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Wednesday, 15 June 2011

Asian Markets
News Highlights

Foreign Exchange Rates (as at 14 June 2011) As at 15 June Asian High Asian Low NY High NY Low


1.2309 3.0270 8,533 30.44 43.28 28.83 1,081.50 7.7833 6.4785

1.2381 3.0401 8,540 30.47 43.42 28.90 1,086.20 7.7849 6.4827

1.2315 3.0250 8,530 30.43 43.31 28.77 1,081.60 7.7817 6.4755

1.2330 -

1.2286 -

UOB’s Estimation of SGD NEER (as at 15 June 2011 at 9am) Assuming 3.0% on each side of the pivot point: Lower-End .........................................................................1.2916 Upper-End .........................................................................1.2163 Mid-Point .........................................................................1.2540 Interest Rates Current Next CB Meet UOB’s 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% 3.00% 4.50% 1.75% 3.25% 0.50% 6.31% 07 Jul 12 Jul 13 Jul 16 Jun 30 Jun 14 Jul 3.00% 6.75% 3.00% 4.50% 1.75% 3.25% 0.50% 6.56%

Asian currencies were mostly firmer against USD on Tue, responding to China data releases earlier which pared down concerns of a "hard landing" in China and China's subsequent RRR hike later in the day. Hefty gains overnight in risk assets in reaction to some positive US data after a steady stream of disappointments are likely to keep Asian currencies supported today. Data wise, it is comparatively thinner in Asia today with Singapore retail sales for Apr due in the afternoon, expected at 3.5%y/y from 0.8% in previous month. Attention is likely to be on US data releases later in the evening, with CPI for May in focus. In yesterday's actions, MYR climbed 0.4% to 3.0313/USD and KRW strengthened 0.3% to 1,082.60/USD. TWD rose 0.2% to 28.85/USD. Elsewhere, IDR edged up 0.1% to 8,538/USD and is likely to see further upside after positive comments from a minister yesterday. THB also firmed 0.1%, to 30.45/ USD though PHP eased 0.1% to 43.368/USD. SGD jumped 0.5% to 1.2308/USD late Tue, reacting to widespread gains in other asset markets overnight. The USD/SGD trading range widened to 1.2286-1.2381, in a volatile session set in motion by Chinese data in the morning and then the better-than-expected US retail data in the late session which sparked off a snapback in risk assets. With the SGD in a solid rally against the USD relative to its peers, SGD NEER this morning popped up to 1.8% above the midpoint from around 1.6% Tue morning. Such outsized gains for SGD are unlikely to persist, and the USD/SGD pair is likely to stabilize somewhat. We look for S$ tradeweighted index hovering inside the 1.5-2.0% band for now, which implies USD/SGD range of 1.2270-1.2340. RMB firmed slightly on Tue, to 6.4803/USD, from 6.4830 on Mon, led by a firmer midpoint at 6.4822 prior to start of trading vs 6.4892 on Mon. Yesterday's quick action from PBoC to hike reserve requirement ratio after the release of May data suggests that tightening policy is still in motion in China, and we look for interest rate policy to be tightened next, towards end-2Q11 or early 3Q11, to mitigate negative deposit rate. In the offshore NDF market, prices remain muted with expectations of RMB appreciation implied at 1.6% over the next 12 months, while we look for RMB to continue to appreciate at a 3-5% pace annually against the USD. This morning, the RMB central parity was fixed stronger at 6.4796/USD vs. 6.4822 on Tue morning. Asian equity markets were broadly higher on Tue, as prices were seen oversold in the recent declines. Nikkei 225 gained 1.1%, also extending gains after BoJ's unveiling of a JPY500bn loan program to help the country's earthquake-hit economy recover. Shanghai ended 1.1%, or 29.66 points, at 2,730.04, just prior to PBoC's

Stock Indices (as at 14 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 3057.39 1548.51 3773.27 1034.92 4140.27 8829.21 2076.83 22496.00 2730.04 18308.66 % chg -0.05 +0.17 +0.65 +1.91 -0.75 +1.33 +1.37 -0.05 +1.10 +0.23



UOB Economic-Treasury Research www.uob.com.sg/research Company Reg No. 193500026Z

announcing a 50bps hike in banks' reserve requirement ratio. Hang Seng Index, which closed after China's monetary tightening was announced, pared earlier gains to finish flat in the last hour of trading, shedding 12.08 points or 0.1% to 22,496.00. Elsewhere in North Asia, Kospi advanced 1.4% while Taiex rose 1.33%, or 116.26 points, to 8,829.21. Southeast Asian equity markets were mostly higher on Tue, though STI ended lower after a lacklustre session, closing at 3,057.39, off 1.65 points or 0.1%. Indonesia equity market snapped a four-day losing run, with the Jakarta Composite rising 0.75% on Tue. Thai SET jumped 1.9%, reversing a loss on Mon amid political uncertainty ahead of a general election on 3 July. Phil Comp closed 0.75%, or 31.27 points, lower at 4,140.27 and KLCI edged up 0.17%, or 2.63 points, to 1,548.51.


Asian Markets

China: A Swift Move To Hike Reserve Requirement Ratio

China's PBoC announced today (Tue, 14 Jun, after close of domestic stock trading) its sixth increase of banks' reserve requirement ratio (RRR) this year, by +50bps effective 20 Jun. This latest announcement elevates major banks' RRR to a new record high of 21.5%, surpassing previous historic high of 21.0% (last hiked on 12 May). In all, RRR for major banks has gone up by a total 600bps since the current cycle began in Jan 2010. The latest PBoC move was not a surprise as data releases yesterday and this morning have been stronger than expected despite monetary and administrative measures to rein in prices. Timing though was a surprise, as we had anticipated PBoC to move only after Friday like it normally did. The swift action suggests policymakers' heightened worries on capital flows and price pressures. Two particular pieces of data stood out from these reports: 1) CPI for May remained elevated at 5.5%y/y (matching consensus but ahead of the 5.3% pace in Apr. 2) Despite credit restrictions, new RMB loans increased by RMB551.6bn in May from the RMB739.6bn granted in Apr. So far, RRR hike cycle is on track of what we have been expecting. With today's announcement, PBoC has raised RRR three times in 2Q11 (the previous one was on 12 May). With PBoC done with RRR for this quarter, we anticipate the momentum for RRR to slow to 2x 50bps moves in 2H11. This should bring RRR to 22.50% by end-2011, or a total of 400bps for the year. While PBoC Gov Zhou Xiaochuan had said earlier that there was "no absolute" limit on how high RRR can go, it should be noted that the weight of these RRR hikes is increasingly heavy, and that the burden should eventually shift to pricing ("interest rates", rather than quantity, of credit, especially in dealing with inflationary situation. Be that as it may, we continue to see RRR to be the main instrument of choice for now, mainly because of lower cost (i.e. about 1.62% paid on required reserves vs. 3%+ on 1Y bills) and flexibility (with the adoption of dynamic RRR).


China's data yesterday are still pointing to somewhat firm activities in 2Q, thus reducing risks of a so called "hard landing". China CPI rose 5.5%y/y in May, in line with consensus. Producer price index gained 6.8%y/y, slightly above consensus of 6.5% but same pace as in Apr. Industrial production rose 13.3%y/y vs. 13.4% prior, not slowing significantly despite PMI releases earlier showing manufacturing activities moving towards neutral level. Fixed assets investment remained strong, rising 25.8%y/y YTD vs. 25.4%. Indonesia's Coordinating Minister for Economic Affairs Hatta Rajasa told reporters on Tuesday he isn't worried about the rupiah's recent sharp appreciation as it will help reduce the burden of USD denominated debt repayment. While central bankers are worried about the strong flows of short-term capital into the country, Rajasa said that what would worry him is "if there are no capital inflows."




Asian Markets Wednesday, 15 June 2011 p3

Economic Indicators Local Time Indicators
14/06 0001 0001 0001 1000 1000 1000 1000 1300 15/06 0500 0500 0500 0500 0700 0900 1000 1300 1300 1300 16/06 1600 1630 17/06 1300 1300 1300 1530 HK Manpower Survey SG Manpower Survey TW Manpower Survey CH PPI y/y CH CPI y/y CH Retail Sales y/y CH Indus Prod y/y CH China Manpower Survey

3Q 3Q 3Q May May May May 3Q

0.21 0.29 0.39 6.8 5.5 16.9 13.3 0.19

UOB Forecast

Mkt Forecast
6.5 5.5 17.0 13.1 -

0.19 0.30 0.45 6.8% 5.3% 17.1% 13.4% 0.29

SK Export Price Index m/m SK Export Price Index y/y SK Import Price Index m/m SK Import Price Index y/y SK Unemployment Rate sa PH Unemployment Rate SG Unemployment Rate sa SG Retail Sales ex Auto SG Retail Sales y/y SG Retail Sales m/m sa

May May May May May Apr 1Q F Apr Apr Apr

-1.5 3.3 -2.3 13.2 3.3


3.7 8.4 3.6 1.0

-1.5% 7.7% 0.7% 19.0% 3.6% 7.4% 1.9% 7.0% 0.8% 4.7%

PHP O/N Reverse Repo HK Unemployment rate sa

Jun 16 May

4.50 -

4.75 3.5

4.50% 3.5%

SG Electronic Exports y/y SG NODX y/y SG NODX sa m/m TH Foreign Reserves HK Composite Interest Rate

May May May Jun 10 May


-16.4 4.4 4.3 -

-10.4% -1.8% -3.6% $186.9b 0.25%

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

Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise.

URL: www.uob.com.sg/research Email: EcoTreasury.Research@UOBgroup.com

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