UOB Economic-Treasury Research www.uob.com.sg/research Company Reg No.

193500026Z

Friday, 10 June 2011

Asian Markets
News Highlights
n

Foreign Exchange Rates (as at 09 June 2011) As at 10 June Asian High Asian Low NY High NY Low

SGD MYR IDR THB PHP TWD KRW HKD CNY

1.2293 3.0160 8,518 30.39 43.21 28.71 1,080.50 7.7819 6.4750

1.2320 3.0220 8,526 30.44 43.22 28.78 1,085.00 7.7843 6.4805

1.2276 3.0080 8,515 30.39 43.22 28.66 1,081.60 7.7787 6.4730

1.2344 -

1.2292 n

Asian currencies weakened against the USD yesterday, as a weak Australian jobs number set a dour tone for the Asian trading session. Added to that, persisting concerns about the weak US economy and dithering by Eurozone officials about rescuing Greece still abound. KRW and TWD were both 0.2% weaker to 1082.90/USD and 28.780/ USD respectively. The PHP was slightly higher at 43.23 from 43.24 on Wed, while the THB was 0.5% weaker at around 30.43 at the close of Asian trade yesterday. The IDR was a tad lower at 8520 compared to 8515, while the MYR was 0.1% weaker at 3.019. SGD was weaker at the close of Asian session at 1.2298 compared to 1.2288. The SGD was further weighed down at the close of the LDN-NY trade, to 1.2313. On the tradeweighted basis, SGD NEER has gone up to around 1.7% this morning, from the 1.5% level yesterday. A range of 1.2254-1.2314 for the USD/SGD might be likely for today, corresponding to 1.5-2.0% above the midpoint of the policy band. RMB was nearly flat against the USD, with the PBoC setting the RMB weaker yesterday compared to a record central parity rate on Wed. The RMB was at 6.4759, compared to 6.4757 on Wed. 1Y RMB NDF was lower at 6.381/USD against 6.369/USD from 6.3540/USD on Tue, pricing in a lower appreciation pace of 1.7%. This morning, the PBoC continued to set the RMB weaker at 6.4853/USD vs 6.4830/USD. Asian stock indexes were mostly lower yesterday, with risk appetite receding on the somber economic data from softer Australian jobs numbers and slow US recovery as well as uncertainty surrounding Greeces bailout. The Nikkei was up 0.2%, but the Shanghai CI was 1.7% lower, the Hang Seng fell 0.2%, and the Kospi lost 0.6%. In the SE Asian markets, the STI retreated 0.2%. Bank of Korea this morning raised its key interest rate to 3.25% from 3.00%, resuming its tightening moves to temper inflation, after maintaining the same rate in the past two meetings. The Ministry of National Development in Singapore released 17 private residential sites onto its confirmed list as part of its land supply program for the 2H 2011. The yield from these sites is about 8100 residential units, the same as the supply from the confirmed list in the first half. The moves will help ease the climbing property prices, but may spark fears about oversupply in the coming months.

UOBs Estimation of SGD NEER (as at 10 June 2011 at 9am) Assuming 3.0% on each side of the pivot point: Lower-End .........................................................................1.2893 Upper-End .........................................................................1.2142 Mid-Point .........................................................................1.2518 Interest Rates Current Next CB Meet UOBs Forecast SGD 3-Mth SIBOR MYR O/N Policy Rate IDR O/N Rate THB 1-Day Repo PHP O/N Reverse Repo TWD Discount Rate KRW Base Rate HKD Base Rate CNY 1-Yr Wking Capital 0.44% 3.00% 6.75% 2.75% 4.50% 1.75% 3.00% 0.50% 6.31% 07 Jul 12 Jul 13 Jul 16 Jun 24 Jun 10 Jun 3.00% 6.75% 3.00% 4.50% 1.75% 3.25% 0.50% 6.56%

Stock Indices (as at 09 June 2011) Singapore Straits Times Kuala Lumpur Composite Jakarta Composite Bangkok SET Philippines Composite Taiwan TAIEX Seoul Composite Hong Kong Hang Seng Shanghai SE Composite IX Mumbai Sensex 30 Key Events Date Event Closing 3097.57 1550.89 3806.19 1016.85 4224.34 9000.94 2071.42 22609.83 2703.35 18384.90 % chg -0.17 -0.06 -0.51 +0.22 -0.73 -0.07 -0.57 -0.23 -1.71 -0.05

Asian Markets Friday, 10 June 2011 p2

Malaysias industrial production unexpectedly shrank 2.2% y/y in Apr, from the 2.9% growth in Mar. Market was expecting a 2.7% growth. M/m, output fell 7.6%. The slowdown came from lower manufacturing and mining.

Data Focus: Indonesia Interest Rate Steady in June

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Bank Indonesia (BI) kept its benchmark interest rate steady at 6.75% today for the fourth consecutive meeting as expected. The central bank said it will continue to use a mixture of policy tools including monetary and macroprudential policies to manage inflation and liquidity risks. BI also highlighted the use of currency appreciation to contain domestic inflationary pressure although it said it will ensure that the IDR appreciation will not go out of line with the regional trend. USD/IDR was steady at 8,520 after the policy announcement and we see room for the pair to ease to 8,400 by end-3Q11. Headline inflation has continued to ease to just 6.0%y/y in May from its peak of 7.0% in January and is likely to continue to go lower to under 5% y/y by July or August as a result of the easing food prices. That suggests BI will likely remain on hold in the next two months. However, we see the prospect of inflation picking up again in the later part

of the year due to base effect. Another factor that would prompt the BI to resume interest rate normalization in the third quarter is the upward trajectory in the core inflation which has been rising since January despite weaker headline inflation. Going into 2012, we believe that BIs slow interest rate normalization could increase the inflation risk for Indonesia, particularly in 1H12. In its policy statement, BI highlighted risks from stronger domestic demand and the high inflation expectations, and is forecasting that price pressures will rise next year. For now, the BI is expecting inflation of 4%-6% this year and 3.5%5.5% in 2012.
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As such, we are maintaining our call for BI to hike its benchmark interest rate by 25 bps each in 3Q11 and 4Q11. That will bring the benchmark BI rate to 7.25% at the end of 2011. Even then, the risk continues to be that the BI would delay the hikes to the later part of the year. So far, the central bank has only hiked once, by 25 bps in February. Capital inflow is one of the key considerations holding back the BI. 3.25%. On Fri, data from China pertaining to exports, new yuan loans and money supply will be out, with exports expected to slow to 22.0% from 29.9%.

Economic Indicators Local Time Indicators

09/06 1130 1201 1201 10/06 0500 0900 1000 1000 1530 TH Consumer Confidence Econ MA Ind Prod y/y MA Manufacturing Sales value y/y

Mth
May Apr Apr

Actual
71.1 -2.2 15.5

UOB Forecast
-

Mkt Forecast
2.5 -

Previous
70.5 2.9% 14.4%

SK PPI y/y KRW Base Rate CH Exports y/y CH Imports y/y TH Foreign Reserves

May Jun 10 May May Jun 3

6.2

3.25 -

3.00 20.4 22.0 -

6.8% 3.00% 29.9% 21.8% 186.2b

Jimmy Koh (65) 6539 3545 Jimmy.KohCT@UOBgroup.com

Suan Teck Kin, CFA (65) 6539 3922 Suan.TeckKin@UOBgroup.com

Ho Woei Chen (65) 6539 3948 Ho.WoeiChen@UOBgroup.com

Chow Penn Nee (65) 6539 3923 Chow.PennNee@UOBgroup.com

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