Asia Strategy Focus
grow from other financing channels such as corporatebond market and trust products. As we enter a new year,bank lending should also get its seasonal boost as banksget new annual calendar lending quota and points tofurther monetary stimulus.
Chart 3: Non bank lending is keeping total financing high
J a n - 0 9 M a y - 0 9 S e p - 0 9 J a n - 1 0 M a y - 1 0 S e p - 1 0 J a n - 1 1 M a y - 1 1 S e p - 1 1 J a n - 1 2 M a y - 1 2 S e p - 1 2 J a n - 1 3
New Total Financing New Bank LendingRMB trn 3mma
Source: PBoC, CEIC, SEB
Asia outside China
Similar to China, a big macro driver for rest of Asia hasbeen credit growth that has supported domestic demandin lieu of weak exports. The view going forward here is abit mixed based on location. Total credit growth hasbeen generally slowing (Chart 4, blue line) but theslowdown has been led mostly by North Asia (Korea,Taiwan, Hong Kong). On the other hand, South Asia’sdomestic economy will be relatively better supported bycredit growth going forward. This makes sense since theless developed South Asia is financially less developed(smaller debt) and has room to increase credit growth.Also, a low global inflationary environment has allowedthe higher growth and inflation prone South Asianeconomies to continue to use credit growth to fuel thedomestic economy.
Chart 4: Credit growth is dispersed by location
M a r - 0 8 S e p - 0 8 M a r - 0 9 S e p - 0 9 M a r - 1 0 S e p - 1 0 M a r - 1 1 S e p - 1 1 M a r - 1 2 S e p - 1 2
-50510152025South AsiaNorth Asia ex ChinaAsiaCredit growth % yoy averages
Source: CEIC, SEB
Inflation not a show stopper for domestic demand
What can stop the credit induced growth? Inflation willbe the show stopper since that will lead to higher interestrates and raise the price for obtaining loans andfinancing. Chart 5 shows that currently, inflation isgenerally declining and isn’t threatening to end the creditstory soon. Of course, directionally as we get deeper intorecovery, inflation will start rising. A more assured outlookwill also reignite investment and the capital expenditurecycle, increase the demand for loans at these low interestrates and lead to more inflationary pressures. But, at thisstage of the recovery with a soft patch expected in exportsin the first half of 2013, inflation in Asia shouldn’t be anissue for most of 2013.
Chart 5: Inflation is still declining generally
-2-10123456789TWD PHP INR US SGD IDR Avg MYR CNY HKD THB KRW VNDCPI % YoY 3m ppt change
Source: CEIC, Bloomberg, SEB
Intervention slowing down FX moves
Despite a growth recovery, Asian FX hasn’t moved asmuch because of intervention. Chart 6 shows changes inFX reserves since September and every economy has beenintervening with the exception of Thailand. Furthermore,relatively stable USDCNY fixing since late October has alsolikely encouraged Asian central banks to intervene sincetheir biggest export competitor hasn’t move. Lastly, withthe benign inflation backdrop, central banks don’t see anyrush to tighten via an appreciating currency.
Chart 6: Intervention preventing faster appreciation
126.96.36.199.188.8.131.52.80.6-1.1-2-10123456HKD SGD PHP IDR MYR KRW TWD CNY INR THB% Change in FX reserves from Sep 2012 to current
Source: CEIC, Bloomberg, SEB
How to position going forward?Our view is that investors should retain long Asiancurrencies positioning.
Export recovery will support thecurrent account and higher relative growth to G3 willencourage capital inflow.However, 3 months ago the call was directional when arecovery was not consensus. Now, a continued recoveryscenario is largely consensus and prices have moved toreflect the view. Therefore
, we think it is better to