, funding the deficit could be challenging in the current global environment. An improvement in Indias FY14 GDP growth will depend on government efforts to unfreeze the investment cycle. A faster rebound is unlikely, as politics are likely to limit changes in economic policy. We expect FY14 GDP growth of 5.5% from 5.0% in FY13, despite benefits from lower commodity prices, interest rate cuts and higher government expenditure.
The slowdown in export growth has been largely offset by resilient domestic demand, with the exception of Singapore. Central banks in the region have finished or almost finished easing, as the growth slowdown has been modest and prospects for H2 are better. Food prices are a potential concern. Local authorities flexibility in providing monetary and fiscal stimulus, along with a possible influx of foreign capital, results in a positive growth outlook for the region. Policy makers will need to remain vigilant to the risk of a resumption of asset- and consumer-price inflation, as well as a re-acceleration of lending and money growth.
Exports should continue to recover, while headwinds to domestic demand, such as the household debt burden and weak housing market, may persist. Headline inflation is expected to stay below 2%, and the current account surplus should be maintained. The National Assembly has approved a KRW 17.3tn supplementary budget, and the BoK has embarked on another easing cycle. We expect a gradual recovery. The export outlook is improving and fiscal and monetary easing will support domestic demand. Inflation should stay below the BoKs target range, and the housing market should find a floor thanks to policy support. The government will seek new ways to finance the proposed welfare programme expansion, increasing the risk of effective tax hikes.
Oil exporters are benefiting from high oil prices, with Saudi Arabia and Qatar taking the lead in government spending and Abu Dhabi having given the green light for previously delayed projects. Regional geopolitical challenges remain, and sluggish global growth should cap y/y oil output growth in 2013. The Levant countries will be the most exposed to geopolitics. High oil prices should support GCC economies in 2013 as growth slows moderately. Non-oil-producing countries face challenges. Transition continues in some, while others still face political turmoil. The economic fortunes of key newcomer Iraq (with rising hydrocarbon exports) will depend on how quickly it removes impediments to investment and implements structural reforms.
South African economic activity will be monitored to assess the risk of further policy easing. We do not expect further easing. Kenyattas victory in Kenyas presidential election should provide a more stable backdrop for economic growth, and Kenya should experience a firmer recovery in 2013. Although global uncertainty weighs on the outlook for SubSaharan Africa, Africas broad-based economic recovery looks set to continue. Domestic growth momentum should drive GDP performance in 2013. The election in Zimbabwe will be closely watched. Politics will play a key role in determining economic outcomes.
Brazil is hiking rates as the deterioration in the inflation outlook takes centre stage. The central bank is using its tools to try to prevent BRL volatility. The industrial sector is starting to recover, and the weaker currency should help. In Argentina, strict capital controls are part of a worrisome policy backdrop. Attention in Mexico will shift to the PRIs ability to promulgate much-needed structural reforms. The region, Brazil in particular, is set for stronger growth in 2013. The more market-oriented economies including Brazil, Mexico, Colombia, Peru and Chile show promise, while distortions in Argentina and Venezuela may lead to greater challenges. FX reserves are generally robust and banks well capitalised. Dependence on commodity prices is a vulnerability.
We expect GDP growth to stay soft in Q3-2013 as fiscal headwinds continue, and the business inventory cycle turns less favourable. Inflation is likely to remain low, while the jobless rate will likely edge down gradually. The Fed intends to start tapering QE later this year, but we think this may happen in January 2014, when activity picks up more sustainably. We expect the economy to pick up materially in 2014, boosted by robust business investment, a continued housing recovery, moderating fiscal headwinds and increased bank lending. The energy boom should underpin future growth. We see the Fed ceasing QE by Q3-2014, and its first rate hike in Q3-2015, when the unemployment rate is expected to drop below 6.5%.
The focus is on activity and politics. Markets will monitor (1) whether politics in the euro-area periphery will support necessary austerity measures and reforms, ensuring backing from core governments; and (2) the ECBs stance and actions, in particular peripheral bond-market support and liquidity facilities for banks. The economy remained in recession in Q1-2013. Euro-area concerns are affecting confidence throughout the region. This adds to tight fiscal policy and still-difficult credit conditions. We expect the economy to stabilise and begin a sluggish recovery. We think officials and the ECB will eventually do enough to restore a degree of confidence among investors, even if Greece leaves the euro area.
The BoJ plans to double the monetary base over the next two years and extend JGB buying across the curve. This is likely to affect the economy by lowering the yield curve and raising inflation expectations. The focus now will be on Upper House elections (July) and the long-term growth strategy, due to be announced this summer, with hopes of new reforms.
2013 still looks challenging. Despite our higher GDP forecast, raised on the back of the quantitative and qualitative monetary easing programme, it remains unclear whether the current improvement in local sentiment will translate into a sustainable longer-term recovery. We do not expect the 2% inflation target to be achieved soon. Important disclosures can be found in the Disclosures Appendix Source: Standard Chartered Research Global Greater China South Asia South East Asia South Korea MENA Sub-Saharan Africa Latin America United States Europe Japan