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Credit Suisse -Focus Asia _2Q 2013_

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					                                                                                                                            09 April 2013
                                                                                                                  Fixed Income Research
                                                                                              http://www.credit-suisse.com/researchandanalytics




                                                       Focus Asia (2Q 2013)

                     Economic Contributors             Still waters run deep
                     Robert Prior-Wandesforde
                                         Director
                                 +65 6212 3707
         robert.priorwandesforde@credit-suisse.com

                                      Dong Tao
                             Managing Director
                               +852 2101 7469
                       dong.tao@credit-suisse.com

                             Santitarn Sathirathai
                                   Vice President
                                   +65 6212 5675
             santitarn.sathirathai@credit-suisse.com

                             Christiaan Tuntono
                                 Vice President
                                +852 2101 7409
              christiaan.tuntono@credit-suisse.com

                                  Michael Wan
                                +65 6212 3418
                    michael.wan@credit-suisse.com

                               Weishen Deng
                                                       On the surface non-Japan Asia (NJA) may appear to be a haven of economic
                              +852 2101 7162
                  weishen.deng@credit-suisse.com       stability, at least relative to the ongoing ups and downs of the Western world and
                                                       the recent events in Japan. But look deeper and the situation is far from tranquil.
                       Strategy Contributors           Yes, inflation is generally low and set to remain so this year which in turn will
                                                       continue to cap interest rates – Indonesia being the most likely exception here.
                                       Ray Farris      The trouble for us, however, is that interest rate convergence within NJA is driving
                              Managing Director
                                  +65 6212 3412        economic divergence, just as it did in the early days of the euro zone. The
                       ray.farris@credit-suisse.com    ASEAN tiger cubs are heating up rapidly and are set to bubble over in due course
                                                       despite varying degrees of structural progress. Meanwhile, Korea and Taiwan are
                               Ashish Agrawal
                                                       at the other end of the economic spectrum, still reliant on a world trade cycle that
                                        Director
                                +65 6212 3405          remains as flat as a pancake. Along with Singapore and Hong Kong, these
                 ashish.agrawal@credit-suisse.com      economies are crying out for the economic equivalent of a face-lift. But if, as
                                                       seems likely, this is not forthcoming the ageing process and the less vibrant
                                 Trang Thuy Le
                                       Associate
                                                       market returns associated with that look destined to continue.
                                 +65 6212 4260
                                                       China and India are also facing huge economic challenges. The consequences of
                    trangthuy.le@credit-suisse.com
                                                       policy regimes that were too loose for too long are plain to see in both cases. The
                                                       good news is that India finally looks to be on the cusp of a new economic cycle,
                                                       set to enjoy a period of falling inflation, lower interest rates, stronger economic
                                                       growth and smaller twin deficits in 2013/14. On the other hand, China will likely
                                                       struggle to shrug off the depressing effects of a debt burden, the creation and
                                                       nature of which again suggest the lessons of the US, euro zone and other
                                                       financial crises have not been learnt, or at least forgotten about, in Asia.


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IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
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                                                                                                         09 April 2013




                       In brief
                       Welcome to our 2Q 2013 edition of Focus Asia. The publication includes a lead article,
                       which we have summarised below, foreign exchange and fixed income strategy chapters,
                       individual country sections (updated from our 14 March 2013 Emerging Markets Quarterly),
                       as well as links to our recent standalone economic reports, and a comprehensive data
                       section, showing historical figures and our projections of key variables for the main non-
                       Japan Asia economies. We hope you find it of value.
                        Inflation generally set to remain low: Consumer price inflation is likely to remain low
                         in most NJA countries, generally surprising on the downside this year. Indonesia,
                         which is most advanced in the economic cycle, remains our biggest concern on this
                         front, while we expect food inflation to turn higher in China during the second half of the
                         year.
                        Low inflation and an easy Fed will keep a firm lid on interest rates: Modelling the
                         reaction functions of the different NJA central banks suggests inflation and the
                         development of US monetary policy are the key determinants of policy interest rates in
                         all cases. As a result, we don’t expect the policy rate to be hiked in any major NJA
                         country this year, with the exception of Indonesia. In fact, India, Korea, Taiwan and the
                         Philippines could all deliver rate reductions in coming months.
                        A positive economic backdrop for asset markets this year: Low inflation and a
                         helpful interest rate environment will provide a supportive backdrop to asset markets,
                         which should also benefit from a further pick-up in global QE – particularly from Japan.
                         However, one shouldn’t be fooled into thinking that everything in Asia’s garden is rosy.
                        The ASEAN tiger cubs are growing too quickly: We have long argued that
                         monetary policy has been kept too loose for too long in Indonesia, but the policy
                         authorities in the Philippines, Thailand and Malaysia (in that order) are in significant
                         danger of making the same mistake. In our view, evidence of overheating is set to
                         become more obvious, although the risk of potential bubbles turning to bust will remain
                         small until interest rates show a meaningful rise. Admittedly, some macro-prudential
                         measures will probably be introduced in these countries, but they are unlikely to have a
                         huge impact.
                        Developed Asia struggles: At the same time, Korea, Taiwan, Hong Kong and
                         Singapore are struggling with the opposite problem – too little growth. As the latter two
                         countries would testify, negative real interest rates are not necessarily the answer, and
                         we believe the case for fiscal action is stronger. The good news is that the Korean
                         government, at least, looks to be readying itself for a budgetary stimulus.
                         Nevertheless, it is hard to be optimistic about growth prospects in any of these
                         countries barring a meaningful upside surprise in developed country and/or Chinese
                         domestic growth.
                        Not counting on China: Unfortunately, we believe China is more likely to surprise the
                         consensus on the downside. With leverage set to become increasingly hard to attain,
                         the private sector troubled by excess capacity together with rising costs and the
                         government’s new leadership team stepping up the fight against corruption and
                         pollution, GDP growth will do well to exceed 8% this year.
                        India reignited? By contrast we are hopeful that India          is starting a brand new
                         economic cycle. Over the next few months we should see          further falls in wholesale
                         price inflation and interest rates, together with a decline      in the twin deficits and
                         mounting evidence of the long-awaited economic recovery.        This, of course, is not to
                         ignore the country’s myriad structural issues.




Focus Asia (2Q 2013)                                                                                                2
                                                                                                                 09 April 2013




                       Table of Contents
                       In brief                                                                                             2

                       Still waters run deep                                                                                4
                                  Is inflation finally turning? .......................................................... 4
                                  Reaction functions .................................................................... 7
                                  Divergence from convergence .................................................. 8
                                  Cyclical positioning and policy outlook .................................... 10
                                  Japanese QE: Boon or bane? ................................................ 16
                                  NJA: The new euro zone!........................................................ 17

                       Recent NJA Economic Reports                                                                       19

                       Asia FX: Pushing USD-Asia higher                                                                  20
                                  History suggests the JPY impact on Asian FX is highly varied 20
                                  Back to the yen carry trade period? ........................................ 21
                                  Asian FX forecast details ........................................................ 24

                       Asia rates: pause but no reversal                                                                 26

                       Non Japan Asia                                                                                    31
                                  China: A narrow-based growth rebound ................................. 32
                                  Hong Kong: Weaker growth, higher inflation ........................... 37
                                  India: Growth resurrection? ..................................................... 41
                                  Indonesia: No worries? ........................................................... 45
                                  Korea: Yen weakness not a grave concern............................. 49
                                  Malaysia: Living with election uncertainty ............................... 54
                                  Philippines: Making the grade ................................................. 58
                                  Singapore: Pressing on with restructuring............................... 61
                                  Taiwan: Slow growth and aging stress fiscal position ............. 65
                                  Thailand: Tempted to tighten .................................................. 70

                       Historical data and Credit Suisse forecasts                                                       74




Focus Asia (2Q 2013)                                                                                                        3
                                                                                                                                         09 April 2013




                                                  Still waters run deep
                         Research Analysts
                  Robert Prior-Wandesforde        Is inflation finally turning?
                              +65 6212 3707
      robert.priorwandesforde@credit-suisse.com   Having fallen sharply from mid-2011 to mid-2012, consumer price inflation in non-Japan
                                                  Asia (NJA) flattened and then spiked in February 2013, rising more than a full percentage
                                                  point to 4.3% – the highest rate since April last year (Exhibit 1). So is inflation beginning to
                                                  turn with important knock-on implications for policy interest rates and the performance of
                                                  asset markets in the region? In short, we doubt it.

Exhibit 1: The start of things to come?                                            Exhibit 2: Inflation convergence

  8                    NJA headline consumer price inflation*                      6              Standard deviation of NJA headline CPI rates*
  7
  6                                                                                5
  5
  4                                                                                4
  3
  2                                                                                3
  1
                                                                                   2
  0
 -1
                                                                                   1
 -2
      00 01 02 03 04 05 06 07 08 09 10 11 12 13
                                                                                   0
                                                                                       00 01 02 03 04 05 06 07 08 09 10 11 12 13
* Excludes India.                                                                  * Excluding India.
Source: Credit Suisse, CEIC                                                        Source: Credit Suisse, CEIC



                                                  The February jump mainly reflected the timing of the Lunar New Year holidays (which fell
                                                  in February this year but January 2012) and in reality the overall inflation picture remains,
                                                  well, rather dull. This is not just true of the average NJA rate, but also most of the
                                                  individual countries – the main exception being India which has its own idiosyncrasies. A
                                                  more interesting development, as we show in Exhibit 2, is that differences in headline
                                                  inflation rates across the region have narrowed over time and have hardly ever been more
                                                  convergent than they are currently – an issue we will return to later in the article.

                                                  Waiting on food & energy
                                                  History suggests that NJA inflation is generally fairly stable unless there are big shocks to
                                                  food and/or energy prices (Exhibit 3). In fact, the correlation between an appropriately
                                                  weighted average of food and energy components and the headline CPI inflation rate has
                                                  been an astonishing 0.96 since the beginning of 2000. This partly reflects the fact that the
                                                  first two series represent roughly 40% of the overall index, but is probably also illustrative
                                                  of the impact food/energy price shocks can have on core inflation by influencing costs and
                                                  wages. This is not to say that demand and other factors have no influence on the core
                                                  rate but statistical analysis suggests they are typically fairly modest.




Focus Asia (2Q 2013)                                                                                                                                4
                                                                                                                                              09 April 2013




                       Exhibit 3: Food & energy price developments key to headline CPI moves

                         16                              Food & energy CPI* (LHS)                               Headline CPI* (RHS)                    8
                         14                                                                                                                            7
                         12                                                                                                                            6
                         10                                                                                                                            5
                          8
                                                                                                                                                       4
                          6
                                                                                                                                                       3
                          4
                          2                                                                                                                            2
                          0                                                                                                                            1
                         -2                                                                                                                            0
                         -4                                                                                                                            -1
                              00       01       02        03       04       05        06       07       08       09         10   11      12     13
                       * Excludes India. Food and energy line is a weighted average of the two components in the NJA CPI.
                       Source: Credit Suisse, CEIC



                       The same correlation exercise produces different results for the different countries,
                       although even the lowest figure of 0.64 for India is not tiny (Exhibit 4). By implication,
                       therefore, if we can accurately predict food and energy price moves then our forecasts for
                       headline inflation rates shouldn’t be too distant from reality.

                       Exhibit 4: Food & energy CPI weights and correlations with headline CPI

                                                                                                                  Correlation between food & energy CPI
                                                  Food weight in CPI               Energy weight in CPI               components and headline CPI*
                       China                                35                                 6                                  0.97
                       Hong Kong                            32                                 4                                  0.78
                       India**                              14                                15                                  0.64
                       Indonesia                            36                                12                                  0.90
                       Korea                                13                                 9                                  0.79
                       Malaysia                             30                                14                                  0.99
                       Philippines                          36                                 9                                  0.96
                       Singapore                            22                                 5                                  0.78
                       Taiwan                               26                                 6                                  0.93
                       Thailand                             31                                 9                                  0.94
                       * Based on monthly data since January 2000. ** Using weights in wholesale price index.
                       Source: Credit Suisse, CEIC



                       However, forecasting these CPI components is not exactly easy, dependent as they are
                       on weather and other unpredictable developments. Our preferred method is to translate
                       oil and international food commodity prices into local currency terms, extend the two series
                       on the assumption that the levels remain unchanged and work out the year-on-year rate.
                       We reveal the results of so doing in Exhibits 5 and 6, where we have also tracked NJA
                       energy and food CPI inflation developments, respectively. The Commodity Research
                       Bureau (CRB) food index, encompassing ten different series from hogs to butter, is our
                       preferred food commodity series. Although it does not include rice, we note that rice
                       prices have been fairly stable over recent times. Meanwhile, we have used Brent crude as
                       our oil price.




Focus Asia (2Q 2013)                                                                                                                                       5
                                                                                                                                                                           09 April 2013




Exhibit 5: No obvious energy …                                                                 Exhibit 6: … or food price threat to headline CPI
                                      Oil price* (LHS)                                                                        CRB food commodity index* (LHS)
  % y-o-y                                                                       % y-o-y
                                      NJA energy CPI (RHS)                                      % y-o-y                       NJA food CPI (RHS)
                                                                                                                                                                           % y-o-y
  80                                                                                    20
                                                                                                40                                                                                    12
  60                                                                   "F'cst**"        15                                                                           "F'cst**"
                                                                                                30                                                                                    10
  40
                                                                                        10      20
                                                                                                                                                                                      8
  20                                                                                            10
                                                                                        5                                                                                             6
   0                                                                                              0
                                                                                        0                                                                                             4
 -20                                                                                           -10
 -40                                                                                    -5     -20                                                                                    2

 -60                                                                                    -10    -30                                                                                    0
       03 04 05 06 07 08 09 10 11 12 13 14                                                            04    05      06      07     08      09      10     11      12     13      14

* In local currency terms. ** Assumes level of Asian currency denominated Brent oil price is   * In local currency terms. ** Assumes level of Asian currency denominated CRB food index is
unchanged.                                                                                     unchanged.
Source: Credit Suisse, CEIC                                                                    Source: Credit Suisse, CEIC


                                                 Both oil and food commodity price inflation are relatively low at present, while base effects
                                                 do not threaten a meaningful increase before the year is out. Admittedly food CPI inflation
                                                 jumped in February but this is likely to prove temporary, largely reflecting the Lunar New
                                                 Year effect mentioned earlier. We also note that recent quantitative easing programmes
                                                 appear to be having less effect on global commodity prices than was previously the case
                                                 (see “Asia’s possible game-changers”, Focus Asia, 9 October 2012). As such, we remain
                                                 far from convinced that the pick-up in global QE this year, not least from Japan, will
                                                 undermine our commodity price assumptions.
                                                 A few country-specific comments are worth adding in this context:
                                                  We expect both Indonesia and Malaysia to maintain subsidised fuel prices at their
                                                   current levels this year. In India, the subsidised diesel price is likely to converge towards
                                                   the market price, adding about ¾ pp to headline wholesale price inflation by the end of
                                                   2013. Other factors, however, are likely to more than offset this effect, at least over the
                                                   next few months sending the core rate down to 3-3.5% and headline inflation to 5.5-6%
                                                   by mid-2013 (see India Economics: What’s in store for 2013? 7 January 2013).
                                                  Fresh food prices in Indonesia have shot up recently, rising 12.9% in the year to March,
                                                   more than double the year-on-year increase in December 2012. This probably reflects
                                                   several factors including the imposition of tighter import restrictions on horticultural
                                                   products in September last year, big reductions in quotas for beef and other animal
                                                   product imports as well as some impact from the floods earlier this year. It is hard to
                                                   know just how much higher, if at all, food CPI inflation will go but suffice to say if it stays
                                                   around these kind of levels for a few months there is a good chance of some second-
                                                   round effects coming through.
                                                  In China: Pork prices and the inflation cycle, (14 March 2013) our China economists
                                                   argue that while pork prices would probably soften in coming months, they would rise
                                                   sharply in the second half of the year, pushing headline inflation up to 4% by December
                                                   from an average of 2.6% in January and February. Their analysis also suggests that
                                                   further increases are likely in 2014.
                                                 Bearing all this in mind, and assuming there are no major oil and/or food price shocks, we
                                                 see little reason to be particularly worried about inflation in any NJA country, barring
                                                 Indonesia and possibly China, during the rest of the year. This is despite the fact that
                                                 GDP growth is running above trend in several NJA countries, including Indonesia,
                                                 Thailand, Malaysia and the Philippines. For the record, there is scant evidence that
                                                 economic growth has a big effect on food and energy price inflation in these countries. In
                                                 fact the causality may run the other way round to the extent that higher food and energy
                                                 prices squeeze real personal incomes, profits and hence demand.


Focus Asia (2Q 2013)                                                                                                                                                                      6
                                                                                                                                                      09 April 2013




                       Reaction functions
                       If our inflation conclusions are roughly right then it is also hard to get too encumbered by
                       the prospect for policy rate rises in any of the NJA economies this year – Indonesia being
                       the most likely exception.
                       Exhibit 7 shows the results of our regression analysis designed to determine the relative
                       importance of a range of different variables in explaining the typical interest rate response
                       of the various NJA central banks except Singapore and Hong Kong which don’t have a
                       policy rate. The estimation period generally spanned at least ten years and we included
                       both contemporaneous and lagged values, up to two quarters, of the explanatory factors.
                       We stress that the numbers are only intended to provide a rough guide to the impact of
                       macro variables. One should be aware, for example, that senior personnel changes within
                       a central bank may alter the reaction function of the institution. The equations could also
                       be criticized for not picking up the role expectations play in rate decisions, although our
                       suspicion is that these are heavily conditioned by past events. Finally, we highlight that
                       we have included GDP growth as opposed to the output gap in the equations. This is
                       largely because the latter is highly subjective and subject to big revisions.

                       Exhibit 7: Typical impact on NJA policy rates of 1pp rise in explanatory factors
                                             Headline CPI           Core CPI               GDP              Fed Funds         Exchange rate*         R-squared
                       China                      0.13                 0.21                  -                  0.13                  -                  0.79
                       India**                    0.14                   -                   -                    -                 -0.04                0.30
                       Indonesia                  0.33                 0.14                  -                  0.32                  -                  0.97
                       Korea                        -                  0.34                0.10                 0.31                  -                  0.73
                       Malaysia                   0.18                   -                 0.17                 0.08                  -                  0.83
                       Philippines                0.12                   -                 0.14                 0.72                -0.10                0.87
                       Taiwan                     0.07                 0.44                  -                  0.23                -0.02                0.91
                       Thailand                   0.23                 0.66                  -                  0.29                  -                  0.92
                       * Percentage year-on-year change against the US dollar. Negative coefficients indicate that an appreciation of the relevant Asian currency
                       leads to lower rates and vice versa. ** We used wholesale price inflation here.
                       Source: Credit Suisse



                       Three main points of interest:
                        In every country barring the Philippines, a given change in inflation (be it headline, core
                         or both) has a bigger impact on the policy rate than economic growth, which is actually
                         statistically insignificant in most countries.
                        The BSP appears to be the most responsive central bank in the region to currency
                         moves, a factor which is of relevance right now given the strength of the peso (see
                         below).
                        US monetary policy is also very important in every country except India where, frankly,
                         we failed to find a good model – the fit of each equation is shown in the final column in
                         the table. The R-squared value of just 0.3 in India compared with equivalent figures
                         ranging from 0.73 to 0.97 elsewhere.
                       We will discuss the interest rate outlook for the various economies in greater detail later on
                       but suffice to say here, the prospect of generally low and stable inflation combined with
                       little or no change in the Fed’s stance during 2013 is likely to keep a firm lid on policy rates
                       in the region this year.




Focus Asia (2Q 2013)                                                                                                                                                7
                                                                                                                                                                             09 April 2013




                                                Divergence from convergence
                                                We noted earlier how inflation rates within NJA had become increasingly similar over time
                                                and this point is emphasised by Exhibit 8, which shows a simple average of headline CPI
                                                rates for the ASEAN-4 (Indonesia, Thailand, Malaysia and the Philippines), Developed
                                                NJA (Korea, Taiwan, Hong Kong and Singapore) and China. While inflation in what we
                                                often call the ASEAN tiger cubs was higher than the others for most of the period this has
                                                not been true of the past four years as price rises in South-East Asia have remained
                                                relatively subdued at the same time as CPI increases in Developed NJA have not. We
                                                have again excluded India from our analysis given its peculiar inflation characteristics.

                                                Exhibit 8: Inflation rates have converged significantly within NJA
                                                                                                         Headline CPI inflation
                                                  12
                                                                                      China                ASEAN-4*                     Developed NJA**
                                                  10
                                                    8
                                                    6
                                                    4
                                                    2
                                                    0
                                                   -2
                                                   -4
                                                        00       01       02        03       04       05        06        07        08        09       10        11         12       13
                                                * Simple average of Indonesia, Thailand, Malaysia, Philippines. ** Simple average of Korea, Taiwan, Hong Kong, Singapore.
                                                Source: Credit Suisse, CEIC



                                                In view of the importance of inflation in driving central bank rate decisions as discussed
                                                above, it probably comes as no surprise that know that policy interest rates (and bond
                                                yields) have also converged somewhat (Exhibits 9 and 10). No doubt most would suggest
                                                that this was entirely logical and appropriate, but we are not so convinced.

                                                                                                Exhibit 10: … as gap between ASEAN-4 &
Exhibit 9: Policy interest rates have converged …                                               Developed NJA rates has narrowed
  4.0                                                                                                                          Policy interest rates
                                   Standard deviation of NJA
                                   policy interest rates*                                       8                  China             ASEAN-4*                  Developed NJA**
  3.5
                                                                                                7
  3.0
                                                                                                6

  2.5                                                                                           5

                                                                                                4
  2.0
                                                                                                3
  1.5
                                                                                                2
  1.0                                                                                           1
        05       06        07        08        09        10        11         12                    05        06        07         08         09        10         11         12
* Excludes India, Hong Kong and Singapore. The last two don’t have a policy rate as such.       * Simple average of Indonesia, Thailand, Malaysia, Philippines. ** Simple average of Korea &
Source: Credit Suisse, CEIC                                                                     Taiwan.
                                                                                                Source: Credit Suisse, CEIC




Focus Asia (2Q 2013)                                                                                                                                                                       8
                                                                                                                                                                              09 April 2013




                                                  We make the first observation that even when controlling for the influence of other cyclical
                                                  drivers on economic activity, similar interest rates appear to be delivering very different
                                                  results. For example, Exhibits 11 and 12 show how real GDP growth rates within the
                                                  region have not become more convergent. This is particularly obvious in the case of the
                                                  ASEAN-4 and Developed NJA where economic growth has actually moved in opposite
                                                  directions over the past couple of years. Of course, this needn’t be a problem if GDP
                                                  growth in each subregion is running roughly in line with the increase in its productive
                                                  potential. The trouble to us, however, is that this doesn’t seem to be the case judging both
                                                  by traditional calculations of trend growth as well as the development of other key
                                                  variables.

Exhibit 11: No growth convergence within NJA                                                     Exhibit 12: ASEAN-4 diverged from Developed Asia

                     Standard deviation of NJA GDP growth*                                                                       GDP growth (% y-o-y)
  6                                                                                                                 China               ASEAN-4*                  Developed NJA**
                                                                                                   16

  5                                                                                                12

  4                                                                                                  8

                                                                                                     4
  3
                                                                                                     0
  2
                                                                                                    -4

  1                                                                                                 -8
      00 01 02 03 04 05 06 07 08 09 10 11 12                                                             00 01 02 03 04 05 06 07 08 09 10 11 12
* Excludes India for the whole period and Thailand over the past year given the flood effects.   * Simple average of Indonesia, Thailand, Malaysia, Philippines. ** Simple average of Korea,
Source: Credit Suisse, CEIC                                                                      Taiwan, Hong Kong, Singapore.
                                                                                                 Source: Credit Suisse, CEIC



                                                  Exhibit 13 shows the evolution of bank lending growth in the three country groupings.
                                                  While it has slowed sharply in Developed NJA (particularly in Korea and Taiwan where
                                                  loans are up just 2-3% yoy), it has remained unusually strong in the ASEAN-4, rising
                                                  sharply as a share of nominal GDP. Meanwhile, the current account surplus in the
                                                  ASEAN-4 has slumped since 2009, bringing it to its lowest level since the Asian Financial
                                                  Crisis, at the same time as that in Developed NJA has remained unusually high (Exhibit
                                                  14). We are not suggesting that the external accounts of the ASEAN tiger cubs are
                                                  troublesome (with the exception of Indonesia which we expect to run a deficit of 3.5% of
                                                  GDP in 2013 after 2.7% in 2012) but rather that the pace of deterioration is potentially
                                                  alarming.
                                                  A lack of accurate data means we can’t make the same comparison between the
                                                  performance of property prices in the different parts of NJA. Nevertheless, anecdotal
                                                  evidence suggests a similar story applies here, albeit with the exceptions of Singapore and
                                                  Hong Kong where extremely low mortgage rates have driven huge increases in real estate
                                                  prices since the end of the Global Financial Crisis (GFC). Increasingly severe macro
                                                  prudential measures have been used in both cases, although, so far, they have only
                                                  served to slow rather than reverse the price increases.




Focus Asia (2Q 2013)                                                                                                                                                                           9
                                                                                                                                                                          09 April 2013




                                                                                             Exhibit 14: External position of ASEAN-4 &
Exhibit 13: Spot the difference                                                              Developed NJA diverged massively in past 3 years
                            Bank lending (% y-o-y)                                                             Current account balances (% GDP)
                                                                                              12
  35              China*             ASEAN-4**                 Developed NJA***                                 China               ASEAN-4*                  Developed NJA**
                                                                                              10
  30

  25                                                                                            8

  20                                                                                            6
  15
                                                                                                4
  10
                                                                                                2
   5

   0                                                                                            0
       04     05       06       07      08       09       10      11       12       13              00 01 02 03 04 05 06 07 08 09 10 11 12
* Just bank lending. Excludes alternative financing. ** Simple average of Indonesia,         * Simple average of Indonesia, Thailand, Malaysia, Philippines. ** Simple average of Korea,
Thailand, Malaysia, Philippines. ***Simple average of Korea, Taiwan, Hong Kong, Singapore.   Taiwan, Hong Kong, Singapore.
Source: Credit Suisse                                                                        Source: Credit Suisse



                                               The dangers of inflation targeting
                                               As we have seen on numerous occasions over the past 15 years, inflation is often a very
                                               bad indicator of overheating pressures in an economy and yet is highly influential in
                                               determining policy rates. One only needs to think back to the experience of the US prior to
                                               the bursting of both the tech and housing bubbles to know that excess liquidity need not
                                               reveal itself in significantly higher CPI inflation. This is perhaps even more likely in the
                                               emerging world where, as we have seen, supply-related food and energy price shocks
                                               usually drive inflationary developments.
                                               A much broader, holistic approach to interest rate setting is essential if, as seems
                                               sensible, macroeconomic stability is the ultimate objective of cyclical policy making.
                                               Although a large element of subjectivity inevitably creeps in when so doing, this is a largely
                                               unavoidable consequence. Ultimately there is no substitute for professional judgment
                                               when it comes to determining the appropriate policy stance. However, we see little
                                               indication this is happening to a sufficient extent in NJA, helping explain why the various
                                               Asian economies are in very different and increasingly troublesome cyclical positions.

                                               Cyclical positioning and policy outlook
                                               ASEAN-4 – Overheating concerns
                                               In our view, the combination of relatively low inflation and exceptionally loose US monetary
                                               policy has led all of the ASEAN-4 countries to adopt inappropriately low interest rates. In
                                               order to illustrate the consequences of this we present a “heat map” showing our
                                               assessment of where key indicators are positioned in the ASEAN-4 countries – green
                                               indicating no real problem, amber that things are warming up and red where we believe
                                               there is clear evidence of overheating (Exhibit 15). As we have long argued, Indonesia is
                                               the country where we see the strongest signs of policy conditions having been too loose
                                               for too long, although Thailand, Malaysia and the Philippines seem to be moving rapidly in
                                               the same direction. Fast forward one year and we suspect these three countries will be in
                                               a similar position to where Indonesia is right now.




Focus Asia (2Q 2013)                                                                                                                                                                  10
                                                                                                                  09 April 2013




                       Exhibit 15: ASEAN-4 heat map
                                                    Output gap             Credit growth   Asset bubble   Balance of Payments

                       Indonesia

                       Thailand

                       Malaysia

                       Philippines

                       Source: Credit Suisse



                       On the basis of Exhibit 16 it is true to say that Thailand’s and the Philippines’ real trade
                       weighted exchange rate has appreciated significantly over the past year potentially
                       constraining activity. The trouble we see is that this will really only serve to dampen that
                       part of the economy which is already soft (exports) while encouraging politicians and some
                       central bankers to push for lower interest rates than would otherwise be the case. In
                       short, we doubt currency strength will remove the emerging overheating problems with
                       monetary and/or fiscal policy needing, but unlikely, to be tightened in a meaningful fashion
                       this year. For the record, the budgetary stance is actually being loosened in Thailand and
                       Malaysia. It is also worth bearing in mind that, as in Indonesia, currency strength could
                       eventually turn to currency weakness as deteriorating balance of payment positions
                       become increasingly difficult to finance.

                       Exhibit 16: Strong real exchange rates in Thailand & Philippines unlikely to
                       prevent overheating
                                                               Real effective exchange rates*
                         115
                                               Indonesia                       Malaysia
                         110                   Philippines                     Thailand


                         105


                         100


                           95



                       * As calculated by Credit Suisse Emerging Markets team.
                       Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                       Eventually, we expect interest rates to move higher and it is at that point that history
                       suggests we should worry about possible bubbles turning to bust. This is most likely to
                       happen in Indonesia first, probably in the second half of the year, followed by Malaysia
                       (where the central bank tends to be more pre-emptive than most), Thailand and finally the
                       Philippines, all in the first half of 2014. In the meantime, given the current strength of the
                       Thai baht and Philippines peso we can’t completely rule out the chance of further policy
                       rate reductions in both countries. At the very least, the BSP is likely to reduce the SDA
                       rate further in coming weeks.
                       While we ascribe a low probability to the introduction of capital controls designed to limit
                       the extent of foreign inflows in any of the ASEAN tiger cubs this year, some macro-
                       prudential measures could well be announced. In Indonesia, further property market curbs
                       and restrictions on foreign currency borrowing are possible; in Thailand we expect tougher
                       limits on unsecured consumer credit; in Malaysia there could be further measures to


Focus Asia (2Q 2013)                                                                                                        11
                                                                                                           09 April 2013



                       improve the “quality” of lending; and in the Philippines caps on banking exposure to the
                       real estate sector. Judging by past experience, however, we probably shouldn’t get too
                       excited about their likely longer-term impact.

                       Developed NJA – Growth worries
                       The economies of Korea, Taiwan, Hong Kong and Singapore are in very different cyclical
                       positions than the ASEAN tiger cubs, suffering from too little growth and (probably)
                       negative output gaps rather than too much growth and positive output gaps. The
                       contrasting performance is most apparent in the development of real investment spending,
                       which we have shown in Exhibit 17. For each country, capital expenditure is indexed to
                       100 in 4Q 2007. While investment is 30% above its pre-GFC level in the Philippines and
                       more than 40% higher in Indonesia and the Philippines, it is still 5% and 14% below in
                       Korea and Taiwan respectively.

                       Exhibit 17: Capex in Korea and Taiwan is still below pre-GFC levels
                                                              Gross fixed capital formation (4Q '07=100)
                         180
                                              HK              ID         KR        MY
                         160
                                              PH              SG         TA        TH
                         140

                         120

                         100

                          80

                          60
                           Dec-07                    Dec-08         Dec-09        Dec-10        Dec-11     Dec-12
                       Source: Credit Suisse, CEIC



                       It is hard to pin this weakness in North Asia on a particularly poor export performance as
                       Korea has actually registered the strongest growth (40%) of the eight economies since the
                       end of 2007 (albeit partly at the cost of a squeeze on profit margins), while Taiwanese
                       exports are up 18% (Exhibit 18). Malaysia, the Philippines, and Hong Kong make up the
                       bottom three over the whole period, with Singapore’s slipping to second worst if we just
                       look at the experience of the past couple of years.

                       Exhibit 18: Korea has enjoyed the strongest export growth
                         150                                       Real exports (4Q '07=100)
                         140                   HK             ID        KR        MY
                         130                   PH             SG        TA        TH
                         120

                         110

                         100

                          90

                          80

                          70
                           Dec-07                    Dec-08          Dec-09        Dec-10        Dec-11     Dec-12
                       Source: Credit Suisse, CEIC




Focus Asia (2Q 2013)                                                                                                 12
                                                                                                         09 April 2013



                       We believe several factors explain the weakness in capital expenditure:
                        As industrialised countries, one would expect Korea and Taiwan’s investment share in
                         GDP, currently 24% and 16% respectively, to trend lower over time. This reflects the
                         fact that the need to build new infrastructure, which is already of a high standard, is
                         relatively low for example. By way of comparison, the investment share in GDP is 18%
                         in Japan, 17% in the US, 15% in Germany and 14% in the UK.
                        Both Korea and Taiwan have seen outward foreign direct investment pick up following
                         the GFC as companies have sought to produce more in cheaper locations. This is
                         particularly relevant for Taiwan, helping to explain why on-shore machinery and
                         equipment investment has plunged 30% in real terms since 4Q 2007.
                        Residential investment in Korea has been very soft, contracting the best part of 40%
                         over the past five years, largely as a result of a correction from the property and
                         household debt boom which peaked in 2007. The government has responded by
                         relaxing some of the tightening measures introduced previously but with little impact so
                         far.
                       Although structural factors are clearly at play here, we believe there is a case for interest
                       rates to be cut, particularly in Korea where the real policy rate and real commercial bank
                       lending rate are above their respective long-term averages – our North Asia economist,
                       Christiaan Tuntono, continues to expect a 25bp reduction from the Bank of Korea and
                       12.5bp from the CBC later this year. Nevertheless, as Singapore and Hong Kong would
                       testify, negative real interest will not necessarily do much more than boost property prices.
                       Fiscal action probably has a better chance of kick-starting these economies. This is more
                       likely in Korea than Taiwan, however, given the latter’s greater, largely self-induced
                       budgetary constraints (see How steep is Taiwan’s fiscal cliff? 11 March 2013).
                       Singapore’s economic problems, which have really only become apparent in the past
                       couple of years, as well as those of Hong Kong are rather different from Korea’s and
                       Taiwan’s. While we consider that neither has covered itself in glory as far as the
                       performance of private consumption and investment is concerned, particularly when
                       bearing in mind the extremely low level of both nominal and real interest rates, the biggest
                       failing concerns net exports – key to the performance of such open economics. In Exhibit
                       19 we track the net export position of both countries, with the series again indexed to 100
                       in 4Q 2007. Hong Kong’s performance deteriorated significantly during the GFC and has
                       never recovered, while Singapore’s imports have outgrown exports since the end of 2010.

                       Exhibit 19: Net exports have hampered growth in Hong Kong and Singapore
                                                              Net exports (4Q '07=100)
                         200                                   Singapore      Hong Kong
                         180
                         160
                         140
                         120
                         100
                          80
                          60
                          40
                          20
                           0
                           Dec-07                    Dec-08     Dec-09        Dec-10       Dec-11          Dec-12
                       Source: Credit Suisse, CEIC




Focus Asia (2Q 2013)                                                                                               13
                                                                                                                                      09 April 2013



                       In the case of Singapore, the high and rising level of the real exchange rate provides at
                       least a partial explanation, although, as Michael Wan identified in his report, Electronic
                       exports: Identifying Asia’s winners and losers (22 January 2013), the country seems also
                       badly positioned to benefit from the strength of demand for smart phones and tablets. The
                       second issue will clearly not disappear overnight but it seems to us that the government
                       could justifiably lower its nominal effective exchange rate (or at least the pace of
                       appreciation) as well as attempt to reduce the growth in unit labour costs to boost
                       competitiveness. In practice, however, we very much doubt a drop in the currency band
                       will be forthcoming at the biannual central bank meeting on 12 April (see MAS preview:
                       Worrying about capacity constraints, 8 April 2013), while the latter is unlikely to be helped
                       by the new restrictions on the growth in the foreign labour force. In short, it is hard not to
                       be gloomy about the country’s short- and longer-term growth prospects.
                       Hong Kong’s problems do not stem from a high real exchange rate of course, but rather,
                       we suspect, the cumulative impact of the de-industrialisation of the economy. This is most
                       unlikely to be reversed and means that if Hong Kong is to register stronger GDP growth
                       the policy authorities must engineer a sustainable pick-up in domestic demand growth.
                       Again, this is not going to be easy with so much of the economy dependent on the
                       property market and the authorities keen to see prices stabilise or decline in this sector.
                       Instead, we will be looking out for measures to boost tourism and financial services, where
                       it competes with Singapore, to become more optimistic. Meanwhile, the underlying
                       resilience of the economy faces a huge test when the US eventually starts to scale back
                       its monetary easing.

                       China – Leverage lessons
                       We showed earlier (Exhibit 13) how Chinese credit growth is running at a robust, but far
                       from torrid rate at present. However, we think the biggest threat facing the country does
                       not stem from the pace of credit expansion but rather the level of leverage. Our China
                       economist Dong Tao’s latest report on this key issue, “Shadow banking – Road to
                       heightened risks” (22 February 2013), provides the following conclusions:
                        The leveraging up of the economy over the past decade has seen total outstanding
                         credit, including so-called alternative financing, exceed 170% of GDP (Exhibit 20). This
                         represents the biggest expansion in the loan/GDP ratio of any country in modern history.
                         While it initially generated a rapid expansion of the country’s industrial capacity in 2004-
                         08 the additional credit helped fuel a property boom between 2005 and 2011 and a
                         surge in local government debt from 2009.

                       Exhibit 20: China’s credit explosion
                         180
                                                                                       China
                         170
                         160
                                                      Credit to GDP Ratio*                                                       Alternative
                         150                                                                                                     Financing
                                                      Loan to GDP Ratio
                         140
                         130
                         120
                         110
                         100
                           90
                           80
                                 97      98      99      00       01      02      03      04       05   06   07   08   09   10   11    12
                       * Total outstanding credit is based on the PBoC’s total social financing data.
                       Source: PBOC, CEIC, NBS Credit Suisse




Focus Asia (2Q 2013)                                                                                                                            14
                                                                                                          09 April 2013



                        Shadow or off-balance sheet lending, which is not subject to existing regulations and
                         surveillance, has become an increasingly important source of funding, accounting for
                         half of the total credit issuance last year and representing 44% of GDP. Many of these
                         loans have been repackaged into wealth management products offering generous
                         “guaranteed returns”. These look a lot like the securitised products that many financial
                         institutions offered to clients before the global financial crisis struck.
                        The most likely catalyst that will turn boom to bust is a rise in inflation which forces the
                         PBoC to raise interest rates. This could cause widespread defaults in the property
                         sector as well as significant financing problems amongst local governments, hitting the
                         banks and forcing a major credit contraction.
                        The good news is that the central government’s debt/GDP ratio is just 15%, while adding
                         local government debt and other tangible liabilities the figure is still a manageable 72%.
                         Beijing has the fiscal strength, political incentive and know-how to bail out the banking
                         system.
                       Our China economist does not expect the credit bubble to burst for at least another couple
                       of years, but the leverage problem and the associated importance of shadow banking
                       activities are likely to influence economic growth and policy decisions in coming months. It
                       may, for example, act as a deterrent to hiking interest rates as the government delves
                       deeper into the issue to determine the appropriate response. Initially at least, the
                       response is most likely to involve macro prudential steps, although we are looking for
                       75bps of lending and deposit rate increases in 2014.
                       With leverage set to become increasingly hard to attain, the private sector troubled by
                       excess capacity together with rising costs, and the government’s new leadership team
                       stepping up the fight against corruption and pollution we expect GDP growth to continue to
                       disappoint the optimists.

                       India – Waiting on recovery
                       Of all NJA countries, we believe India is earliest in the economic cycle. GDP growth has
                       slumped to levels many of us thought we wouldn’t see for a generation as, first, 500bps of
                       policy rate tightening and, second, an underlying fiscal tightening worth more than 1% of
                       GDP took chunks out of economic activity. The bottom is finally in sight, however, with the
                       recovery set to begin from the June quarter of this year in our view. We believe the
                       combination of an interest rate environment that is becoming increasingly helpful – as
                       short-term money market and commercial paper rates having been falling for more than a
                       year and the RBI is joining in with interest rates reductions of its own – the lagged effects
                       of the big rupee depreciation (Exhibit 21) and the benefits to confidence from the
                       government’s recent reforms (Exhibit 22) all represent fundamental reasons for optimism.
                       It is also important to bear in mind that the finance minister’s 4.8% central government
                       budget deficit forecast only requires a very modest further fiscal adjustment which could
                       be met through divestment revenues (see India budget preview: A triumph of prudence
                       over populism? 21 February 2013). Overall we are looking for GDP growth to average
                       6.5% in 2013-14 and 7.5% in 2014-15.




Focus Asia (2Q 2013)                                                                                                15
                                                                                                                                          09 April 2013




Exhibit 21: Lagged impact of weaker rupee to boost
exports                                                                   Exhibit 22: Grounds for suspicion and hope
                                                          % y-o-y                                            D&B new orders* (LHS)
                      USD-INR, advanced 18 months (LHS)                     Index                                                     % y-o-y
 56                                                                 80                                       Real GDP (RHS)
                      Exports (RHS)
                                                                           100                                                                     11
 54
                                                                    60       90                                                                    10
 52
                                                                             80                                                                    9
 50                                                                 40
                                                                             70                                                                    8
 48
                                                                    20       60                                                                    7
 46
 44                                                                 0        50                                                                    6

 42                                                                          40                                                                    5
                                                                    -20
 40                                                                          30                                                                    4

 38                                                                 -40      20                                                                    3
      01        03            05   07    09      11       13                      05       06        07       08   09    10    11    12       13
Source: Credit Suisse, CEIC                                               * Dun and Bradstreet quarterly survey.
                                                                          Source: CEIC



                                        Notwithstanding these above-consensus growth projections, we continue to anticipate a
                                        6.75% repo rate by the end of the calendar year – 75bps lower than the current 7.5% level
                                        and consistent with a total RBI easing of 175bps. Although the regression results for India
                                        reported earlier were somewhat inconclusive, our suspicion is that headline WPI inflation
                                        will need to fall below 6%, the core rate stick at less than 4%, headline CPI inflation to
                                        return to single-digits and the current account deficit to show a meaningful improvement
                                        for us to be correct. This may sound demanding, but they are all part of our central
                                        scenario (see India Economics: What’s in store for 2013? 7 January 2013).

                                        Japanese QE: Boon or bane?
                                        We have focused on a lot of country-specific issues but one development that could
                                        impact all economies in the region, albeit in different ways, is Japan’s recently announced
                                        huge quantitative easing programme. This is effectively designed to weaken the yen,
                                        eliminate deflation and boost domestic demand in the country.
                                        Our South-East Asian economist Santitarn Sathirathai looks in detail at the potential
                                        effects on the NJA economies in his report Japan’s Reflation: Winners and Losers in Non-
                                        Japan Asia (16 January 2013) arguing that the biggest potential winners would be those
                                        countries where Japan is both an important supplier of goods and a big consumer of
                                        exports. Indonesia seems best positioned on this basis, followed by Thailand, while Korea
                                        and Singapore are at the opposite end of the spectrum (Exhibit 23). He also suggests that
                                        while a weaker yen would reduce Japanese firms’ motivation to invest abroad the impact
                                        was likely to be small for a couple of reasons. First, the costs of production in ASEAN at
                                        least remain far lower than they are in Japan, especially in those countries with well-
                                        established industrial clusters. Second, Japanese firms will probably want to keep their
                                        production facilities geographically diversified amidst seemingly more frequent natural
                                        disasters.




Focus Asia (2Q 2013)                                                                                                                                16
                                                                                                                                                      09 April 2013




                       Exhibit 23: Potential winners and losers from Japan’s reflation*
                                                                                                                                           Export exposure to
                                                                                                                                           JPN domestic demand
                                                                                                                                                   12%
                                                                                                                      ID                              10%

                                                     MA                                                                                                 8%
                                                                                                                           Better
                                                                                          TH                                                            6%

                                                                                                                                                        4%
                                                                                                       TW
                                            KR
                                                                                                                     PH
                                                                                                                                                        2%
                                                                                       SG
                                                                                                                                                        0%
                           -1.2         -1.1       -1     -0.9      -0.8     -0.7       -0.6     -0.5     -0.4                                 -0.3          -0.2
                                           export growth underperformance relative to Japan from JPY depreciation
                       * Our regression results suggest that Malaysian exports are also highly sensitive to JPY depreciation, which we find somewhat implausible
                       given the nature of the country’s exports. For this reason we are reluctant to make firms conclusions in respect of Malaysia.
                       Source: Credit Suisse, CEIC



                       More generally, as we expect the yen to soften much further against all NJA currencies
                       over coming months, this is another reason to expect inflation and policy interest rates to
                       remain under wraps in most of the region this year.

                       NJA: The new euro zone!
                       By way of conclusion we thought it would be interesting to draw some parallels between
                       the euro zone and Asia’s current economic situation. Although this might seem strange
                       and is partly tongue in cheek, it is perhaps not entirely so.
                       Although NJA obviously doesn’t have a common nominal policy rate, we pointed out
                       earlier that interest rates have converged to some extent in the region, largely reflecting
                       much narrower inflation differentials. We also argued that this in turn has actually
                       contributed to increasing divergence in other economic variables such as domestic
                       demand growth, banking lending and external balances. Why? Probably because the
                       various economies, which after all have very different structures, react differently to a
                       given nominal interest rate, while real interest rates, defined as the nominal rate minus
                       inflation expectations, have probably not converged.
                       The same was true in the early years of the euro zone. While, superficially, everything
                       appeared to be working well, real interest rates (measured correctly) were arguably
                       inappropriate for all member states – too low in the peripheral countries and too high in the
                       core. This was reflected in buoyant domestic demand, excess credit creation and property
                       bubbles in the periphery (which eventually turned to bust – the adverse consequences of
                       which are still being felt) and extremely weak domestic activity and depressed asset prices
                       in the core. In our analogy, the ASEAN tiger cubs could be thought of as the “periphery”,
                       with Korea and Taiwan representing the “core”. Our fear is that some or all of the ASEAN-
                       4 are heading down the same path as the peripheral euro zone economies.
                       While the South-East Asian countries could of course raise nominal interest rates, unlike
                       the euro zone periphery, a combination of political pressure, relatively low inflation and an
                       extremely accommodative Federal Reserve, is making them reluctant to do so. At the
                       same time, it is not clear that lower policy interest rates in Korea and Taiwan would be
                       particularly effective. We think these countries really need to focus on improving their
                       international competitiveness, which can be done in a couple of ways. First, and in
                       contrast to their euro zone counterparts, policymakers can in theory engineer a
                       devaluation of their currencies, although this is often easier said than done. Korea, for



Focus Asia (2Q 2013)                                                                                                                                                17
                                                                                                         09 April 2013



                       example, would do well to prevent the won from appreciating further against the weak yen.
                       The second and better option is to boost real competitiveness by reducing relative unit
                       labour costs – effectively replicating the highly successful German approach.
                       So how do the other NJA countries fit into this picture?
                        India is effectively a peripheral country which boomed in 2005-08 and has been suffering
                         the consequences of the subsequent bust since then. If we are right, India should be
                         coming out the other side fairly soon.
                        Singapore and Hong Kong have very negative real interest rates that have inflated
                         property prices in similar fashion to the periphery, but otherwise look more similar to the
                         core. In particular, they are developed economies, clearly struggling to generate decent
                         domestic growth and depending largely on external demand to boost GDP. With global
                         growth set to remain relatively subdued this year their outlook is not particularly rosy.
                        China is the hardest country to place in this context given its unique characteristics.
                         Suffice to say, however, credit constraints are likely to intensify, capping GDP growth.
                         We believe a credit contraction is only a matter of time, with a meaningfully interest rate
                         hike being the most likely trigger.




Focus Asia (2Q 2013)                                                                                               18
                                                                                                                                                      09 April 2013




Recent NJA Economic Reports
Sr. No.         Date      Name of the Report                                                        Link
Asia
    1         14-Mar-13   Emerging Markets Quarterly – Q2 2013                                      Click here to view document (203 pages, 7521KB)
    2          6-Feb-13   Non-Japan Asia Economic Primers                                           Click here to view document (3 pages, 235KB)
    4          4-Feb-13   ASEAN-4 trade balance deterioration - cause for concern?                  Click here to view document (12 pages, 741KB)
    5         22-Jan-13   Electronic exports: Identifying Asia's winners and losers                 Click here to view document (19 pages, 666KB)
    6         18-Jan-13   Focus Asia (1Q 2013): Ten of the best                                     Click here to view document (88 pages, 2932KB)
    7         16-Jan-13   Japan's Reflation: Winners and Losers in Non-Japan Asia                   Click here to view document (9 pages, 699KB)
    8         05-Dec-12   Emerging Markets Quarterly - Q1 2013                                      Click here to view document (208 pages, 5941KB)
    9         09-Oct-12   Focus Asia (4Q 2012): Possible game-changers - which will work where?     Click here to view document (94 pages, 2643KB)
   10         26-Sep-12   Emerging Markets Economics Quarterly (4Q 2012). Intersection: Cyclical,   Click here to view document (210 pages, 6325KB)
                          Structural and Secular
   11         17-Sep-12   Asia: Falling angels, rising stars                                        Click here to view document (32 pages, 563KB)
   12         13-Aug-12   Asia: Winners and losers from commodity price moves                       Click here to view document (10 pages, 768KB)
   14         20-Jun-12   What a euro zone breakup might mean for Asia                              Click here to view document (8 pages, 565KB)
China
    1         14-Mar-13   China: Pork prices and the inflation cycle                                Click here to view document (8 pages, 578KB)
    2         22-Feb-13   China: Shadow banking - Road to heightened risks                          Click here to view document (21 pages, 649KB)
    4         19-Nov-12   China: What's after power succession...realistically                      Click here to view document (8 pages, 474KB)
    6         28-Sep-12   China: The new norm in growth                                             Click here to view document (7 pages, 497KB)
Hong Kong
    1         29-Oct-12   Hong Kong: Strong but not the right medicine                              Click here to view document (5 pages, 360KB)
    2         30-Aug-12   Hong Kong: More visitors should help, but not too much                    Click here to view document (6 pages, 436KB)
India
    1         21-Feb-13   India budget preview: A triumph of prudence over populism?                Click here to view document (7 pages, 500KB)
    2          7-Jan-13   What's in store for 2013?                                                 Click here to view document (15 pages, 636KB)
    3          4-Jul-12   India: What to do about (policy) rates?                                   Click here to view document (14 pages, 405KB)
    4         10-Apr-12   India: What’s capping capex?                                              Click here to view document (12 pages, 445KB)
Indonesia
    1         17-Oct-12   Is Indonesian domestic demand slowing?                                    Click here to view document (4 pages, 221KB)
    2         23-Aug-12   Is Indonesia overheating?                                                 Click here to view document (16 pages, 313KB)
Korea
    1          3-Apr-13   Korea: Perspective on escalating tension from the North                   Click here to view document (4 pages, 387KB)
    2         18-Jan-13   Korea: Yen depreciation - how worried should we be?                       Click here to view document (9 pages, 899KB)
    3         26-Oct-12   Korea: Growth could have bottomed in 3Q12                                 Click here to view document (8 pages, 591KB)
Malaysia
    1        20-Sep-12    Malaysia's budget preview: Politically driven, fiscally challenged?       Click here to view document (8 pages, 658KB)
    2        17-May-12    Malaysia’s GDP: Another upside surprise?                                  Click here to view document (7 pages, 473KB)
Philippines
    1         4-Feb-13    Philippines: Assessing the inflation and rates risks                      Click here to view document (13 pages, 694KB)
    2         1-Oct-12    Philippines: What are the next big things in exports?                     Click here to view document (7 pages, 627KB)
    3         1-Aug-12    Philippines: Over-easing?                                                 Click here to view document (7 pages, 745KB)
Singapore
    1         08-Apr-13   MAS preview: Worrying about capacity constraints                          Click here to view document (13 pages, 739KB)
    2         06-Dec-12   Singapore property prices: What happens if ...?                           Click here to view document (11 pages, 577KB)
    3         08-Oct-12   Singapore: Previewing the MAS meeting                                     Click here to view document (13 pages, 838KB)
    4         15-Aug-12   High Singapore inflation: Here to stay?                                   Click here to view document (10 pages, 351KB)
Taiwan
    1         11-Mar-13   Taiwan: How Steep is Taiwan's "Fiscal Cliff"?                             Click here to view document (18 pages, 715KB)
Thailand
    1         31-Oct-12   Thai exports: Love thy neighbour                                          Click here to view document (10 pages, 378KB)
    2         10-Jul-12   Thailand: Tackling Thailand’s consumption puzzle                          Click here to view document (7 pages, 659KB)
Source: Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                            19
                                                                                                                                      09 April 2013




                                                 Asia FX: Pushing USD-Asia higher
                      Research Analysts
                                  Ray Farris     The Bank of Japan’s shock therapy has led us to push our USDJPY forecasts higher to
                         Managing Director       105 in three months and 120 in twelve (see FX Strategist). This drives us to adjust our
                             +65 6212 3412
                                                 forecasts for emerging Asia FX. We expect yen depreciation to affect Asian FX mainly
                  ray.farris@credit-suisse.com
                                                 through the region’s FX policy response – intervention, rate cuts, and potentially capital
                            Trang Thuy Le        flow controls – particularly in the short term. The main changes to forecasts vs. the USD
                                  Associate
                            +65 6212 4260        are:
               trangthuy.le@credit-suisse.com
                                                  CNY flat for now, but eventually moving slightly lower;

     This is an exact excerpt
                                                  KRW to 1175 and 1200 in three and twelve months. Weak against the USD, but back to
from the FX Strategy/Asia Macro                    pre-crisis strength against the JPY;
  Strategy - Pushing USD-Asia
        higher, published                         TWD higher, but underperforming the KRW;
           8 April 2013.
                                                  THB roughly flat in the short term, but up to 30.50 into H2 and Q1 next year;
                                                  PHP up over the next three months, then down over time as basic balance strength
                                                   dominates; and
                                                  We maintain our IDR, INR, and MYR forecasts for now.

Exhibit 24: Credit Suisse forecasts

                                                      CS three-month forecast       CS twelve-month forecast     New forecasts versus fwds, %
                                Spot                  New                Old         New               Old       3m vs. fwd        12m vs. fwd
                             08/04/2013
USDCNY(^)                       6.265                 6.27               6.27        6.23              6.12         -1.0              -1.9
USDINR                          54.81                55.00              55.00       56.50             56.50         -1.5              -3.4
USDIDR                          9754                 10200              10200       10350             10350         3.3                0.8
USDKRW                          1137                 1175               1110        1200              1075          2.9                4.2
USDMYR                          3.056                 3.13               3.13        3.05              3.05         1.9               -2.0
USDPHP                          41.22                41.70              40.50       40.80             39.00         1.2               -0.9
USDSGD                          1.241                1.260              1.255       1.265             1.235         1.6                2.1
USDTWD                          30.00                30.30              29.80       30.80             29.20         1.2                3.9
USDTHB                          29.26                29.40              29.40       30.50             30.00         -0.1               2.1
Source: Credit Suisse, (^): This is for USDCNY fix




                                                 History suggests the JPY impact on Asian FX is highly
                                                 varied
                                                 Our economists argued in their report Japan’s Reflation: Winners and Losers in Non-
                                                 Japan Asia that it is mainly Korea that stands out in the region as likely to be negatively
                                                 affected by yen weakness. They found that most of the region’s export structure is more
                                                 complementary to Japan rather than competitive. Some countries could even be net
                                                 beneficiaries of yen weakness via cheaper imports of capital goods and recovery in
                                                 Japan’s domestic economy.
                                                 This fits with the quantitative work in our report Towards greater CNY influence, which
                                                 suggested that the impact of the JPY on the Asian currencies was small after taking broad
                                                 USD, EUR and CNY direction into account (Exhibit 25). Nonetheless, our model suggests
                                                 that the yen’s impact is significant, and greatest on the SGD, KRW, THB, and TWD.
                                                 Purely for purposes of illustration, Exhibit 26 gives a sense of how USD-Asia should
                                                 respond to our new forecasts for USD-JPY if we were to hold USDCNY and all other non-
                                                 Asian USD pairs constant. This is an obviously unrealistic assumption, but it allows us to
                                                 get a sense of the relative impact of yen movements on Asian currencies.




Focus Asia (2Q 2013)                                                                                                                             20
                                                                                                                                                                  09 April 2013




                                                                                                    Exhibit 26: Implied USDAsia forecasts from JPY
Exhibit 25: JPY idiosyncratic factor                                                                coefficients
JPY coefficients in a regression of Asian FX on USD, EUR, CNY residual
against USD, and JPY, using the CHF as the numeraire.

  0.30                                                                                                                      Spot     3m USDJPY at 105     12m USDJPY at 120
                   JPY coefficients, Jan-2004                                           (***)
                   to Jul-2007                                               (***)                  USDIDR                  9753            9903                 10217
  0.25                                                            (***)
                                                                                                    USDINR                  54.9            55.3                 56.3
  0.20                                       (***)      (***)
                                                                                                    USDKRW                  1125            1149                 1199
  0.15
                                                                                                    USDMYR                  3.06            3.07                 3.08
                                  (***)
  0.10                                                                                              USDPHP                  41.2            41.3                 41.7
                        (**)                                                                        USDSGD                  1.24            1.27                 1.33
  0.05
                                                                                                    USDTHB                  29.3            29.8                 31.1
  0.00
            MYR PHP                INR       IDR       TWD THB KRW SGD                              USDTWD                  29.9            30.4                 31.4
Source: Credit Suisse. (***), (**),(*) represent 1%, 5%, and 10% significant levels respectively.   Source: Credit Suisse
Daily changes from January 2004 to July 2007.


                                                   Back to the yen carry trade period?
                                                   The reaction of the region’s currencies to the yen during the carry trade period of 2004 –
                                                   2007 might seem to be a starting point for thinking about the next year. Unsurprisingly,
                                                   Exhibit 27 shows that all Asian currencies appreciated against the yen as USDJPY rose.
                                                   Perhaps less intuitively, Exhibit 28 shows that most of the region’s currencies also
                                                   appreciated against the USD!

Exhibit 27: Asian FX appreciated vs. the JPY during                                                 Exhibit 28: … and most appreciated vs. the USD as
the 2004 – 2007 yen carry trade period …                                                            well!
Asia/JPY, indexed to 100 in Jan 04                                                                  Asia-USD, indexed to 100 in Jan 04

  160                                                                                                140                    JPY               CNY                INR
                       CNY                     INR                                                                          IDR               KRW                MYR
                       IDR                     KRW                                                                          PHP               SGD                TWD
  150
                       MYR                     PHP                                                   130
  140                  SGD                     TWD
                       THB                                                                           120
  130

  120                                                                                                110

  110
                                                                                                     100
  100
                                                                                                       90
   90
   80                                                                                                  80
    Jan-04          Oct-04         Jul-05         Apr-06         Jan-07         Oct-07                  Jan-04        Oct-04       Jul-05    Apr-06     Jan-07    Oct-07
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service                                          Source: Credit Suisse



                                                   Several reasons for this divergence between USD-Asia and USDJPY existed that are
                                                   instructive for the future:
                                                    Most important, the USD trend depreciated against the major currencies other than the
                                                     yen during this period.
                                                    Additionally, the CNY was appreciating against the USD during this period, the Chinese
                                                     government having broken the USDCNY peg in 2005. Linked to this, Malaysia also
                                                     broke its peg and roughly tracked the CNY.


Focus Asia (2Q 2013)                                                                                                                                                        21
                                                                                                                                    09 April 2013



                        Relatively high yields in some countries in the region spurred yen carry trade inflows that
                         supported currencies.
                        The PHP and to a lesser extent the IDR were anomalies of sorts, recovering from extreme
                         depression driven by political crisis in the Philippines and an Indonesia specific inflation
                         panic in 2005.
                       Conditions today are different along several lines:
                        We forecast the USD to trade flat or perhaps slightly stronger over the next year, rallying
                         against G10 commodity FX, but weakening somewhat against the EUR.
                        Although we expect the CNY to appreciate in time, we expect this to be much more
                         moderate than during the 2005 – 2007 period
                        Emerging Asia’s yield structure is dramatically lower today so it is not a carry trade, India
                         being the main exception.
                        Crucially for policy, growth and inflation are much weaker today.
                       We think the weakness in growth in some countries will be the key driver of divergence of FX
                       policy and exchange rates across the region. For starters, export growth has tumbled across
                       the region, except in China where market share gains are making up for weak global
                       demand (Exhibit 29).

                       Exhibit 29: Export growth has collapsed, except in China
                       yoy %

                                                CH          IN            ID          SK         MA           PH         SG        TW        TH
                       2006                    27.2        22.3          19.8        14.4        13.6        14.9      8.5     12.9         16.9
                       2012                     7.9        -4.1          -5.5        -1.3        -0.3         7.6      0.5     -2.3          3.1
                       Jan-Feb 13              23.6         2.5           1.6         0.6         na          na     -16.4      2.0          4.1
                       Source: Credit Suisse



                       This has had an outside impact on GDP growth in India, Korea, Singapore and Taiwan
                       relative to the height of the carry trade period (Exhibit 30). In contrast to these, most
                       Southeast Asian countries have maintained high GDP growth rates by successfully
                       substituted domestic demand for weak exports. China’s growth rate has fallen, but the
                       Chinese government seems comfortable with this as a transition to more sustainable growth.

                       Exhibit 30: GDP growth is particularly weak in India, Korea, Singapore, and
                       Taiwan
                       GDP, yoy %

                         14

                         12
                                                                  2006           2012
                         10

                           8

                           6

                           4

                           2

                           0
                                    CH                PH          TH            ID          MA          IN          SK        SG        TW
                       Source: Credit Suisse, CEIC




Focus Asia (2Q 2013)                                                                                                                          22
                                                                                                                  09 April 2013



                       Inflation is not a meaningful constraint on currency weakness anywhere in the region,
                       except in Singapore, India, and to a lesser extent, Indonesia.

                       Exhibit 31: Inflation is not a constraint on depreciation except in Singapore,
                       India, and to a lesser extent, Indonesia
                       CPI, yoy %. WPI in India

                         14

                         12                     2006       2012

                         10

                          8

                          6

                          4

                          2

                          0
                                   TW                MA      SK          CH        TH        PH        ID    SG        IN
                       Source: Credit Suisse, CEIC



                       And current account balances have weakened in most countries, particularly in Indonesia
                       and India (Exhibit 32). It is only Korea and Taiwan where current account support for FX
                       has increased, but in Korea this is being offset somewhat by larger net FDI outflows and in
                       Taiwan by the emergence of the CNT as an alternative store of wealth for Taiwanese
                       savers.

                       Exhibit 32: Current account support for currencies has risen in Korea and
                       Taiwan, but turned significantly negative in India and Indonesia
                       Current account balance, % GDP

                          20

                          15                          2006        2012

                          10

                           5

                           0

                          -5

                         -10
                                      IN              ID          TH          CH        PH        SK        MA       TW
                       Source: Credit Suisse, CEIC



                       Summing up, we expect the weakness of growth in Korea and Taiwan to lead their central
                       banks to push their currencies weaker against the dollar to reduce appreciation vs. the yen.
                       Stronger growth in Southeast Asia reduces the pressure for their central banks to try to
                       track USDJPY, at least in the short term. The Philippines is something of an exception
                       from a policy perspective.
                       We detail our forecasts on a currency-by-currency basis below:


Focus Asia (2Q 2013)                                                                                                        23
                                                                                                         09 April 2013




                       Asian FX forecast details
                       CNY: We maintain our current three-month forecast of 6.27, but raise our twelve-month
                       forecast from 6.12 to 6.23. The Chinese government has been hostile to G10 central bank
                       quantitative easing and particularly vocal recently about Japan. We expect it to protest the
                       BoJ’s actions by reversing its recent appreciation. However, we maintain our view that as
                       global growth recovers in H2, Chinese exports strengthen, and China’s trade surplus rises
                       further the government will resume modest appreciation. Given the relative strength of
                       China’s exports and trade surplus, we think this risk is still that the CNY appreciates more
                       than we are forecasting.
                       IDR: We maintain our bearish IDR forecasts of 10200 and 10350 in three and twelve
                       months. Indonesia has virtually no competitiveness overlaps with Japan or North Asia and
                       would benefit slightly if growth in Japan’s economy were to recover raising demand for
                       Indonesia’s commodity exports. However, we remain concerned that the ongoing
                       deterioration in Indonesia’s current account deficit will lead its central bank to allow the
                       IDR to weaken rather than continue to lose reserves.
                       INR: We maintain our USDINR forecast set of 55.0 and 56.5 in three and twelve months.
                       Our quantitative work suggests the yen has very little impact on the rupee exchange rate.
                       Our forecasts imbed our economics team’s expectation for a further 75bps of interest rate
                       cuts – historically supportive of the INR via encouragement of equity inflows. Lower gold
                       and oil prices, if sustained should moderate the trade deficit somewhat. We also expect
                       the finance minister to continue drip feeding the market reform measures over the next
                       couple of quarters. On balance this leads us to expect India to generate enough capital
                       inflow to allow the INR to outperform currently high implied yields.
                       KRW: We have raised our USDKRW forecasts to 1175 and 1200. The extreme weakness
                       of Korean domestic demand combines with historically low inflation to give the Korean
                       government an incentive to try to minimize the fall in JPYKRW through intervention and
                       easier monetary policy. However, we stress that the path of USDKRW will likely continue
                       to be heavily influenced by seasonality in Korea’s current account surplus, now running at
                       a historically high $38bn annually. Engineering KRW weakness will become more difficult
                       from Sep – Nov when the surplus is at its seasonal maximum.
                       MYR: With the elections around the corner, we have kept our USDMYR forecast
                       unchanged for now. MYR trajectory is highly dependent on the election outcome, and we
                       outline how we expect MYR should trade into different scenarios in Asia Macro Strategy –
                       Malaysia Election Manual. We see a chance that MYR could outperform the region in
                       twelve months, once the election uncertainty clears. The JPY has least impact on MYR in
                       the region in 2004-2007 periods (Exhibit 25), and our economist’s work show Malaysia is
                       likely to benefit from stronger Japanese domestic demand growth.
                       PHP: We have revised our three and 12-month forecasts to USDPHP higher to 41.7 and
                       40.8 respectively. The government has pushed up its effort to fight the currency, and we
                       think further rate cuts via SDA is likely. This in the near term could trigger outflows from
                       foreign funds parked in SDA facilities, exacerbated by weakness in global growth
                       indicators, and crowded long PHP positions. We view such rally in USDPHP to be good
                       buying opportunities. The structural improvement in the economy has generated solid
                       remittances, a surge in FDI approvals, and likely another rating upgrade. A weaker JPY
                       also appears to have little impact on the PHP historically.
                       SGD: Our revisions up to our USDSGD forecast to 1.260 and 1.265 in three and 12-month
                       time reflect the impact of our other new USD-Asia forecasts on the SGD through the
                       nominal exchange rate basket. We expect Singapore’s central bank to allow the NEER to
                       continue trading close to the top of the band over the next several months before guiding it
                       to the middle from roughly the second half of the year as Singapore’s current positive
                       output gap fades.


Focus Asia (2Q 2013)                                                                                               24
                                                                                                         09 April 2013



                       THB: We maintain our three-month USDTHB forecast at 29.4, but have revised our 12-
                       month forecast higher to 30.5. While the THB had high sensitivity to JPY in 2004-2007
                       period, the increasing popularity of Thailand as an offshore center for Japan, and rising
                       capital goods imports from Japan suggest that local companies may be benefiting from a
                       weaker JPY due to cheaper import cost. The lack of central bank intervention also means
                       that current THB levels are likely to hold near term. However, we expect the adjustment to
                       come towards year end via a sharply stronger THB effective exchange rate, forcing the
                       central bank to step up its resistance. Strong import demand is also likely to drive current
                       account deficit in H2, weakening support for the currency.
                       TWD: Taiwan’s central bank (CBC) is likely to manage USDKRW to try to keep TWDKRW
                       below 38.70, roughly the top of its range for the past several years. This leads us to push
                       our three and 12-month forecasts for USDTWD to 30.3 and 30.8. Although Taiwan’s
                       current account surplus has risen to record highs, the introduction of the CNT is helping
                       CBC by creating a new source of capital outflow from Taiwan. As such, CBC has had to
                       sell FX reserves in both February and March this year to prevent the TWD from weakening
                       more than desired.




Focus Asia (2Q 2013)                                                                                               25
                                                                                                                                                               09 April 2013




                                             Asia rates: pause but no reversal
                    Research Analysts
                        Ashish Agrawal       The move higher in rates in 1Q ended quickly as market optimism on growth was
                         +65 6212 3405       questioned once again. Markets are now pricing in another slowdown scare, drawing
          ashish.agrawal@credit-suisse.com
                                             comfort from the moderation in China data, expected impact of the sequester in the US
                                             and little signs of recovery in Europe. The Italian election results and developments in
                                             Cyprus also accelerated the reversal in sentiment. Most recently, the BoJ action to double
                                             the monetary base has triggered a rally in fixed income markets. 10y UST yields have
                                             fallen to 1.7%, little changed over end Dec 2012. Our US rates strategists now expect 10y
                                             UST to trade sideways in 2Q before rising to 2% levels by year end (US Interest Rate
                                             Strategy Weekly: Dropping Anchor).
                                             While near-term developments are unlikely to provide a catalyst to push rates higher, we
                                             do not anticipate a meaningful fall in rates from current levels. In our view, rates are close
                                             to the lows of the trading range in a slow uptrend. This would also, in some way, be
                                             consistent with the outcome central bank policies are aiming for. While front end rates
                                             remain low for longer, back end rates will likely rise, reflecting improving growth prospects,
                                             potentially higher inflation and the eventual withdrawal of current policy accommodation.
                                             We remain constructive on short maturity bonds and do not expect any outperformance
                                             from swaps. The recent move lower in Asian rates will likely slow and reverse modestly in
                                             2Q. We expect most curves to bear steepen again as markets price in limited chances of
                                             easing, especially after 2Q, and potentially an improving, albeit slowly, growth backdrop.
                                             While foreign demand for fixed income has been sustained, demand for duration appears
                                             to have weakened. The weakness in Asian FX, which our FX strategists expect will
                                             continue, should also dampen demand for Asian fixed income (FX Strategy − Pushing
                                             USD-Asia higher).

                                             Exhibit 33: Net change in rates over last quarter
                                             Net changes in %, 5y IRS for Indonesia and Philippines reflect 5y NDS changes



                                               0.75

                                               0.50

                                               0.25

                                               0.00

                                              -0.25

                                              -0.50

                                              -0.75         Policy rate         5y IRS
                                                            10y gov
                                              -1.00
                                                                                Hong Kong




                                                                                                    India




                                                                                                                                                   Indonesia
                                                           US




                                                                                            China




                                                                                                                               Taiwan


                                                                                                                                        Thailand
                                                                    Singapore




                                                                                                            Malaysia


                                                                                                                       Korea




                                                                                                                                                                    Philippines




                                             Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                             At the aggregate level, we retain a ‘neutral’ bias; positioned long in India and short in
                                             Malaysia. In India, we retain long duration exposure in 2017 bonds and are also long 2017
                                             bonds against 5y OIS and in OIS steepeners. In Malaysia, we retain 5y IRS payers, and
                                             we recommend an underweight bias in Indonesia. We took profits on our China steepener
                                             recommendation and were stopped out of our Korea payer recommendation. We are



Focus Asia (2Q 2013)                                                                                                                                                              26
                                                                                                                                      09 April 2013



                       biased to add to received positions in Thailand and re-enter payers in Korea. We continue
                       to expect Singapore and Hong Kong markets to outperform the US markets on a relative
                       basis. Risks to our view come from a surge in foreign buying and an escalation of euro
                       zone concerns.

                       Central bank policies accommodative, but rate cuts limited …
                       Central banks retain an accommodative bias, but we believe that further easing is likely to
                       be limited. Our economists expect the RBI, BoK and CBC to lower rates in 2013, but have
                       penciled in hikes by many central banks at the start of 2014. The front ends of swap
                       curves indicate that markets are largely pricing in the easing we expect. If anything, we
                       would look to pay front end rates and wait for markets to assign a higher probability to
                       hikes as the year progresses.


                       Exhibit 34: Monetary policy forecasts and implied market rates
                       The forecast changes are expressed as the difference between 1Q 2014 and current levels. The implied change in fixings
                       relates to 3m for all and 6m for Thailand. India and China are also 3m, although fixings are overnight and 7-day repo rates.

                                                                                              Forecast change Implied change Implied change
                                         Policy rate (%) Swap fixing (%)      1y swap (%)       in policy (%)   in fixing (%) in 1y swaps (%)
                       China                  3.00               3.28             3.28               0.00              0.09             0.14
                       Hong Kong              0.50               0.38             0.39               0.00              0.04             0.06
                       India                  7.50               7.65             7.41              -0.75             -0.57            -0.21
                       Korea                  2.75               2.80             2.59              -0.25             -0.33            -0.18
                       Malaysia               3.00               3.21             3.20               0.25              0.02             0.06
                       Taiwan                 1.875              0.88             0.90             -0.125              0.05             0.04
                       Thailand               2.75               2.65             2.65               0.25              0.14             0.18
                       Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service



                        … and foreign flows anchor front end of curves
                       Foreign flows into Asian markets remain positive but have slowed in 1Q. Foreign flows
                       totaled USD5.5bn in 1Q compared with USD11.8bn in 4Q 2012 and USD18bn in 1Q 2012.
                       Details indicate a shift in preference to shorter maturity papers. Going forward, we believe
                       flows into India will likely surge as investors utilize purchased quotas while Malaysia could
                       see some passive unwinding ahead of the elections. We expect domestic investor demand
                       to turn defensive while limited fiscal loosening keeps the back end of curves supported.




Focus Asia (2Q 2013)                                                                                                                            27
                                                                                                            09 April 2013




                       Exhibit 35: Net flows into Asian bond markets
                       Net foreign buying of Asian bonds, USDbn


                        10

                          8

                          6

                          4

                          2

                          0

                         -2
                                  Indonesia     Malaysia    Korea
                         -4
                                  Thailand      India
                         -6
                           Mar-10             Sep-10         Mar-11            Sep-11   Mar-12   Sep-12      Mar-13

                       Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                       Country views: domestic factors likely to dominate trends …
                       Domestic factors are likely to dominate price action, especially with limited triggers
                       expected from UST yields. We list below, in short, our view on each market.
                       We remain bearish on Indonesian government bonds (for a detailed view see Asia rates:
                       Indonesia − time to buy?). The recent weakness in fixed income markets has not run its
                       full course, in our view. Yields have moved higher and the move can extend further. We
                       see little reason to change our bearish bias and see potential for 10y yields to rise to 6%.
                       The recent surge in the CPI could worsen on adjustments to address the subsidy bill. Any
                       price increase could dampen sentiment given inflation and potential tightening implications.
                       The sharp fall in FX reserves and sustained trade deficit are also likely to reduce market
                       comfort towards the IDR. A bearish outlook on the currency would likely add to the
                       defensive bias of foreign bond investors. Foreign investors will likely remain on the
                       sidelines given weaker comfort with both duration and FX exposure. Domestic investors
                       are also likely to stay defensive, allowing yields to rise. A few positive factors, in our view,
                       will continue to keep the bearish move controlled. Near-term risks to our view come from a
                       fall in headline inflation which could prolong the expected weakening in markets.
                       In India, the transition into FY14 warrants a change in trading strategy, especially with
                       regards to duration exposure. The combination of factors that contributed to the generally
                       positive view on duration is likely to weaken in the new fiscal year. The biggest challenge
                       will come from supply, in our view. Market participants will have to bid for sizeable supply
                       in the new fiscal year, especially after a very light quarter. RBI lowered the repo rate, but
                       has tempered bullish sentiment by indicating that the headroom to ease is quite limited.
                       Our economist expects the RBI to lower the repo rate by another 75bps this year, with the
                       next cut on 3 May. Supply will likely limit gains in the longer segments while rate cuts,
                       changing duration preferences and debt swap activity will likely trigger further gains in the
                       shorter segments. We like being long 2017 bonds, both on an outright basis and against
                       5y OIS. The OIS curve is also steepening and this could gather pace if the RBI eases
                       more aggressively. For more details, see Asia rates: India − a new strategy for a new
                       year?.




Focus Asia (2Q 2013)                                                                                                  28
                                                                                                                                       09 April 2013




                                                                         Exhibit 37: Indonesia – underperformance likely to
Exhibit 36: India – curves expected to steepen                           continue …
Repo rate, OIS and bond yields, %                                        Policy and market rates, %

 9.0                                                                      11.0                                   BI rate              FASBI rate
                                                                                                                 5y NDS               10y Gov
 8.5                                                                      10.0                                   20y Gov

 8.0                                                                       9.0
 7.5
                                                                           8.0
 7.0
                                                                           7.0
 6.5
                                                                           6.0
 6.0
                                                                           5.0
 5.5
                                                                           4.0
 5.0                          5y Gov                    5y OIS
                              Repo rate                 10y Gov            3.0
 4.5                                                                         Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
   Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse               Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                         Korean fixed income markets have been a big beneficiary of this change in sentiment.
                                         Any delay in the global recovery only increases the pressure on policy makers to step up
                                         accommodation. The BoK has not delivered yet, but rate cut expectations have been
                                         reinforced. This has pushed rates lower across the bond curve and triggered bull flattening
                                         in IRS. In our view, the easing is already priced in and the front end should remain
                                         anchored if the BoK eases only one more time. We have been constructive short dated
                                         bonds and continue to hold the view. The government has announced plans to step up
                                         spending. Spending coupled with monetary easing could prompt markets to become more
                                         optimistic on growth. This should, in turn, trigger some bear steepening of curves. We
                                         were stopped out of our recommendation to pay 5y IRS and we look to reinstate it once
                                         policy actions turn more supportive of growth.
                                         The big move has been in Philippines, as bonds rallied strongly on the BSP’s latest
                                         50bps SDA cut. In our view, bonds are trading extremely rich and we are bearish over a
                                         medium-term horizon. However, in the short run, market dislocations could trigger further
                                         gains in bonds if SDA cuts or restrictions prompt more flows into government bonds.
                                         In Malaysia, we retain a 5y IRS payer recommendation in anticipation of weaker foreign
                                         demand and further passive unwinding ahead of the elections. This could in turn trigger
                                         some bear steepening of curves and increase in hedging interest (Asia rates: Malaysia −
                                         the road ahead...). Risks come from renewed foreign flows, triggered by BoJ actions.
                                         In China, growth data have stabilized and the optimism on growth has weakened. Fixed
                                         income markets are less likely to react to higher inflation data and inflation concerns just
                                         yet. We expect markets to trade in a range and are biased to re-enter steepeners in the
                                         IRS curve. The front end of the curve could fall, reflecting comfortable liquidity and stable
                                         monetary policy while the longer segments could weaken on inflation concerns.




Focus Asia (2Q 2013)                                                                                                                               29
                                                                                                                                        09 April 2013




Exhibit 38: Korea – supportive policy actions
expected to end rally                                                    Exhibit 39: Malaysia – hedging interest could rise
Policy and market rates, %                                               Policy and market rates, %



 5.0                                                                      4.5

 4.5
                                                                          4.0
 4.0

                                                                          3.5
 3.5

 3.0
                                                                          3.0

 2.5
                                                                          2.5
 2.0
                              5y Gov                    5y IRS                                         5y Gov                     5y IRS
                              Policy rate               10y Gov                                        Policy rate                10y Gov
 1.5                                                                      2.0
   Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13                         Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse               Source: the BLOOMBERG PROFESSIONAL™ service, , Credit Suisse



                                         In Thailand, markets are unlikely to be concerned about the upward revisions to growth
                                         forecasts as inflation remains subdued. The BoT has given no indications that it will
                                         consider easing rates, but markets will likely continue to price in some probability of a cut
                                         given visible pressure from the Finance Ministry to lower rates. The curve is steep and the
                                         significant carry and roll (on a relative basis) will likely ensure that any sell-off is muted.
                                         We are biased to receive on any spikes.
                                         Singapore and Hong Kong fixed income markets are likely to outperform the US markets.
                                         A supportive credit profile, favorable demand-supply dynamics and comfortable liquidity
                                         conditions should be sufficient to allow outperformance. We remain neutral on Taiwan
                                         markets and expect bonds and IRS to trade sideways.




Focus Asia (2Q 2013)                                                                                                                              30
                                        09 April 2013




                       Non Japan Asia




Focus Asia (2Q 2013)                              31
                                                                                                                                     09 April 2013




                                            China: A narrow-based growth rebound
                              Dong Tao       Growth has stabilized, but activities in most segments of the economy remain
                       +852 2101 7469         unremarkable, as infrastructural investment seems to have failed to jump-start other
               dong.tao@credit-suisse.com     economic activities. In our view, this is a muted growth rebound and, to some extent, it is
                        Weishen Deng          unsustainable. In fact, shadow banking has been the major source of financing for local
                       +852 2284 5751         investment projects, creating a possible threat to financial stability in the future. The official
           weishen.deng@credit-suisse.com     growth target is 7.5%. We believe that the government can achieve this target but expect
                                              quality of growth to be poor.
                                             The latest economic data paint a picture of strong fixed asset investment but
                                              subdued industrial production and a soft consumer market. Fixed asset investment is
                                              dominated by the increase in infrastructure investment driven by local governments, while
                                              private industrial investment remains muted. Property-related construction has been strong
                                              over recent months, but the pace is likely to slow amid the government’s new anti-
                                              speculation measures.
                                             Retail sales were surprisingly soft over the first two months of this year, especially
                                              during the Chinese New Year period. At the high end, the anticorruption campaign has
                                              weakened spending and entertainment related to government officials and large SOEs.
                                              Slower (though still positive) income growth has also weakened the desire to spend. Auto
                                              sales were an exception on the positive side after several years of moderation.
                                             Industrial production slipped back to single-digit growth, with companies now
                                              taking a more cautious view about sales prospects than they did three months ago.
                                              The core issue in the economy is that private investment has disappeared as the
                                              manufacturing sector is broadly unprofitable. Monetary expansion cannot address the
                                              structural issues, and public spending is no replacement for private investment. China
                                              needs structural reforms. Despite some optimism, we believe that structural reforms will
                                              probably arrive later rather than sooner, as the new leadership needs to gather support
                                              and consolidate power first.
                                             Bank lending stood at RMB620bn in February, below market expectations after a
                                              strong showing at the beginning of the year, but total social finance reached
                                              RMB1.07tn. Banks have been lending at a pace of RMB632bn per month over the past six
                                              months, compared with RMB800bn per month in 2009. In contrast, off-balance sheet
                                              shadow banking lent at a pace of RMB500bn for the recent six months, versus the
                                              average of RMB131bn per month in 2009. Banks’ role as financial intermediary has been
                                              weakened, due to a more cautious approach as the economy hit a downcycle. Meanwhile,
                                              shadow banking is producing about half of the credit generated last year.
                                             Inflation is probably the most important monthly indicator to watch over the next 12-
                                              18 months, in our view, as it may force the central bank to alter its monetary policy
                                              stance. We project that CPI inflation will rise from 2% yoy in the beginning 2013 to 4% at
                                              year-end, primarily driven by food prices. In 2014, the figure could reach 5% as rising rents
                                              and salaries add further pricing pressure. We expect both deposit and lending rates to rise
                                              three times, 25bps each quarter, from 2Q 2014. While interest rates are likely to rise in
                                              2014, we expect overall liquidity conditions to remain accommodative. For more details on
                                              inflation dynamic, refer to China: Pork prices and the inflation cycle, 14 March 2013.
                                             Fiscal policy is likely to be active and loose this year. The government should continue
                                              its fiscal spending in infrastructure investment, mainly through local governments and their
                                              investment vehicles. Corporate tax cuts by converting corporate tax to VAT seem
                                              increasingly likely this year, though timing remains unclear. The tax code reshuffle should
                                              benefit the service sector, but those now enjoying tax breaks may lose existing
                                              exemptions.
                                             For incoming premier Li Keqiang, urbanization plays a critical role in transforming
                                              the economy towards a domestic consumption-based model. China is attempting to
                                              build city belts and new towns, in contrast to the mega cities in LatAm countries. To us, the
                                              success of urbanization depends on job creation rather than home and road construction.
                                              We believe that it is important to abolish the Hukou system, granting peasants access to
                                              healthcare, education and pension similar to what the urban population receives.



Focus Asia (2Q 2013)                                                                                                                           32
                                                                                                           09 April 2013



                        We expect mid-single-digit growth in the export sector. Orders from the US have
                         improved, but orders from Europe remain low. Overall, exports should do better than in 2H
                         2013, though exporters face long-term competitive issues as production costs continue to
                         surge. Imports are likely to lag exports as domestic demand for commodities remains
                         sluggish. We note a visible increase in capital investing overseas, mainly to property
                         markets in developed countries. Some analysts refer to this as capital flight, though we
                         consider it investment diversification, experienced in most other countries.
                        The government has just launched a new round of anti-speculation measures for
                         the property market, and transaction volumes have cooled. We think that these
                         measures will probably make the market take a “pause” but will not yet reverse the upward
                         trend in price and volume. China has very high savings rates and a closed capital account.
                         Domestic wealth was not destroyed in the crisis, as in the US or Europe, but is staying on
                         the sidelines for now. Developers’ cash flows are stronger now than a year ago. Beijing
                         does not want to see property prices move up another 20% but would not be keen to drop
                         prices by 20%, inducing a hard landing in the economy. A “pause” is something all parties
                         can accept while allowing Beijing to buy time for structural reform.
                        Shadow banking has ballooned over the past two years, supporting growth in the
                         short run but threatening financial stability in the medium term. We estimate that the
                         total size of shadow banking reached RMB22.8tn, equivalent to 44% of GDP and 25% of
                         the total outstanding credit. Half of the new credit issued last year was from shadow
                         banking, through wealth management products, trust funds, corporate bonds and brokers’
                         asset management. A large portion of the funds ended up in local government investment
                         projects; many may not be commercially viable. When interest rates are rising, the influx of
                         retail money into fixed income products could slow, causing defaults in shadow banking
                         and potentially spilling into formal banking. For more details about this financial risk, see
                         China: Shadow banking – road to heightened risks, 22 February 2013.
                        The domestic stock market (A-shares) is likely to remain weak this year. The
                         Chinese market was with Greece and Spain as the world’s top three from the bottom
                         between 2010 and 2011, and it was set to become the world’s worst-performing market in
                         2012 until the final two weeks of the year. While the growth outlook, earnings prospects
                         and potential NPL in the banking sector are relevant, we argue that the market has been
                         dragged down by excessive security supplies. About 800 IPOs are in the pipeline, and
                         local governments and companies are relinquishing their stakes for cash, creating an
                         imbalance between demand and supply in capital markets. We do not believe that this
                         situation is likely to change this year.
                        China has successfully overseen a power succession, with Xi Jinping/Li Keqiang
                         becoming leaders of the new generation. The new leaders have made some refreshing
                         remarks about reforms, and we may see an anti-corruption campaign in the spring. We
                         note a high expectation about the new leaders launching structural reforms. To us, these
                         reforms may well take place, but only in the medium term rather than right now. Possible
                         actions, such as the break-up of state monopolies, are bound to run into opposition from
                         vested interest groups.
                        We expect “minimally acceptable” (around 1%) RMB appreciation against USD for
                         this year and next. The fundamentals of the Chinese currency are deteriorating, as
                         growth is slowing, financial risks are on the rise, export competitiveness has weakened
                         and more money is leaving the country. Still, we view any Chinese exchange rate actions
                         as a political call, to calm criticism of the international community, especially the US.
                         Meanwhile, the process of RMB internationalization remains on a fast track. An
                         infrastructure build-up – e.g., RMB offshore centres, bond market capacity, QFII/QDII – is
                         moving forward strongly. Barring a crisis in the property sector or shadow banking, we
                         expect that over 90% of capital account convertibility can be achieved during 2015-16.
                        We do not expect a rating change for China over the next six months. China’s rating
                         is Aa3 (positive) at Moody’s, AA- (stable) at S&P and A+ (stable) at Fitch.




Focus Asia (2Q 2013)                                                                                                 33
                                                                                                                                                                                                                                                                                                                                                            09 April 2013




                                      Exhibit 40: Fixed asset investment
                                      growth                                                                                                                                                                           Exhibit 41: Retail sales growth
                                       60                                                 Fixed asset investment (% yoy, 3mm)                                                                                          21                                            China: Retail sales (% yoy, 3m mav)
   FAI, which is dominated by                                                             Infrastructure investment(% yoy, 3mm)
                                       50                                                                                                                                                                              20
      infrastructure investment
                                                                                                                                                                                                                       19
       from local governments,         40                                                                                                                                                                              18
    remained the key driver for
                                                                                                                                                                                                                       17
  the narrow-based recovery,           30
                                                                                                                                                                                                                       16
         whilst private industrial
                                       20                                                                                                                                                                              15
   investment remains muted.
                                                                                                                                                                                                                       14
             Retail sales were         10                                                                                                                                                                              13
                                                                                                                                                                                                                       12                                                                                                                                                           13.3
     surprisingly soft over the
                                          0
 first two months of the year.                                                                                                                                                                                         11
                                                 Feb-06
                                                             Aug-06
                                                                       Feb-07
                                                                                 Aug-07
                                                                                           Feb-08
                                                                                                    Aug-08
                                                                                                                  Feb-09
                                                                                                                            Aug-09
                                                                                                                                       Feb-10
                                                                                                                                                  Aug-10
                                                                                                                                                              Feb-11
                                                                                                                                                                          Aug-11
                                                                                                                                                                                       Feb-12
                                                                                                                                                                                                 Aug-12
                                                                                                                                                                                                              Feb-13




                                                                                                                                                                                                                            Feb-09
                                                                                                                                                                                                                                       May-09
                                                                                                                                                                                                                                                Aug-09
                                                                                                                                                                                                                                                         Nov-09
                                                                                                                                                                                                                                                                    Feb-10
                                                                                                                                                                                                                                                                             May-10
                                                                                                                                                                                                                                                                                      Aug-10
                                                                                                                                                                                                                                                                                                  Nov-10
                                                                                                                                                                                                                                                                                                           Feb-11
                                                                                                                                                                                                                                                                                                                    May-11
                                                                                                                                                                                                                                                                                                                             Aug-11
                                                                                                                                                                                                                                                                                                                                      Nov-11
                                                                                                                                                                                                                                                                                                                                               Feb-12
                                                                                                                                                                                                                                                                                                                                                         May-12
                                                                                                                                                                                                                                                                                                                                                                  Aug-12
                                                                                                                                                                                                                                                                                                                                                                           Nov-12
                                                                                                                                                                                                                                                                                                                                                                                      Feb-13
                                      -10
                                            Note: *Infrastructure Investment including electricity,
                                            gas, water, and transportation
                                      Source: NBS, Credit Suisse                                                                                                                                                       Source: : PBoC, CEIC, Credit Suisse



                                     Exhibit 42: Industrial production
                                     growth                                                                                                                                                                            Exhibit 43: GDP Growth
                                     25
  So far, we see no evidence                                                                                                                                                                                                                                                 China Real GDP (% YoY)
                                                                                             Industrial production (% yoy)                                                                                               17
      that growth momentum,
                                     20                                                                                                                                                                                  15                                                                                                                                       Forecast
            primarily driven by
      government investment
                                                                                                                                                                                                                         13
  projects, has spilled over to      15
       other sectors; industrial                                                                                                                                                                                         11
  production fell below 10.0%        10                                                                                                                                                                                     9
                         again.
                                                                                                                                                                                                              9.9
                                                                                                                                                                                                                            7
     This is a muted growth           5
   rebound and for some an                                                                                                                                                                                                  5
extended it is unsustainable.
                                      0                                                                                                                                                                                     3
                                          1997
                                                    1998
                                                                1999
                                                                         2000
                                                                                  2001
                                                                                           2002
                                                                                                    2003
                                                                                                                2004
                                                                                                                           2005
                                                                                                                                     2006
                                                                                                                                                2007
                                                                                                                                                           2008
                                                                                                                                                                   2009
                                                                                                                                                                                2010
                                                                                                                                                                                          2011
                                                                                                                                                                                                   2012
                                                                                                                                                                                                               2013




                                                                                                                                                                                                                                     2003

                                                                                                                                                                                                                                                 2004

                                                                                                                                                                                                                                                                  2005

                                                                                                                                                                                                                                                                              2006

                                                                                                                                                                                                                                                                                               2007

                                                                                                                                                                                                                                                                                                           2008

                                                                                                                                                                                                                                                                                                                         2009

                                                                                                                                                                                                                                                                                                                                      2010

                                                                                                                                                                                                                                                                                                                                                    2011

                                                                                                                                                                                                                                                                                                                                                                  2012

                                                                                                                                                                                                                                                                                                                                                                               2013
                                     Source: NBS, Credit Suisse                                                                                                                                                        Source: NBS, CLIC, Credit Suisse



                                      Exhibit 44: Credit-to-GDP ratio vs                                                                                                                                               Exhibit 45: Bank lending vs shadow
                                      loan-to-GDP ratio                                                                                                                                                                credit
                                      190                                                                                                                                                                              900
                                                                                Credit*-to-GDP (%)                                                                                                                                     Average monthly increase of credit
                                                                                                                                                                                                                       800             via different sources *(Rmb bn)                                                                                                -167 bn
                                                                                Loan-to-GDP(%)                                                                                                                         700
                                      160
       In fact, shadow banking                                                                                                                                                                  Alternative            600
                                                                                                                                                                                                Financing
   has been the major source                                                                                                                                                                                           500

 of financing local investment        130                                                                                                                                                                              400

 projects, creating a possible                                                                                                                                                                                         300
                                                                                                                                                                                                                                      +160 bn                                            +110 bn
 threat to financial stability in     100
                                                                                                                                                                                                                       200

                     the future.                                                                                                                                                                                       100
                                                                                                                                                                                                                            0
                                          70                                                                                                                                                                                                2009                    Current                       2009                   Current                        2009               Current
                                                    Dec-97



                                                                                 Dec-00



                                                                                                             Dec-03



                                                                                                                                        Dec-06



                                                                                                                                                                       Dec-09



                                                                                                                                                                                                     Dec-12




                                                                                                                                                                                                                                            New trust loan                                New corporate bond                                            New bank loans

                                           Note: * Total outstanding credit is based on PBoC's total social                                                                                                             * Note: 2009 data are monthly average for the year, current data
                                           financing record                                                                                                                                                             are average over the 6 months to February 2013.
                                      Source:PBoC,CEIC, Credit Suisse                                                                                                                                                  Source: NBS, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                                                                                                           34
                                                                                                                                                                                                                                                                                                       09 April 2013




                                     Exhibit 46: M2 Growth                                                                                                                               Exhibit 47: Property transaction
                                      35                                                                                                                                                  100                        Property Market Floor Space
                                                                            M2 Growth (% yoy, 3mma)
 Property transaction volume                                                                                                                                                                                         Sold (Sq. Meters, %yoy 3mma)
                                                                                                                                                                                           80
   has been strong since the          30
           rebound last year.                                                                                                                                                              60
                                      25
          The government has                                                                                                                                                               40
     launched a new round of          20
  anti-speculation measures.                                                                                                                                                               20
     We think these initiatives       15
                                                                                                                                                                                            0
   will probably bring about a
  market “pause” but will not         10                                                                                                                                                  -20
       yet reverse the upward
                                       5                                                                                                                                                  -40
   trend in price and volume.




                                                                                                                                                                                                 Feb-07

                                                                                                                                                                                                           Aug-07

                                                                                                                                                                                                                     Feb-08

                                                                                                                                                                                                                               Aug-08

                                                                                                                                                                                                                                         Feb-09

                                                                                                                                                                                                                                                   Aug-09

                                                                                                                                                                                                                                                             Feb-10

                                                                                                                                                                                                                                                                        Aug-10

                                                                                                                                                                                                                                                                                   Feb-11

                                                                                                                                                                                                                                                                                              Aug-11

                                                                                                                                                                                                                                                                                                         Feb-12

                                                                                                                                                                                                                                                                                                                    Aug-12

                                                                                                                                                                                                                                                                                                                               Feb-13
                                            Feb-00
                                            Aug-00
                                            Feb-01
                                            Aug-01
                                            Feb-02
                                            Aug-02
                                            Feb-03
                                            Aug-03
                                            Feb-04
                                            Aug-04
                                            Feb-05
                                            Aug-05
                                            Feb-06
                                            Aug-06
                                            Feb-07
                                            Aug-07
                                            Feb-08
                                            Aug-08
                                            Feb-09
                                            Aug-09
                                            Feb-10
                                            Aug-10
                                            Feb-11
                                            Aug-11
                                            Feb-12
                                            Aug-12
                                            Feb-13
                                     Source:PBoC,CEIC, Credit Suisse                                                                                                                     Source: NBS, CEIC, Credit Suisse



                                    Exhibit 48: Quarterly Inflation                                                                                                                      Exhibit 49: Interest Rates
                                                                                                                                                                                          8.00                            1- year lending rate (% p.a.)
                                                             Inflation (%yoy quarterly average)
                                     8.0
                                                                                                                                                                                          7.00                            1- year deposit rate (% p.a.)
                                                                                                                                                                 Forecast
   Inflation is on the rise, with
                                     6.0                                                                                                                                                  6.00
     food prices being the key
                          factor.                                                                                                                                                         5.00
                                     4.0
     We are looking for three                                                                                                                                                             4.00
 rate hikes in the lending and       2.0
     deposit rates, by around                                                                                                                                                             3.00

 25bps each, in each quarter         0.0
                                                                                                                                                                                          2.00                                                                                      Forecast
                from 2014 Q2.
                                    -2.0                                                                                                                                                  1.00
                                                                                                                                                                                                  2010Q1
                                                                                                                                                                                                  2010Q2
                                                                                                                                                                                                  2010Q3
                                                                                                                                                                                                  2010Q4
                                                                                                                                                                                                  2011Q1
                                                                                                                                                                                                  2011Q2
                                                                                                                                                                                                  2011Q3
                                                                                                                                                                                                  2011Q4
                                                                                                                                                                                                  2012Q1
                                                                                                                                                                                                  2012Q2
                                                                                                                                                                                                  2012Q3
                                                                                                                                                                                                  2012Q4
                                                                                                                                                                                                  2013Q1
                                                                                                                                                                                                  2013Q2
                                                                                                                                                                                                  2013Q3
                                                                                                                                                                                                  2013Q4
                                                                                                                                                                                                  2014Q1
                                                                                                                                                                                                  2014Q2
                                                                                                                                                                                                  2014Q3
                                                                                                                                                                                                  2014Q4
                                           2004Q1
                                           2004Q3
                                           2005Q1
                                           2005Q3
                                           2006Q1
                                           2006Q3
                                           2007Q1
                                           2007Q3
                                           2008Q1
                                           2008Q3
                                           2009Q1
                                           2009Q3
                                           2010Q1
                                           2010Q3
                                           2011Q1
                                           2011Q3
                                           2012Q1
                                           2012Q3
                                           2013Q1
                                           2013Q3
                                           2014Q1
                                           2014Q3




                                    Source: NBS, CEIC, Credit Suisse Estimates                                                                                                           Source: PBoC,CEIC, Credit Suisse



                                    Exhibit 50: Exports vs imports                                                                                                                       Exhibit 51: Capital outflows
                                                                      Trade Balance ($ bn, 12m roll sum. LHS)                                                                            100                                  Monthly FX reserves inflow ($bn, 3m mav)
     The fundamentals of the                                          Exports (% yoy, RHS)
        Chinese currency are                                          Imports (% yoy, RHS)                                                                                                80                                  Capital outflows* ($bn, 3m mav)
      deteriorating, as growth      330                                                                                                                                            80     60
  slows, financial risks are on                                                                                                                                                           40
                                    280                                                                                                                                            60
               the rise, export
                                    230
                                                                                                                                                                                          20
         competitiveness has                                                                                                                                                       40
                                                                                                                                                                                            0
 weakened, and more money           180
                                                                                                                                                                                   20    (20)
       is leaving the country.      130
                                                                                                                                                                                   0     (40)
        We expect “minimally         80
                                                                                                                                                                                         (60)
     acceptable” (around 1%)         30                                                                                                                                            -20
                                                                                                                                                                                         (80)
    RMB appreciation against
                                                                                                                                                                                                    2001
                                                                                                                                                                                                              2002
                                                                                                                                                                                                                        2003
                                                                                                                                                                                                                                  2004
                                                                                                                                                                                                                                            2005
                                                                                                                                                                                                                                                      2006
                                                                                                                                                                                                                                                                 2007
                                                                                                                                                                                                                                                                            2008
                                                                                                                                                                                                                                                                                       2009
                                                                                                                                                                                                                                                                                                  2010
                                                                                                                                                                                                                                                                                                             2011
                                                                                                                                                                                                                                                                                                                        2012




                                    -20                                                                                                                                            -40
                                           Feb-06
                                                    Aug-06
                                                             Feb-07
                                                                       Aug-07
                                                                                Feb-08
                                                                                         Aug-08
                                                                                                  Feb-09
                                                                                                           Aug-09
                                                                                                                    Feb-10
                                                                                                                             Aug-10
                                                                                                                                      Feb-11
                                                                                                                                               Aug-11
                                                                                                                                                        Feb-12
                                                                                                                                                                 Aug-12
                                                                                                                                                                          Feb-13




                    the USD.
                                                                                                                                                                                           * Capital outflows =FXR - trade balance - FDI
                                    Source: Customs Administration, Credit Suisse                                                                                                        Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                                           35
                                                                                                                                                                                      09 April 2013




 China: Selected economic indicators
                                                                                                  2006        2007        2008       2009        2010        2011       2012      2013F       2014F
 National accounts, population and unemployment
 Real GDP growth (%)                                                                               12.7        14.2         9.6        9.1        10.3         9.2        7.8         8.0           8.2
 Growth in real private consumption (%) (1)                                                          9.8       10.4         8.7        9.6         8.3         9.5        8.3         8.3           8.6
 Growth in real gross fixed capital formation (%) (2)                                              12.7        11.4       10.2        19.1        11.9       10.4         8.2         7.8           7.6
 Fixed investment (% of GDP)                                                                       40.7        39.1       40.7        45.2        46.7       44.9        46.0        47.8       47.5
 Nominal GDP ($bn)                                                                                2,780      3,495       4,526       5,073      5,862       7,272      8,257       9,496     10,967
 Population (mn)                                                                                  1,314      1,321       1,328       1,335      1,342       1,348      1,355       1,362       1,369
 GDP per capita ($)                                                                               2,115      2,645       3,408       3,801      4,370       5,393      6,092       6,971       8,010
 Unemployment (% of urban labor force, average year)                                                 4.1        4.0         4.2        4.3         4.1         4.1        4.2         4.1           4.1
 Prices, interest rates and exchange rates
 CPI inflation (%, December over December)                                                           2.8        6.5         1.2        1.9         4.6         4.1        2.5         4.0           4.5
 CPI inflation (% change in average index for the year)                                              1.5        4.8         5.9        -0.7        3.3         5.4        2.6         3.2           4.3
 Exchange rate (RMB per USD, end-year)                                                             7.80        7.29       6.82        6.83        6.62       6.35        6.23        6.13       6.07
 Exchange rate (RMB per USD, average)                                                              7.97        7.61       6.96        6.83        6.73       6.49        6.29        6.18       6.10
 REER (% year-on-year change December to December) (3)                                              -0.1        5.6       10.1         -2.9        2.9         6.9        2.5         3.8           3.8
 Nominal wage growth (% year-on-year change, average)                                              14.6        18.5       16.9        11.6        13.3       14.4        10.0        10.0       11.0
 1-year lending rate (%)                                                                           6.12        7.47       5.31        5.31        5.81       6.56        6.00        6.00       6.75
 3-month interbank rate (%, end-year)                                                                2.8        4.4         1.9        1.8         4.6         5.5        3.9         4.2           5.1
 Fiscal data
 General government fiscal balance (% of GDP)                                                       -0.8        0.6        -0.4        -2.2       -1.6        -1.1       -1.5        -2.0           -1.5
 General government primary fiscal balance (% of GDP)                                               -0.1        1.0         0.0        -1.5       -0.9        -0.4       -0.8        -1.3           -0.8
 General government expenditure (% of GDP)                                                         18.2        18.7       19.9        22.0        22.7       18.4        24.1        23.9       23.5
 Gross general government debt (% of GDP, end-year) (4)                                            31.6        35.3       32.5        40.5        44.8       44.0        51.8        52.0       51.4
 Money supply and credit
 Broad money supply (M2, % of GDP)                                                                155.9      151.8       150.9       175.0      184.1       178.8      186.8       183.2       185.6
 Broad money supply (M2, % year-on-year change)                                                    16.9        16.7       17.8        27.7        19.7       13.6        13.8        13.0       13.0
 Domestic credit (% of GDP)                                                                       130.3      127.8       120.5       139.6      149.0       145.9      155.1       150.9       144.3
 Domestic credit (% year-on-year change)                                                           16.3        17.6       11.7        27.5        21.5       17.1        17.1         9.9           9.0
 Domestic credit to the private sector (% of GDP)                                                 108.1      107.5       103.4       125.2      132.3       147.9      145.8       142.7       137.1
 Domestic credit to the private sector (% year-on-year change)                                     14.3        19.3       14.0        33.2        20.3       33.7         8.6        10.6           9.6
 Balance of payments
 Exports (goods and non-factor services, % of GDP)                                                 38.2        38.4       35.0        26.3        29.7       28.7        27.2        25.5       23.8
 Imports (goods and non-factor services, % of GDP)                                                 30.7        29.6       27.2        21.9        25.9       26.2        24.4        22.5       20.7
 Exports (goods and non-factor services, % increase in $ value)                                    26.9        26.4       17.8       -15.7        30.8       19.9         7.6         7.6           7.8
 Imports (goods and non-factor services, % increase in $ value)                                    19.8        21.3       19.2         -9.7       36.6       25.5         5.7         5.9           6.4
 Current account balance ($bn)                                                                    249.9      353.2       420.6       243.3      237.8       136.0      193.1       271.2       324.3
 Current account (% of GDP)                                                                          9.0       10.1         9.3        4.8         4.1         1.9        2.3         2.9           3.0
 Net FDI ($bn)                                                                                     60.3      139.1       114.8        87.2      185.7       231.7      191.1       182.2       167.4
 Scheduled external debt amortization ($bn) (5)                                                    22.1        24.1       27.3        30.6        34.3       33.0        31.7        30.4       29.1
 Foreign debt and reserves
 Foreign debt ($bn, end-year)                                                                     338.6      389.2       390.2       428.6      548.9       715.3      764.1       795.5       789.4
    Public ($bn) (6)                                                                              108.2      119.9       120.6       121.2      121.9       122.6      123.3       124.0       124.7
    Private ($bn)                                                                                 230.4      269.3       269.6       307.4      427.0       592.7      640.8       671.5       664.6
 Foreign debt (% of GDP, end-year)                                                                 11.6        11.1         8.6        8.4         9.4         9.8        9.3         8.4           7.2
 Foreign debt (% of exports of goods and services)                                                 30.4        29.0       24.7        32.1        31.5       34.2        34.0        32.9       30.3
 Central bank gross FX reserves ($bn)                                                             1,066      1,528       1,946       2,399      2,847       3,181      3,278       3,412       3,589
 Central bank gross non-gold FX reserves ($bn)                                                    1,062      1,524       1,942       2,389      2,830       3,159      3,251       3,383       3,558
 (1) Calculated based on annual GDP data released by the NBS. (2) Calculated based on annual GDP data released by the NBS. (3) Real effective exchange rate: increase indicates appreciation.
 (4) Include Treasury bond and foreign state debt owed by the State Council only. 2010F level is estimated to be 50.3%, including local governments’ affiliated debt. (5) Scheduled and estimated
 amortizations for medium- and long-term public and private sector debt. (6) Public debt defined as direct loans by government, state banks and SOEs, excluding trade credit.
 Source: National Bureau of Statistics, People’s Bank of China, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                 36
                                                                                                                                   09 April 2013




                                               Hong Kong: Weaker growth, higher inflation
                       Christiaan Tuntono       Growth improved in 4Q 2012, driven by a pick-up in consumption and improved
                          +852 2101 7409         trade and services exports. GDP for 4Q 2012 rose 2.5% yoy and 1.2% on a sequential
        christiaan.tuntono@credit-suisse.com
                                                 basis, accelerating from the previous quarter. We expect GDP growth to improve in
                                                 2013, but are concerned that moderate growth in China and the impact of sequestration
                                                 in the US may cause headwinds. We have revised down our 2013 GDP growth forecast
                                                 to 3.2%, from 3.4%, to reflect our more conservative outlook.
                                                Healthy employment conditions and continued growth in tourism should help
                                                 support retail sales growth this year. Infrastructure projects and consumption demand
                                                 have helped support a close to full employment economy. Meanwhile, retail sales
                                                 volume growth accelerated to 15.5% yoy in January-February. We think retail sales
                                                 growth should remain resilient in March, providing support for 1Q 2013 GDP growth.
                                                Strong retail demand and excess liquidity conditions have pushed up commercial
                                                 property prices and rents to historically high levels. According to government
                                                 statistics, prices for retail premises have tripled, while rental costs are up 50% from early
                                                 2009. While leading international brands have been able to afford the prime retail sites,
                                                 many local business have been forced out. We think the surge in commercial rents is
                                                 increasingly becoming a burden on businesses, hurting Hong Kong’s competitiveness.
                                                The government launched a new round of property sector measures in February,
                                                 extending intervention to the commercial property sector for the first time. On the
                                                 fiscal side, stamp duties on all residential and commercial properties were raised. On the
                                                 banking sector front, higher stress testing criteria and a lower loan-to-value ratio were
                                                 set. While these policies may hurt property transactions in the near term, we do not think
                                                 they will have a sustainable impact on prices, which have been driven by the very low
                                                 interest rate levels and excessive liquidity conditions in the economy.
                                                We expect inflation to rise more than we had anticipated previously, driven by
                                                 higher imported food prices from China, rising rental costs, and a further increase
                                                 in minimum wages. In Hong Kong, 330,000 minimum-wage earners will receive a 7%
                                                 pay raise (to HKD 30 per hour) in May this year. We expect businesses to pass through
                                                 their increased labour expenses and rental costs to final consumers. Our CPI inflation
                                                 forecast for this year was revised up to 4.5%, from our previous 3.5%.
                                                Fiscal performance surprised on the upside in FY2012-13, but long-term
                                                 vulnerability remains. Despite the hefty 3.2% of GDP fiscal surplus, Financial
                                                 Secretary John Tsang expressed concern over the long-term challenge to fiscal health
                                                 posed by an ageing population that will likely drive up medical and social welfare
                                                 expenditure in the years to come. We think there is a growing need for the government
                                                 to reform its narrow and pro-cyclical tax revenue stream, but since the revenue coming
                                                 from taxes, land sales and stamp duties remains significant, the government seems in
                                                 no rush to introduce the necessary reforms.
                                                The expansion of the RMB Qualified Foreign Institutional Investors Scheme
                                                 (RQFII) marked another milestone in the RMB internationalization process. The
                                                 types of institutions eligible for RQFII have widened under the revised rule, essentially
                                                 covering all Hong Kong-licensed asset management companies. At the same time,
                                                 investment restrictions have been relaxed to allow full investments in the A-share
                                                 markets. We view this as a major step towards opening Chinese domestic asset markets
                                                 to the offshore RMB pool. This should further deepen the offshore RMB business in
                                                 Hong Kong, and promote the internationalization of the currency.
                                                Outlook for Hong Kong’s ratings appears stable. An adjustment remains unlikely
                                                 over the next six months, in our view. Hong Kong is currently rated Aa1 (Moody’s), AAA
                                                 (S&P) and AA+ (Fitch).




Focus Asia (2Q 2013)                                                                                                                         37
                                                                                                                                                                        09 April 2013




                                   Exhibit 52: Real GDP growth                                              Exhibit 53: Contribution to growth


      Growth improved in 4Q         20                   Real GDP growth (% QoQ, saar)                                            Net trade contribution
                                                                                                                                  Domestic demand contribution
  2012, driven by a pick-up in      15                                                                                                       GDP growth (% yoy)
                                                                                                            11
  consumption and improved
                                    10                                                                        9
  trade and services exports.                                                                                           6.4                                    Forecast
                                      5                                                                       7                      4.9
   We expect GDP growth to                                                                                    5                                                  3.4           3.4
                                      0                                                                                                            1.4                         0.1
     improve in 2013, but are                                                                                            6.6          5.7
                                                                                                              3                                                  4.2
    concerned that moderate          -5                                                                                                             3.6                        3.3
                                                                                                              1
      growth in China and the      -10                                                                                  -0.2
                                                                                                             -2                       -0.8                       -0.8
   impact of sequestration in
                                   -15                                                                                                             -2.2
           the US may cause                                                                                  -4
                  headwinds.       -20                                                                       -6
                                           Jun-09




                                           Dec-10
                                           Dec-09

                                           Jun-10




                                           Jun-11

                                           Dec-11

                                           Jun-12
                                           Sep-12
                                           Dec-12
                                           Mar-09

                                           Sep-09




                                           Sep-10




                                           Sep-11
                                           Mar-10




                                           Mar-11




                                           Mar-12
                                                                                                                       2010         2011          2012        2013F         2014F


                                   Source: Census and Statistics Dept., Credit Suisse                       Source: Census and Statistics Dept., Credit Suisse



                                   Exhibit 54: Property prices                                              Exhibit 55: Property measures

                                     120                                                                    Fiscal measures

                                     110                 Centaline property price index                     (1) Raised the stamp duty for all residential and non-residential
                                                         (July 1997 = 100)                                      property priced under HKD 2mn from HKD100 to 1.5% of the
 The government launched a           100                                                                        property value. For all properties worth over HKD 2mn, the stamp
                                                                                                                duty rates are doubled, with the highest bracket raised to 8.5%
      new round of property           90                                                                        from 4.25% before.
         sector measures in           80                                                                    (2) For non-residential properties, buyers will need to pay the stamp
                                                                                                                duty immediately after the signing of the Sales and Purchase
        February, extending           70                                                                        agreement, rather than after the completion of the transaction.
          intervention to the         60                                                                    Financial measures
  commercial property sector          50                                                                    (1) Raised the test interest rate level for affordability stress testing
                                                                                                                from base price rates +2% to base price rate + 3%.
            for the first time.       40
                                                                                                            (2) The loan-to-value ratios for commercial properties are reduced by
                                      30                                                                        10 percentage points across the board. Rating of not less than
                                                                                                                15% to mortgage loans.
                                      20
                                                                                                            (3) For carparks, the loan-to-value ratio is now standardized at 40%
                                           1996

                                                  1998

                                                         2000

                                                                  2002

                                                                         2004

                                                                                2006

                                                                                       2008

                                                                                              2010

                                                                                                     2012




                                                                                                                with a maximum tenure of 15 years.
                                                                                                            (4) Banks are also required to assign a risk asset.
                                   Source: Centaline Property Agency Ltd., Credit Suisse                    Source: Treasury Department, Credit Suisse



                                   Exhibit 56: Retail premise prices                                        Exhibit 57: USDHKD

                                    600                                                                      7.82
                                                                Property price: Retail premise                                                          USDHKD
                                                                (1999=100)                                   7.81
                                    500
                                                                                                             7.80

    Strong retail demand and        400                                                                      7.79
   excess liquidity conditions                                                                               7.78
                                    300
 have pushed up commercial
  property prices and rents to                                                                               7.77
                                    200
       historically high levels.                                                                             7.76
                                    100                                                                      7.75
                                                                                                                         Strong side convertibility undertaking
                                       0
                                                                                                             7.74
                                                                                                                      Nov-10
                                                                                                                      Nov-09




                                                                                                                      Nov-11




                                                                                                                      Nov-12
                                                                                                                      Aug-09




                                                                                                                      Aug-10




                                                                                                                      Aug-11




                                                                                                                      Aug-12
                                                                                                                      May-10
                                                                                                                      May-09




                                                                                                                      May-11




                                                                                                                      May-12
                                                                                                                      Feb-09




                                                                                                                      Feb-10




                                                                                                                      Feb-11




                                                                                                                      Feb-12




                                                                                                                      Feb-13
                                           Sep-03



                                           Sep-05



                                           Sep-07



                                           Sep-09



                                           Sep-11
                                           May-08
                                           Jan-03

                                           May-04
                                           Jan-05

                                           May-06
                                           Jan-07



                                           Jan-09

                                           May-10
                                           Jan-11

                                           May-12
                                           Jan-13




                                   Source: Rate and Valuation Dept., Credit Suisse                          Source: the BLOOMBERG PROFESSIONAL™ service , CEIC,
                                                                                                            Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                   38
                                                                                                                                                               09 April 2013




                                  Exhibit 58: Fiscal stimulus measures
                                  Total package amounted to HKD 33bn (1.3% of GDP)
    We think there is a rising    (1)      Reduce salaries tax and tax under personal assessment for FY13-14 by 75% subject to a ceiling of HK$10,000 (totalling
  need for the government to               HK$8.4 bn).
   reform its narrow and pro-
                                  (2)      Private property rate waiver for FY13-14, subject to a ceiling of HK$1,500 per quarter (totalling HK$11.6 bn).
 cyclical tax revenue stream,
        but since the revenue     (3)      Subsidy to residential electricity account, subject to a ceiling of HK$1,800 (totalling HK$4.5 bn).
     coming from taxes, land      (4)      Extra one-month allowance to the recipients of the Comprehensive Social Security Assistance, Old Age Allowance, Old
      sales and stamp duties               Age Living Allowance and Disability Allowance (totalling HK$2.7 bn).
            remains hefty, the
                                  (5)      Two-month waiver of public housing rent (totalling HK$2.2 bn).
    government seems in no
         rush to introduce the    (6)      Additional funding to the short-term food assistance services (HK$0.1 bn).
           necessary reforms.
                                  (7)      Giving all student loan borrowers graduating in 2013 the option to start repaying their student loans one year after
                                           completion of studies.

                                  Source: Treasury Department, Credit Suisse estimates



                                  Exhibit 59: Unemployment rate                                           Exhibit 60: Retail sales

                                                 Employed (mn people, RHS)                                                     Retail sales by value (% yoy)
                                   8             Unemployment rate (% 3m mav, LHS) 3.8                                         Retail sales by volume (% yoy)
                                                                                                            30
                                                                                                 3.7        25
         Healthy employment        7                                                                        20
                                                                                                 3.6
     conditions and continued                                                                               15
                                                                                                 3.5
     growth in tourism should      6                                                                        10
      help support retail sales                                                                  3.4         5
              growth this year.    5                                                                         0
                                                                                                 3.3
                                                                                                            -5
                                                                                                 3.2       -10
                                   4
                                                                                                 3.1       -15
                                                                                                           -20
                                   3                                                             3.0
                                        2004 2005 2006 2007 2008 2009 2010 2011 2012 2013                     2008       2009       2010         2011     2012      2013

                                  Source: Census and Statistics Dept., Credit Suisse                      Source: Census and Statistics Dept., Credit Suisse



                                  Exhibit 61: Headline inflation                                          Exhibit 62: Food prices

                                                    CPI (%yoy)                                                              China food CPI (% yoy)
                                   9                                                                       25               Hong Kong food CPI (% yoy. RHS)             15
                                                    CPI: Netted out one-off factors (% yoy)
   We expect inflation to rise
             more than we had      7                                                                       20                                                           12

        anticipated previously,    5                                                                       15                                                           9
    driven by higher imported
                                   3
       food prices from China,                                                                             10                                                           6
     rising rental costs, and a    1
                                                                                                             5                                                          3
 further increase in minimum
                                  -1
                        wages.                                                                               0                                                          0
                                  -3
                                                                                                            -5                                       -3
                                  -5                                                                          2006 2007 2008 2009 2010 2011 2012 2013
                                    2006 2007 2008 2009 2010 2011 2012 2013
                                  Source: Census and Statistics Dept., Credit Suisse                      Source: Census and Statistics Dept., Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                        39
                                                                                                                                                                            09 April 2013




Hong Kong: Selected economic indicators
                                                                                            2006       2007       2008       2009       2010       2011     2012E       2013F     2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                           7.0        6.4        2.1       -2.3        6.6        4.9        1.4        3.2       3.4
Growth in real private consumption (%)                                                        6.0        7.8        1.9        0.8        6.3        9.0        4.0        2.6       2.2
Growth in real fixed investment (%)                                                           7.0        4.2        1.4       -3.5        7.7       10.2        9.1        6.9       6.1
Fixed investment (% of GDP)                                                                  21.5       20.4       21.8       21.6       21.8       22.9       24.6       25.5      26.2
Nominal GDP ($bn)                                                                          189.2      207.2      218.9      212.7      227.8      248.2      261.6      276.3      291.0
Population (mn)                                                                               6.9        6.9        7.0        7.0        7.1        7.1        7.1        7.1       7.2
GDP per capita ($)                                                                        27,504     29,828     31,285     30,277     32,289     35,039     36,771     38,679     40,581
Unemployment (% of labor force, end-year)                                                     4.4        3.4        3.8        5.5        4.0        3.2        3.5        3.7       3.8
Prices, interest rates and exchange rates
CPI inflation (%, December over December)                                                     2.3        3.8        2.1        1.3        3.0        5.7        3.7        4.0       3.7
CPI inflation (% change in average index for the year)                                        2.0        2.0        4.3        0.5        2.4        5.3        4.1        4.5       3.9
Exchange rate (HKD per USD, end-year)                                                        7.78       7.78       7.75       7.76       7.77       7.78       7.80       7.80      7.80
Exchange rate (HKD per USD, average)                                                         7.77       7.78       7.78       7.75       7.77       7.78       7.80       7.80      7.80
REER (% year-on-year change December to December) (1)                                         -4.0      -5.9        0.6       -1.9       -4.4        0.6        1.9        3.5       2.9
Nominal wage growth (% year-on-year change, average)                                          1.5        2.6        3.4       -1.0        2.5        6.0        2.0        3.0       2.7
3-month HIBOR (%, end-year)                                                                   3.9        3.5        1.0        0.1        0.3        0.3        0.4        0.4       0.4
Fiscal data
General government fiscal balance (% of GDP)                                                  4.0        7.7        0.1        1.6        4.2        3.8        3.2        0.2       0.6
General government primary fiscal balance (% of GDP)                                          4.0        7.7        0.1        1.6        4.3        3.8        3.2        0.2       0.6
General government expenditure (% of GDP)                                                    15.5       14.6       18.5       17.6       17.0       18.8       18.9       18.3      18.2
Gross general government debt (% of GDP, end-year) (2)                                        1.5        1.2        1.0        0.7        0.6        1.1        1.3        1.3       1.3
Money supply and credit
Broad money supply (HKD M2, % of GDP)                                                      188.3      203.1      193.2      210.3      211.6      219.0      230.4      238.0      242.0
Broad money supply (HKD M2, % year-on-year change)                                           19.2       18.1       -1.3        5.3        8.0       13.0       11.1        9.1       7.1
Domestic credit (% of GDP)                                                                 135.0      125.7      122.6      165.1      196.1      207.3      201.4      206.9      211.8
Domestic credit (% year-on-year change)                                                       0.5        2.1        3.2       30.3       27.5       15.4        2.5        8.5       7.9
Domestic credit to the private sector (% of GDP)                                           139.9      140.0      140.6      154.8      192.1      208.7      217.2      233.5      248.1
Domestic credit to the private sector (% year-on-year change)                                 1.8        9.7        6.2        6.5       33.2       18.6        9.9       13.5      11.9
Balance of payments
Exports (goods and non-factor services, % of GDP)                                          205.5      207.3      208.8      190.9      219.0      224.6      223.8      227.0      232.8
Imports (goods and non-factor services, % of GDP)                                          194.1      196.4      198.6      183.4      213.5      221.5      223.8      227.5      233.3
Exports (goods and non-factor services, % increase in $ value)                               10.0       10.8        6.0      -11.1       22.8       11.7        5.0        7.1       8.0
Imports (goods and non-factor services, % increase in $ value)                               10.7       11.2        6.4      -10.3       24.7       13.0        6.5        7.4       7.4
Current account balance ($bn)                                                                22.9       25.6       29.5       18.0       12.3       12.9       12.4        4.9       4.7
Current account (% of GDP)                                                                   12.1       12.4       13.5        8.4        5.4        5.2        4.8        1.8       1.6
Net FDI ($bn)                                                                                 0.1       -6.8        9.0      -11.6      -24.2        1.5        1.4        1.3       1.3
Scheduled external debt amortization ($ bn) (3)                                              14.2       18.6       13.3       10.3       11.4       11.8       11.9       12.2      13.2
Foreign debt and reserves
Foreign debt ($bn, end-year) (4)                                                             54.0       85.6       50.1       40.0       55.2       54.8       54.4       54.2      53.7
   Public ($bn)                                                                               2.1        2.2        2.3        1.7        1.7        1.6        1.6        1.5       1.5
   Private ($bn)                                                                             51.9       83.3       47.9       38.3       53.5       53.1       52.8       52.6      52.2
Foreign debt (% of GDP, end-year)                                                            28.5       41.3       22.9       18.8       24.2       22.1       20.8       19.6      18.4
Foreign debt (% of exports of goods and services)                                            13.9       19.9       11.0        9.8       11.1        9.8        9.3        8.6       7.9
Central bank gross FX reserves ($bn)                                                       133.2      152.7      182.5      255.8      268.7      285.4      311.9      326.8      341.7
Central bank gross non-gold FX reserves ($bn)                                              133.2      152.7      182.5      255.8      268.7      285.4      311.9      326.8      341.7
(1) Real effective exchange rate, increase indicates appreciation. (2) Also includes debt issued under the Government Bond Program. Excludes debt guaranteed by the government.
(3) Scheduled and estimated amortizations for total medium- and long-term public and private sector debt. (4) Non-bank foreign debt to Hong Kong entities.
Source: Census and Statistics Department, Hong Kong Monetary Authority, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                  40
                                                                                                                                    09 April 2013




                                                India: Growth resurrection?
                Robert Prior-Wandesforde         Chidamaram’s delicate budget balancing act: Finance Minister Chidambaram may
                            +65 6212 3707
    robert.priorwandesforde@credit-suisse.com
                                                  have disappointed markets with his lack of new big-bang reforms and the preference for
                                                  revenue raising measures over sizeable spending reductions, but he did at least suggest
                                                  the government was on target to meet its self-imposed “red lines“. As unlikely as it
                                                  seemed just a few months ago, the country is now on target for a 5.1% central
                                                  government deficit in 2012/13, dropping to 4.8% in 2013/14. This has important
                                                  implications for the rating agencies, interest rates and economic growth.

                                                 Rating response: The post-budget comments from the three main rating agencies –
                                                  two of which, S&P and Fitch, have India on negative watch for a downgrade to sub-
                                                  investment grade – have been cautiously positive. With the government’s earlier reforms
                                                  also pleasing the agencies, it seems as though the potential for a politically humilating
                                                  move to below investment grade before next year’s general election is very low.

                                                 RBI reward? The Reserve Bank of India’s reponse to the budget came in the form of a
                                                  25bp repo rate reduction on 19 March. This followed the same-sized cut delivered at the
                                                  previous meeting on 29 January, which in turn was based largely on the long-awaited
                                                  drop in wholesale price pressures and the associated switch in the Bank’s focus away
                                                  from inflation towards economic growth. We also look for a 25bp cut at the quarterly
                                                  meeting on 3 May, with a further 50bp in easing thereafter, taking the repo rate down to
                                                  6.75%. Although our long-held rate call remains more aggressive than others, it is no
                                                  longer so distant from the consensus view.

                                                 Growth gloom: The Finance Minister’s seemingly successful budgetary squeeze,
                                                  however, has not come without costs. Just as it was beginning to look as though the
                                                  economy was bottoming, it was hit with what we estimate to be a fiscal tightening worth
                                                  more than 1% of GDP. The impact of this was plain to see in the December quarter’s
                                                  GDP release, where year-on-year growth slipped to a mere 4.5% – the softest number
                                                  for a decade, with the exception of one quarter at the height of the global financial crisis.
                                                  Details of the release revealed government consumption growth fell from 8.0% to less
                                                  than 2%, although net trade also delivered a surprisingly poor result, as imports fell less
                                                  sharply than exports. The only positive element to come from the release, was a 6% rise
                                                  in investment, following two consecutive quarters of year-on-year contraction. We note,
                                                  however, that some caution is warranted here as the expenditure components of GDP
                                                  are often revised significantly over time.

                                                 Recovery postponed? The government will almost certainly have detracted further
                                                  from economic growth in the March quarter and we have made yet another downward
                                                  revision to our 2012/13 GDP forecast from 5.3% to 5.0% as a result. Nevertheless, we
                                                  are hopeful that a recovery will finally begin from the June quarter of 2013. Several
                                                  reasons for optimism remain. First, the government’s spending controls will be relaxed.
                                                  Our estimates suggest that to achieve a 4.8% budget deficit only requires net budgetary
                                                  savings of one quarter percent of GDP – easily achievably via divestments. Second, the
                                                  interest rate environment is becoming less oppressive, as short-term money market and
                                                  commercial paper rates have been falling for more than a year now, and the RBI is
                                                  joining in with interest rate reductions of its own. Third, benefits of the government’s
                                                  structural reform measures on business confidence and investment are likely to become
                                                  increasingly visible.




Focus Asia (2Q 2013)                                                                                                                          41
                                                                                                          09 April 2013



                        What about exports? The weakness of real exports remains a puzzle. Frankly we
                         would have expected some help from this source by now, although we have not given
                         up hope yet. It seems hard to believe that a 20% depreciation of the rupee over the past
                         18 months will fail to yield any benefits. For what it is worth, our modelling work suggests
                         it takes a long time for the impacts to be seen and the last couple of months of monthly,
                         merchandise export value growth have shown a modest improvement – returning to
                         positive territory.

                        What sort of pick up? As well as lowering our 2012/13 projections, we have also edged
                         down the 2013/14 growth projection to 6.5% from 6.7%. Although comfortably above the
                         consensus projecton, which also continues to fall, this is not consistent with anything
                         resembling a V-shaped pick up. In our view and for the reasons mentioned, most
                         forecasters are becoming too bearish. Crucially, we believe the bulk of weakness in the
                         real economy is the result of a huge fiscal and monetary tightening after a period of
                         considerable excess, rather than the emergence of significant new bottlenecks.

                        Continued current account concerns: Admittedly, the current account deficit is a
                         concern, superseding inflation as policy makers‘ biggest headache right now and the
                         factor most likely to delay/cancel the rate reductions we envisage. But, as with
                         wholesale price inflation, which is now consistently surprising consensus on the
                         downside, we believe patience is key. As suggested above, we will be much more
                         concerned if exports show no sign of turning over the next 3-4 months and/or if import
                         growth continues to outpace that of exports. This is not to say that the deficit will
                         evaporate over the coming year – structural factors, including inevitable demand for
                         commodities, will ensure the shortfall remains sizeable – but a 3.5% of GDP deficit is
                         feasible. In our view, the combined effects of the rupee’s depreciation, soft domestic
                         demand, higher import duties (as announced in the budget), a lower fiscal deficit and the
                         partial liberalisation of diesel prices will cut the deficit in time.

                        Range-bound rupee: Having depreciated precipitiously from mid-2011 to mid-2012, the
                         India rupee has essentially been trading a range (of INR52-56) against the US dollar
                         over the past nine months. Our stragety team expects the rupee to move into the top
                         (weaker) half of the range as we head into the second half of 2013. A greater focus on
                         the 2014 general election, the possibility of higher inflation and an end to the rate cuts
                         are the most likely triggers for the currency to resume its depreciation.

                        Bond yield decline: Our local rates strategist has been bullish on rupee-denominated
                         Indian government bonds and continues to see further upside on the basis of the
                         inflation and RBI rate cutting views expressed here. In his view, the 10-year yield could
                         fall as low as 7.5% from 7.9% at the time of writing.

                        Sensex sustabinably over 20,000? Having taken a pause for breath in the early part of
                         calendar 2013, Indian equities are likely to stage a comeback and our regional equity
                         strategist is optimisitic that the Sensex can move back above 20,000 on a sustained
                         basis in the not too distant future. Apart from the valuation argument, our macro
                         economic views support the bull case. As we have pointed out in the past, it is rare to
                         see the market performing poorly when the country’s growth/inflation trade-off is
                         improving, even if it is just for cyclical reasons.




Focus Asia (2Q 2013)                                                                                                42
                                                                                                                                                  09 April 2013




             India’s GDP growth     Exhibit 63: Shocking growth                              Exhibit 64: Falling core inflation
   slumped to just 4.5% in the
                                       Index                 D&B* new orders (LHS)     % y-o-y% y-o-y           Core Wholesale Prices*
           December quarter of
                                                             GDP growth (RHS)                               Actual              CS Model                F'cst
 2012/13, again contradicting       100                                                11     9
          the more upbeat D&B                                                                 8
    business survey. This was                                                                 7
                                      80                                               9      6
  the second weakest outturn
                                                                                              5
   for a decade. The apparent                                                                 4
            weakness of growth        60                                               7
                                                                                              3
 combined with the downturn                                                                   2
    in inflation, where our core      40                                               5      1
       WPI model continues to                                                                 0
    work well, points to further                                                             -1
                                      20                                               3     -2
    RBI rate cuts. We continue
                                           05 06 07 08 09 10 11 12 13                             01     03       05       07      09        11       13
  to look for another 75bps of
                                    * Dunn & Bradstreet                                      * Manufacturing WPI excluding processed food
                      reductions.   Source: CEIC, Credit Suisse                              Source: Credit Suisse, CEIC



     We estimate that India’s       Exhibit 65: Big fiscal squeeze in 12/13 hit growth. Much less tightening in 13/14
 underlying fiscal stance was
  tightened by more than 1%           % GDP
 of GDP in the second half of         1.5
     2012/13. This is likely to       1.0
 have dented GDP growth in            0.5
   the December quarter with          0.0
                                     -0.5
   a similar result likely in the
                                     -1.0
                March quarter.
                                     -1.5
      The 2013/14 budget is,         -2.0
  however, consistent with a         -2.5
     much smaller budgetary          -3.0
 squeeze worth around 0.2%
  of GDP. This could be met
        just from divestment                                            Underlying fiscal tightening/loosening*
                   proceeds.        Source: CEIC, Credit Suisse



     India’s nominal and real       Exhibit 66: Exports set to bounce?                       Exhibit 67: Further equity gains ahead
  export growth has softened                                                                                      India real GDP-WPI
                                                        USD-INR, advanced 18      % y-o-y     %                                                          %
 sharply over the past couple                           months (LHS)                         10                   Inflation (LHS)                        100
                                    56                                                 75
  of years, helping to explain                          Exports (RHS)                                             Sensex (RHS)
                                    54                                                        8                                                            80
       the weakness of GDP                                                            55                                                     F'cst*
                                    52                                                        6                                                            60
 growth and the deterioration
         in the trade position.     50                                                35      4
                                                                                                                                                           40
      However, the lags with        48                                                        2
                                                                                      15                                                                   20
         which the INR works        46                                                        0
                                                                                                                                                           0
    suggests it is too early to     44                                                -5     -2
             give up hope of a                                                               -4                                                            -20
                                    42
             stimulative effect.                                                      -25    -6                                                            -40
                                    40
 Meanwhile, our forecasts for                                                                -8                                                            -60
                                    38                                                -45
       India’s growth-inflation                                                                 98         01        04      07         10         13
                                         01     03      05        07   09   11   13
     difference bodes well for
                                    Source: Credit Suisse, CEIC                              Source: Credit Suisse, CEIC
  further equity market gains.




Focus Asia (2Q 2013)                                                                                                                                           43
                                                                                                                                                                               09 April 2013




India: Selected economic indicators
(Fiscal year beginning April) (1)                                                             2006        2007       2008       2009       2010        2011     2012E       2013F      2014F
National accounts, population and unemployment
Real GDP growth (%)(2)                                                                          9.6         9.3        6.7        8.4       9.3         6.3        5.0        6.5         7.5
Growth in agricultural GDP (%)                                                                  4.2         5.8        0.1        1.0       7.0         3.6        1.9        2.3         2.5
Growth in industrial GDP (%)                                                                   12.2         9.7        4.4        8.4       7.2         3.4        3.2        5.5         7.0
Growth in services GDP (%)                                                                     10.1        10.3       10.0       10.5       9.3         8.4        6.6        7.8         8.9
Growth in real private consumption (%)                                                          8.5         9.4        7.2        7.2       8.4         7.1        3.5        6.0         6.4
Growth in real fixed investment (%)                                                            13.8        16.2        3.5        6.8      13.0         4.7        1.5        8.2        12.0
Fixed investment (% of GDP)                                                                    31.8        33.7       33.5       33.1      33.8        33.2       32.5       33.0        34.4
Nominal GDP ($bn)                                                                              952        1243       1226       1363     1687.1      1868.1     1854.5     2042.2      2232.4
Population (mn)                                                                               1122        1138       1154       1170      1186       1202.0     1218.8     1235.9      1253.2
GDP per capita ($)                                                                             849        1092       1063       1165      1422        1540       1522       1638        1781
Prices, interest rates and exchange rates
WPI inflation (% year-on-year change, fiscal year – March over March)                           6.7        7.7         1.6       10.4        9.7        7.5         6.2        6.2        7.5
WPI inflation (% change in average index for the year)                                          5.4        4.7         8.1        3.8        9.6        8.9         7.2        5.9        7.0
Exchange rate (INR per USD, end-year)                                                          44.0       40.4        51.2       45.9       45.2       50.9        54.0       56.5       56.5
Exchange rate (INR per USD, average)                                                           45.1       40.1        45.9       47.4       45.5       47.9        53.9       55.8       56.5
REER (% year-on-year change, March over March) (3)                                              0.3        2.7       -11.5       14.3        3.1       -5.2        -4.0       -1.5       -1.0
Repo rate (%, end-year) (4)                                                                    7.50       7.75        5.00       5.00       6.75       8.50        7.50       6.75       7.25
Reverse repo rate (%, end-year) (4)                                                            6.00       6.00        3.50       3.50       5.75       7.50        6.50       5.75       6.25
Fiscal data
General government fiscal balance (% of GDP) (5)                                               -5.4       -5.0        -8.7       -9.5       -7.4       -8.2        -7.8       -7.3       -7.0
General government budget balance (% of GDP) excl. disinvestment receipts                      -5.4       -4.9        -8.3       -9.8       -7.3       -8.2        -8.1       -7.7       -7.2
Central government fiscal balance (% of GDP) (5)                                               -3.3       -2.5        -6.0       -6.4       -4.7       -5.8        -5.1       -4.8       -4.5
Central government budget balance (% of GDP) excl. disinvestment receipts                      -3.6       -4.3        -6.3       -7.4       -5.6       -5.8        -5.6       -5.2       -4.7
Central government primary fiscal balance (% of GDP)                                            0.2        0.9        -2.6       -3.1       -1.8       -2.7        -2.3       -1.8       -1.5
Central government expenditure (% of GDP)                                                      13.6       14.3        15.8       15.6       15.2       14.7        13.9       14.2       14.4
Central government revenue (% of GDP)                                                          10.3       11.7         9.8        9.3       10.5        8.9         8.8        9.4        9.9
Gross general government debt (% of GDP, end-year)                                             78.5       75.4        74.7       75.0       69.4       68.1        67.5       66.5       65.5
Money supply and credit
Broad money supply (M3, % of GDP)                                                              77.1       80.6        85.2       86.8       84.8       83.1        83.4       84.9       86.0
Broad money supply (M3, % year-on-year change)                                                 21.7       21.4        19.3       16.8       16.1       13.1        13.2       14.5       16.0
Domestic credit (% of GDP)                                                                     72.1       73.0        78.9       82.7       83.5       84.4        86.5       89.2       91.1
Domestic credit (% year-on-year change)                                                        19.4       17.5        22.0       20.3       20.0       16.7        15.5       16.0       17.0
Domestic credit to the private sector (% of GDP)                                               52.9       55.0        56.8       57.2       58.0       58.1        58.7       60.0       61.3
Domestic credit to the private sector (% year-on-year change)                                  23.6       20.8        16.6       15.4       20.6       15.5        14.0       15.0       17.0
Balance of payments
Exports (goods and non-factor services, % of GDP)                                              21.3        20.6       23.7       20.4       22.7        24.4       24.8       25.0       26.3
Imports (goods and non-factor services, % of GDP)                                              24.7        24.9       29.4       26.4       27.5        31.1       34.2       34.8       36.9
Exports (goods and non-factor services, % year-on-year change in $ value)                      24.5        26.6       13.3       -4.4       37.5        17.9        2.0       10.0       16.0
Imports (goods and non-factor services, % year-on-year change in $ value)                      22.7        31.6       16.6       -0.1       28.8        24.2       10.0       11.0       17.0
Current account balance ($bn)                                                                  -9.6       -15.7      -27.9      -38.4      -46.0       -80.3      -85.3      -70.8      -89.3
Current account balance (% of GDP)                                                             -1.0        -1.3       -2.3       -2.8       -2.7        -4.3       -4.8       -3.5       -4.0
Net FDI inflows ($bn)                                                                           7.7        15.9       19.8       18.0        9.4        22.1       18.0       22.0        25
Foreign debt and reserves
Foreign debt ($bn)                                                                              172        224        224         261        306        346        375        415        435
Foreign debt (% of GDP)                                                                        18.1       18.1       18.3        19.1       18.1       18.7       20.2        20.5       19.5
Foreign debt (% of exports of goods and services)                                              85.0       87.5       77.2        94.6       80.3       76.7       81.6        82.1       74.1
Central bank gross FX reserves ($bn)                                                          199.2      309.7      252.0       279.1      305.5      294.4      281.0       285.0      285.0
Central bank gross non-gold FX reserves ($bn)                                                 192.4      299.7      242.4       261.1      282.5      267.4      256.0       260.0      260.0
(1) The years above are fiscal years beginning in April and ending in March, i.e., 2010 refers to the period of April 2010-March 2011, also written as FY2010/11. (2) Revised GDP series with
base 2004-05. All historical ratios expressed as % of GDP may appear smaller since the revised GDP values in the new series (with base year of 2004) are higher. (3) Real effective exchange
rate: an increase indicates appreciation. (4) The RBI uses a mix of instruments such as the repo rate, reverse repo rate, CRR (Cash Reserve Ratio), etc. (5) Note, effective from 2010, the
central government includes proceeds from disinvestments as revenue in calculating the fiscal deficit.
Source: Ministry of Finance, Reserve Bank of India, CSO, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                        44
                                                                                                                                   09 April 2013




                                                Indonesia: No worries?
                Robert Prior-Wandesforde         Becalmed: Judging by the strength of the Jakarta composite index and the stabilization
                            +65 6212 3707
                                                  of the rupiah in recent weeks, investors are adopting a more positive attitude with regard
    robert.priorwandesforde@credit-suisse.com
                                                  to Indonesian assets. But, do the country’s macro-economic fundamentals support this
                                                  approach?
                                                 Softening investment: While the quality of Indonesia’s activity data make a definite
                                                  conclusion hard to reach, it looks increasingly as though investment growth is slowing.
                                                  This is certainly the message of the national accounts data, where real investment
                                                  growth softened further to 7.3% in 4Q 2012, from a recent high of 12.5% two quarters
                                                  previously, as well as the sharp downturn in capital goods imports, albeit partly reflecting
                                                  softer price rises. In its 7 March post-meeting statement the central bank also noted that
                                                  “there are indications of investment activity moderation since 4Q 2012”, pointing to non-
                                                  construction investment as the culprit. Two factors are likely to be important here. First,
                                                  the apparent downturn in the coal cycle and second, recent government actions that
                                                  many have seen as “protectionist”.
                                                 Resilient consumption: There are no such growth worries as far as consumer
                                                  spending is concerned as sizeable minimum wage rises boost incomes, sharp
                                                  residential property price rises ripple out from central Jakarta, unemployment declines,
                                                  and bank interest rates move lower. Against this background, it is perhaps no surprise to
                                                  see the “present conditions” index within Bank Indonesia’s consumer confidence survey
                                                  close to a record high and real private consumption rise 5.4% in the year to 4Q 2012.
                                                  The latter is a full percentage point above its long-term average and among the
                                                  strongest increases the country has enjoyed for more than a decade.
                                                 6% domestic demand growth in 2013: Looking ahead, our modeling work suggests
                                                  that the sum of private consumption and investment growth is likely to flatten out around
                                                  current rates, while we expect government consumption to bounce back after two
                                                  quarters of significant spending restraint. This in turn leaves us with a forecast for
                                                  domestic demand growth of 6.2% in 2013, down from the large 8.2% increase last year
                                                  but by no means soft.
                                                 External deficit likely to increase: With this in mind and building in our modest global
                                                  growth views, it is hard to believe that import growth will not continue to outpace exports,
                                                  both in real and nominal terms. Those hoping that previous investment gains will lead to
                                                  stronger exports have been disappointed thus far, and we suspect that will continue to
                                                  be the case as, according to our discussions with policymakers and others, most of the
                                                  capital spending has been to meet domestic rather than external demand (although
                                                  admittedly this could lead to some import substitution). Overall, we expect the current
                                                  account deficit to total USD31bn in 2013 (3.5% of GDP), up from USD24bn (2.8% of
                                                  GDP) in 2012 and a surplus of USD1.7bn (0.2% of GDP) in 2011. This contrasts with the
                                                  consensus view, as well as with the views of the government and Bank Indonesia.
                                                 Fundability issues: Thanks to sizeable net FDI and portfolio inflows, Indonesia’s
                                                  current account deficit was more than funded in 2012, leaving the Balance of
                                                  Payments in surplus before taking account of shifts in reserves. We expect 2013 to be
                                                  a different matter, however, partly because of the higher external deficit, and it is
                                                  notable that Bank Indonesia has spent the best part of USD7bn in foreign exchange
                                                  reserves during the first two months of the year just to stabilize the currency. Any
                                                  global “risk-off” shocks, core inflation surprise, and/or evidence of increasingly
                                                  protectionist government policies could easily see net inflows slow down or even
                                                  reverse, leaving the central bank with a choice – either spend much more in the way
                                                  of reserves or let the currency soften somewhat.




Focus Asia (2Q 2013)                                                                                                                         45
                                                                                                            09 April 2013



                        Rupiah set to soften again: While Bank Indonesia still has USD105bn of foreign
                         exchange reserves, three times the value of short-term external debt and equivalent to
                         nearly six months of imports, we doubt it will continue to intervene or at least not at the
                         recent pace. In our discussions with BI officials, it was made clear that the bank is
                         uncomfortable with a current account deficit in excess of 2% of GDP and would prefer to
                         deal with this via a depreciating exchange rate, rather than compressing imports by
                         raising interest rates and squeezing domestic demand. As such, we would not be
                         surprised to see the rupiah start to depreciate against the US dollar again, albeit in a
                         controlled fashion, over the coming weeks and months. Although the 10,000 level is
                         important to the central bank, we suspect it would be prepared to see the currency go
                         through this if, as we expect, exports (and investment) remain soft. Our foreign
                         exchange strategy team is looking for the rupiah to hit 10,300 later this year.
                        Has inflation finally turned? For a long time we have been expecting inflation to show
                         a meaningful rise, while in practice it has remained remarkably stable, defying consistent
                         upward pressure from the traditional drivers of consumer prices. Between December
                         and March, the headline rate of inflation did move up more than one percentage point to
                         5.9% – the highest rate since May 2011 – although this was entirely the result of a
                         doubling in raw food price inflation (to 12.9%). The core rate, which excludes volatile and
                         administered prices (mainly food and energy), actually fell 18bp over the same period
                         and has only been above 5% in one month since mid-2009. Nevertheless, we believe
                         the combination of the lagged effects of the weaker rupiah (which our statistical analysis
                         suggests can take up to 18 months to make its presence felt), strong money and lending
                         growth, higher minimum wages, a positive output gap, second-round effects from the
                         food price increases and quarterly electricity price rises should see core inflation trend
                         higher. However, we think conviction levels are not that high given the experience of the
                         past couple of years.
                        Higher policy interest rates ahead? History suggests that headline inflation would
                         probably need to exceed the policy rate (5.75%) with core inflation also rising before
                         Bank Indonesia even starts to think about raising this politically sensitive interest rate. It
                         could hike the lower end of the interest rate corridor (the FASBI rate) again, and this is
                         the more likely course of action, at least initially, particularly if the rise in headline
                         inflation begins to spread to the core. Overall, we have opted to tone down our previous
                         rate call, now looking for 75bp of FASBI rate rises and 50bp of policy rate hikes in the
                         second half of 2013, based on the view that inflation will get close to 6.5% by the end of
                         the year. This may still seem aggressive, but it is worth remembering that the policy rate
                         was cut from 6.75% to 5.75% between October 2011 and February 2012.
                        Sub-6% GDP growth? On the basis of the domestic demand forecasts discussed
                         above and the likelihood that import growth continues to outpace export growth, we
                         expect Indonesian GDP growth to slip below 6% from the second quarter of this year,
                         averaging 5.8% in 2013 as a whole. Thereafter, as the lagged effects of the potential
                         interest rate hikes begin to hit, we expect growth to fall further to 5.3% in 2014 – the
                         second weakest figure since 2003. If correct, this would disappoint many, although we
                         believe the country requires a period of sub-trend growth to ease the overheating
                         pressures present in the economy.




Focus Asia (2Q 2013)                                                                                                  46
                                                                                                                                                   09 April 2013




                                      Exhibit 68: Sharp slowdown                                    Exhibit 69: Soaring confidence
                                                                                                      Index
  The growth in the import of                            Capital goods imports* (% y-o-y)            120                Consumer confidence
                                       100
   capital goods has shown a
            surprisingly severe                                                                      110
                                         80
  slowdown in recent months                                                                          100
      and is currently not that          60
                                                                                                      90
     distant from the weakest            40                                                           80
   point witnessed during the
   time of the global financial          20                                                           70
                          crisis.                                                                     60
                                           0
 At the same time, consumer                                                                           50
                                        -20
      confidence continues to                                                                         40
                trend higher.           -40                                                                01      03        05    07    09        11     13
                                               05 06 07 08 09 10 11 12 13
                                      * 3 month moving average                                      Source: Credit Suisse, CEIC
                                      Source: Credit Suisse, CEIC



  Indonesia’s current account         Exhibit 70: Current account deficit comfortably funded in 2Q 2012
      deteriorated rapidly last         USD bn
     year, although the deficit
                                         12                                 Current account
   was more than matched by
                                         10
     net inflows via the capital                                            Capital + Financial account*
                                          8
        and financial account.
                                          6
     With the deficit set to rise         4
             further in 2013 and          2
     financing becoming more              0
  difficult, the story is likely to
                                         -2
          be different this year.
                                         -4
  Bank Indonesia has already             -6
     spent nearly USD7bn in              -8
 reserves to stabilize the IDR                 04           05             06       07        08           09           10         11         12
    in the first two months of
                         2013.        * Also includes errors & omissions
                                      Source: Credit Suisse, CEIC



                                      Exhibit 71: Rupiah depreciation                               Exhibit 72: Headline inflation above 5%
         The rupiah has been
     depreciating for the best         40                  IDR-USD (% year-on-year)                  9
     part of 18 months and is
  falling by nearly 10% year-          30                                                            8                    Headline CPI        Core CPI
 on-year. It takes a long time         20
  for currency effects to feed                                                                       7
                 into inflation.       10
                                                                                                     6
 While the headline CPI rate             0
                                                                                                     5
     has finally moved up on          -10
   higher food price inflation,                                                                      4
 we also expect the core rate         -20
                                                                                                     3
        to rise later this year,      -30
   eventually prompting rate                 05 06 07 08 09 10 11 12 13                              2
                          rises.                                                                         09          10           11     12             13
                                      Source: CEIC, Credit Suisse                                   Source: Credit Suisse, CEIC




Focus Asia (2Q 2013)                                                                                                                                         47
                                                                                                                                                                                09 April 2013




Indonesia: Selected economic indicators
                                                                                              2006        2007       2008       2009       2010        2011     2012E       2013F      2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                             5.5         6.3        6.0        4.6        6.2         6.5        6.2        5.8        5.3
Growth in real private consumption (%)                                                          3.2         5.0        5.3        4.9        4.7         4.7        5.3        5.2        4.4
Growth in real fixed investment (%)                                                             2.6         9.3       11.9        3.3        8.5         8.8        9.8        8.6        6.4
Fixed investment (% of GDP)                                                                    24.1        24.9       27.7       31.1       32.0       32.0        33.2       33.9       34.2
Nominal GDP ($bn)                                                                             364.4       432.3     510.6      538.6       709.5      845.8      878.3      909.0     1016.4
Population (mn)                                                                               222.7       225.6     228.5      231.4       237.6      237.0      239.8      242.7       245.6
GDP per capita ($)                                                                            1,636       1,916     2,234      2,328       2,985      3,569      3,663      3,746       4,139
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                   6.6         6.6        9.8        4.8        5.1         5.4        4.3        6.0        6.0
CPI inflation (% change in average index for the year)                                         13.1         6.4        9.8        4.8        5.1         5.4        4.3        5.5        6.2
Exchange rate (IDR per USD, end-year)                                                         9,020       9,419    10,950      9,400       8,991      9,068      9,670     10,300     10,350
Exchange rate (IDR per USD, average)                                                          9,164       9,139     9,692     10,408       9,087      8,776      9,384     10,117     10,350
REER (% year-on-year change, December over December) (1)                                        7.2        -6.5       -8.6       15.6        5.9        -1.2       -4.6       -3.0        3.0
Nominal wage growth (% year-on-year change) (2)                                                 6.3         4.2        7.6        5.3       12.2         4.6        6.0       10.0        6.0
Overnight rate (%, end-year) (3)                                                               9.75        8.00       9.25       6.50       6.50       6.00        5.75       6.25       6.75
Fiscal data (4)
General government fiscal balance (% of GDP)                                                    -0.9       -1.3       -0.1       -1.6        -0.7       -1.1       -1.9       -2.1        -2.3
General government primary fiscal balance (% of GDP)                                            1.5         0.8        1.7        0.1        0.6         0.1       -1.1       -1.3        -1.3
General government expenditure (% of GDP)                                                      20.0        19.2       19.9       16.7       16.2       17.4        18.8       19.2       19.1
General government revenue (% of GDP)                                                          19.1        17.9       19.8       15.1       15.4       16.3        16.9       17.1       16.8
Gross general government debt (% of GDP, end-year) (5)                                         39.6        34.1       29.3       31.4       26.3       24.0        23.0       22.0       21.0
Money supply and credit
Broad money supply (M2, % of GDP)                                                              41.4        41.8       38.3       38.2       38.3       38.8        40.1       41.3       41.4
Broad money supply (M2, % year-on-year change)                                                 14.9        19.3       14.9       13.0       15.4       16.4        18.0       15.0       12.0
Domestic credit (% of GDP)                                                                     29.4        28.8       26.3       26.1       24.9       26.5        28.4       29.5       29.6
Domestic credit (% year on year change)                                                         8.8        16.2       14.3       12.2        9.9       22.4        19.0       16.0       12.0
Domestic credit to the private sector (% of GDP)                                               24.6        25.5       26.6       25.0       26.1       28.5        31.4       33.4       34.4
Domestic credit to the private sector (% year-on-year change)                                  12.1        22.4       30.7        6.8       20.0       25.8        22.0       19.0       15.0
Balance of payments (6)
Exports (goods and non-factor services, % of GDP)                                              31.5        30.3       30.5       24.7       24.6       26.2        24.1       24.6       24.0
Imports (goods and non-factor services, % of GDP)                                              26.1        25.4       28.6       20.7       21.6       23.3        24.3       25.6       24.5
Exports (goods and non-factor services, % year-on-year change in $ value)                      15.1        13.4       18.7      -14.2       31.7       26.7        -4.6        6.0        9.0
Imports (goods and non-factor services, % year-on-year change in $ value)                       4.1        15.0       32.3      -23.0       37.6       28.5         8.3        9.0        7.0
Current account balance ($bn)                                                                  10.9        10.5        0.1       10.6        5.1         1.7      -24.6      -31.4      -25.4
Current account balance (% of GDP)                                                              3.0         2.4        0.0        2.0        0.7         0.2       -2.8       -3.5        -2.5
Net FDI inflows ($bn)                                                                           2.2         2.3        3.4        2.6       11.1       11.5        14.4       10.0       12.0
Scheduled external debt amortization ($bn)                                                     14.0        14.4       15.5       17.1       18.7       26.5        36.7       40.0       45.0
Foreign debt and reserves
Foreign debt ($bn)                                                                            132.6       141.2     155.1      172.9       202.4      225.4      251.2      280.0       300.0
   Public ($bn)                                                                                75.8        80.6       86.6       99.3      118.6      118.6      126.1      133.0       140.0
   Private ($bn)                                                                               56.8        60.6       68.5       73.6       83.8      106.7      125.1      147.0       160.0
Foreign debt (% of GDP)                                                                        36.4        32.7       30.4       32.1       28.5       26.6        28.6       30.8       29.5
Foreign debt (% of exports of goods and services)                                             115.6       107.9       99.5     130.2       115.8      101.8      118.9      125.0       122.9
Central bank gross FX reserves ($bn)                                                           42.6        56.9       51.6       66.1       96.2      110.1      112.8        95.0       95.0
Central bank net non-gold FX reserves ($bn)                                                    41.1        55.0       49.6       63.6       92.9      106.5      108.8        92.0       92.0
(1) Real effective exchange rate, increase indicates appreciation. (2) Nominal wage: manufacturing. (3) BI changed its policy target from 1m SBI rate to overnight rate in 2008. (4) Refers to
central government. The government assumed an oil price of $61 per barrel for 2009 in its revised budget announced in June 2009. (5) Excludes SOE and BI debt. (6) BoP numbers from 2004
onwards have been revised; exports & imports include credits & debits on net income, respectively, in 2000-03.
Source: Bank Indonesia, Ministry of Finance, Central Bureau Statistics, CEIC, World Bank, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                        48
                                                                                                                                   09 April 2013




                                               Korea: Yen weakness not a grave concern
                       Christiaan Tuntono       Recent global economic data has surprised on the upside, providing support to our
                          +852 2101 7409
                                                 expectation of a gradual global recovery. In particular, US employment data, ISM, and
        christiaan.tuntono@credit-suisse.com
                                                 durable goods new orders all posted stronger-than-expected gains in recent months. Our
                                                 global manufacturing PMI index also rose mildly in February, continuing along a slow
                                                 upward trend.
                                                While this depicts a positive outlook on Korea’s growth outlook, we urge caution on
                                                 the sustainability of the current sanguine trend. The recent softening in our Base
                                                 Material Index (CSBMI) suggests that global PMI may take a breather in the spring after
                                                 rising to its current height. The sequester cuts in US government expenditure are expected
                                                 to slow US growth from our previous expectation as well, possibly leading to a slower
                                                 recovery path than what the latest data projects.
                                                We remain cautious on Korea’s growth trajectory this year in view of an uncertain
                                                 global growth outlook and the weaker-than-expected improvement so far. 4Q 2012
                                                 GDP growth only managed to record a 0.3% qoq seasonally adjusted gain, versus 0.04%
                                                 in 3Q. Industrial production contracted 1.0% yoy combined in January-February, not
                                                 helping to project a more positive picture on its momentum in 1Q13 as well. This has
                                                 prompted us to take a more conservative expectation on Korea’s growth trajectory this
                                                 year. We have revised down our forecast for 2013 GDP growth to 2.7%, down from 3.2%
                                                 before, in reflection of our anticipation of a milder uptrend this year.
                                                Recent weakness in JPYKRW, spearheaded by the policy-driven depreciation of the
                                                 JPY, has triggered investor concern over the competitiveness of Korean exports.
                                                 However, when comparing Korea’s real merchandise export growth to JPYKRW and
                                                 USDKRW, we found no correlation between them. Instead, global economic growth,
                                                 especially that in the advanced economies, poses the strongest correlation with Korea’s
                                                 export growth. It is important to note that Korea’s global export share has been on the rise
                                                 through the past decade, even when JPYKRW was much lower than the current level. We
                                                 believe this was driven by the improved competitiveness of Korean export products in
                                                 global markets.
                                                Dynamics in the global automobile and electronic industries suggest that the
                                                 market could have been overly concerned about the implication of JPY weakness
                                                 on Korea exports. In the automobile sector, rising overseas production and efforts to
                                                 stabilize pricing help to minimize the FX effect on end-products. The fact that the Korean
                                                 and Japanese car makers target different segments of the global automobile market also
                                                 suggests that they are not in a zero-sum competition. In the tech sector, many Japanese
                                                 producers have lost their lead against Korean producers in a number of key areas. The
                                                 globally diversified manufacturing bases and sales points owned by the Korean tech
                                                 companies also help to hedge their business naturally against FX volatility. The pick-up in
                                                 exports remained very mild, given the nascent improvement in developed market demand.
                                                 Exports rose 0.4% yoy while imports fell 2% yoy in March. Compared to the trade
                                                 performance in the first two months of the year, exports remained weak, in our view.
                                                 Export growth should continue on a mild improvement track in the coming months upon a
                                                 low statistical base and the gradual recovery in developed markets’ demand, but the
                                                 extent so far is unsatisfactory, in our view. In all, we think Korea’s export sector is still
                                                 structurally challenged by weak global demand conditions. A more sustainable recovery
                                                 would need to be supported by stronger improvement in economic conditions in the US,
                                                 the EU, and China.




Focus Asia (2Q 2013)                                                                                                                         49
                                                                                                             09 April 2013



                        Domestic demand remains in the doldrums, given an uncertain global economic
                         outlook and a high household debt burden. The former weighs on facility investments,
                         as exporters remained reluctant to invest before global demand shows signs of a more
                         sustainable recovery. In January-February, equipment investment dropped 17% yoy, with
                         a sharp yearly and sequential contraction in machinery investments. A high household
                         debt level, on the other hand, squeezes the additional room for credit that can help finance
                         consumption. Retail sales fell 0.7% yoy in January-February in reflection of weak
                         consumer demand.
                        We doubt the economic policy of President Park Guen-hye is going to boost the
                         sluggish domestic economy in the near term. President Park’s economic policy
                         revolves around two themes: (1) Creative Economy; and (2) Economic Democratization.
                         The first theme aims to shift the focus of Korea’s growth model from exports,
                         manufacturing, and chaebols to domestic demand, services, and SMEs. The second
                         theme aims to create a “fair market” for both large and small companies, addressing the
                         public’s concerns about the dominance of the chaebols in the economy. Although these
                         themes do touch on the structural issues of the Korean economy, their benefits, if
                         materialized, would likely be achieved over the long haul. We do not think they would avert
                         Korea’s over-dependence on the external sector and its weak growth in the near term.
                        We welcome the government’s latest support package for the property sector but
                         do not think it will have an immediate impact. For the first-time homebuyers, the loan-
                         to-value limit would be raised to 70% and banks would also have discretion on applying
                         the debt-to-income ratio. Other key measures include reduction of cheap public housing
                         supply, tax support for the first-time homebuyers, a temporary capital gain tax exemption,
                         a permanent lift of the progressive capital gains tax system on multiple home-owners, and
                         financial support for buying and renting for the poor. We believe all of the proposed
                         measures could be approved soon, as some have been reviewed by the National
                         Assembly previously. Improved sentiment on the Korean economy and expectations of
                         rising home prices and household income are needed to foster a genuine turnaround in
                         the housing sector, in our view.
                        We have revised down our expectation on Korea’s CPI inflation this year upon a
                         sluggish outlook in the domestic economy. We expect CPI inflation to average 2.2% in
                         2013, lowered from the 2.9% average we anticipated before. The weak price pressure
                         seen in January and February, along with our conservative outlook on domestic demand
                         underlie our downward revision. March CPI inflation stood at 1.3% yoy, moderating a bit
                         further from February. Core CPI inflation was at 1.5% yoy, up 0.2pp from February. In our
                         view, a rising statistical base and sub-trend growth momentum are likely to keep price
                         pressure at bay this year.
                        With inflation ceasing to be a concern at this juncture, we think the BoK has room
                         to ease monetary policy a bit further. We believe a rate cut will not only help improve
                         sentiment and lower the cost of credit a bit further (to help the property sector), it may also
                         help cool strength in the KRW and facilitate some more weakening against the USD and
                         JPY. This should help support exporters’ margins further, cushioning the impact from an
                         overly rapid strength in the KRW seen before. Unless we see a visible bounce in Korea’s
                         macro-economic data in the near term, we think the possibility of a rate cut would still exist
                         for this year.
                        We have set our forecasts for USDKRW at 1070 by end-2013 and 1060 by end-2014,
                         expecting only limited scope for further appreciation of the KRW. The KRW has
                         weakened moderately against the USD since the beginning of this year, as the USD
                         gained strength across the board upon its better-than-expected macro performance lately.
                         As we believe momentum in the US may slow in the coming months, we still see upside
                         risk on KRW strength, although the BoK may try to cap its strength in view of a still
                         sluggish export performance. We expect no change to Korea’s sovereign debt rating
                         over the next six months. Korea is currently rated Aa3 (Moody’s), A+ (S&P) and AA-
                         (Fitch), with a stable outlook.


Focus Asia (2Q 2013)                                                                                                   50
                                                                                                                                                                                                                                                                                  09 April 2013




                                   Exhibit 73: Business indicators                                                                                                  Exhibit 74: Exports to trading partners
                                                                                                                                                                    %yoy, 3m mav
                                                                     US ISM: PMI                                                                                                                                   China                                                          EU
     Recent global economic                                          China: PMI                                                                                     100                                            Japan                                                          USA
                                   70                                                                                                                       120
   data has surprised on the                                         German IFO (RHS)                                                                                 80
 upside, providing support to                                                                                                                                         60
                                                                                                                                                            110
 our expectation of a gradual      60
                                                                                                                                                                      40
             global recovery.                                                                                                                               100       20
                                   50
 While this depicts a positive                                                                                                                                          0
                                                                                                                                                            90
  outlook for Korea’s growth                                                                                                                                         -20
 outlook, we urge caution on       40
                                                                                                                                                            80       -40
      the sustainability of the
                                                                                                                                                                     -60
      current sanguine trend.      30                                                                                                                       70




                                                                                                                                                                                                                                 Feb-10
                                                                                                                                                                                                                                            Jul-10
                                                                                                                                                                                        Jun-08




                                                                                                                                                                                                                                                                                                    Aug-12
                                                                                                                                                                              Jan-08


                                                                                                                                                                                                 Nov-08


                                                                                                                                                                                                                    Sep-09



                                                                                                                                                                                                                                                       Dec-10




                                                                                                                                                                                                                                                                                                              Jan-13
                                                                                                                                                                                                          Apr-09




                                                                                                                                                                                                                                                                             Oct-11
                                                                                                                                                                                                                                                                                        Mar-12
                                                                                                                                                                                                                                                                  May-11
                                          Jan-05



                                          Jan-07



                                          Jan-09
                                          Sep-09

                                          Jan-11
                                          Sep-11

                                          Jan-13
                                          Sep-05
                                          May-06

                                          Sep-07
                                          May-08



                                          May-10



                                          May-12
                                   Source: CEIC, Credit Suisse                                                                                                      Source: CEIC, Credit Suisse



                                   Exhibit 75: Real GDP growth                                                                                                      Exhibit 76: Sectoral growth
      We remain cautious on
    Korea’s growth trajectory                                                      Korea real GDP (%qoq, sa)                                                                                      Real GDP (% yoy)
        this year in view of an     4                                                                                                                                   15
                                                                                                                                                                                                  Gross fixed capital formation (% yoy)
      uncertain global growth       3
                                                                                                                                                                                                  Private consumption (%yoy)

  outlook and a weaker-than-                                                                                                                                            10
                                    2
   expected improvement so          1                                                                                                                       0.4         5
                            far.    0
                                   -1                                                                                                                                   0
   We have revised down our
                                   -2
       forecast for 2013 GDP                                                                                                                                            -5
                                   -3
   growth to 2.7%, down from       -4                                                                                                                                -10
  3.2% before, in reflection of    -5
   our anticipation of a milder    -6
                                                                                                                                                                     -15
                                                                                                                                                                              4Q06
                                                                                                                                                                                        2Q07
                                                                                                                                                                                                 4Q07
                                                                                                                                                                                                          2Q08
                                                                                                                                                                                                                   4Q08
                                                                                                                                                                                                                             2Q09
                                                                                                                                                                                                                                           4Q09
                                                                                                                                                                                                                                                     2Q10
                                                                                                                                                                                                                                                                4Q10
                                                                                                                                                                                                                                                                           2Q11
                                                                                                                                                                                                                                                                                      4Q11
                                                                                                                                                                                                                                                                                               2Q12
                                                                                                                                                                                                                                                                                                         4Q12
                                        4Q08


                                                       2Q09
                                                              3Q09
                                                                     4Q09


                                                                                    2Q10
                                                                                           3Q10
                                                                                                  4Q10
                                                                                                         1Q11
                                                                                                                  2Q11
                                                                                                                         3Q11
                                                                                                                                4Q11
                                                                                                                                       1Q12
                                                                                                                                              2Q12
                                                                                                                                                     3Q12
                                                                                                                                                            4Q12
                                               2009




                                                                            2010




             uptrend this year.

                                   Source: CEIC, Credit Suisse                                                                                                      Source: CEIC, Credit Suisse



                                   Exhibit 77: Despite the fluctuation in                                                                                           Exhibit 78: Korea’s export market
                                   JPYKRW…                                                                                                                          share still rose
                                                                                                                                                                    % of world exports

                                   16                                                                                                                               7    6.5                                                      Japan                         Korea
                                                                                             JPYKRW                                                                                    6.4
                                                                                                                                                                                                 6.2      6.1

                                   14                                                                                                                               6                                                  5.7
 Korea’s global export share                                                                                                                                                                                                        5.3
                                                                                                                                                                                                                                                  5.1                                   5.0
        has been on the rise                                                                                                                                        5
                                                                                                                                                                                                                                                                4.8
                                                                                                                                                                                                                                                                           4.6
                                   12                                                                                                                                                                                                                                                               4.5
   through the past decade,
  even when JPYKRW was                                                                                                                                              4
                                   10
 much lower than the current                                                                                                                                                                                                                                                  2.9             3.1        3.0
                                                                                                                                                                    3                                            2.8         2.7                                  2.6
                       level.                                                                                                                                                 2.4
                                                                                                                                                                                         2.5        2.6                                    2.7        2.7
                                     8                                                                                                 KRW
                                                                                                                                       appreciates                  2
                                     6
                                                                                                                                                                    1
                                                                                   2005
                                                                                           2006




                                                                                                                                                             2013
                                          2001
                                                      2002
                                                              2003
                                                                       2004



                                                                                                    2007
                                                                                                                2008
                                                                                                                         2009
                                                                                                                                 2010
                                                                                                                                          2011
                                                                                                                                                     2012




                                                                                                                                                                             2001
                                                                                                                                                                                        2002
                                                                                                                                                                                                  2003
                                                                                                                                                                                                            2004
                                                                                                                                                                                                                          2005
                                                                                                                                                                                                                                          2006
                                                                                                                                                                                                                                                     2007
                                                                                                                                                                                                                                                                 2008
                                                                                                                                                                                                                                                                             2009
                                                                                                                                                                                                                                                                                             2010
                                                                                                                                                                                                                                                                                                       2011




                                   Source: CEIC, Credit Suisse                                                                                                      Source: WTO, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                         51
                                                                                                                                                                                   09 April 2013




                                   Exhibit 79: Industrial production                             Exhibit 80: External trade
                                                    Manufacturing production (%yoy)                         Trade balance (USD mn, 12-month rolling sum)
                                     40             Exports (% yoy)                        50               Exports (% yoy, RHS)
   The sequential contraction                                                                     50                                                                                               60
                                                                                                            Imports (% yoy, RHS)
                                                                                           40                                                                                                      50
        in IP and weak export        30                                                           40
    growth are not helping to                                                              30                                                                                                      40
                                     20                                                           30
                                                                                                                                                                                                   30
       project a more positive                                                             20
                                                                                                  20                                                                                               20
    picture on its momentum.         10                                                    10
                                                                                                  10                                                                                               10
                                                                                           0
     This has prompted us to             0
                                                                                                    0                                                                                              0
    have a more conservative                                                               -10                                                                                                     -10
                                    -10                                                          -10
      expectation on Korea’s                                                               -20                                                                                                     -20
                                                                                                 -20                                                                                               -30
   growth trajectory this year.     -20
                                                                                           -30
                                                                                                 -30                                                                                               -40




                                                                                                                                        2006




                                                                                                                                                                            2011
                                                                                                         2003

                                                                                                                2004

                                                                                                                                2005



                                                                                                                                               2007

                                                                                                                                                       2008

                                                                                                                                                              2009

                                                                                                                                                                     2010



                                                                                                                                                                                    2012

                                                                                                                                                                                            2013
                                    -30                                                    -40
                                         2007 2008 2009 2010 2011 2012 2013
                                   Source: KOSTAT, Credit Suisse                                 Source: CEIC, Credit Suisse



                                   Exhibit 81: Consumer sales                                    Exhibit 82: CPI inflation
                                                          Consumers sales (% yoy)                                                      Consumer price index (% yoy)
   Domestic demand remains         14                                                                                                  Core CPI (% yoy)
    in the doldrums, given an      12                                                                6
   uncertain global economic       10
                                                                                                     5
           outlook and a high       8
      household debt burden.        6
                                                                                                     4
                                    4
   We have revised down our
                                    2
  expectation on Korea’s CPI                                                                         3
                                    0
    inflation this year upon a
                                    -2                                                               2
       sluggish outlook in the
                                    -4
          domestic economy.                                                                          1
                                    -6
                                      2005 2006 2007 2008 2009 2010 2011 2012 2013                    2005                       2007                 2009            2011                 2013

                                   Source: BoK, Credit Suisse                                    Source: NSO, CEIC, Credit Suisse



                                   Exhibit 83: Policy base rate                                  Exhibit 84: USDKRW
                                     6                                                            130                                                                                       800
                                                                                                                Appreciation




  With inflation ceasing to be                                                Forecast
                                     5
   a concern at this juncture,                                                                    120                                                                                       900
  we think the BoK has room          4                                                                                                                                                      1,000
                                                                                                  110
   to ease monetary policy a         3                                                                                                                                                      1,100
                    bit further.                                                                  100
                                     2                                                                                                                                                      1,200
   We have set our forecasts         1                                                              90
                                                                                                                                                                                            1,300
     for USDKRW at 1070 by           0                                                              80
                                                                                                                                                                                            1,400
        end-2013 and 1060 by                                                                                                   KRW REER index
                                    -1                                                              70                                                                                      1,500
   end-2014, expecting only                        Base rate (%)                                                               USDKRW (inverted RHS)
                                    -2
      limited scope for further                    CPI inflation (% yoy)                            60                                                                                      1,600
                                                                                                           2006
                                                                                                           2007
                                                                                                           2000
                                                                                                           2001
                                                                                                           2002
                                                                                                           2003
                                                                                                           2004
                                                                                                           2005


                                                                                                           2008
                                                                                                           2009
                                                                                                           2010
                                                                                                           2011
                                                                                                           2012
                                                                                                           2013




                                    -3             Real base rate (%)
    appreciation of the KRW.
                                      2003      2005      2007     2009    2011     2013

                                   Source: BoK, Credit Suisse                                    Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                52
                                                                                                                                                                                09 April 2013




Korea: Selected economic indicators
                                                                                                2006         2007      2008     2009        2010       2011       2012      2013F       2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                               5.2          5.1       2.3      0.3         6.3        3.6        2.0        2.7         3.2
Growth in real private consumption (%)                                                            4.7          5.1       1.3      0.0         4.1        2.3        1.8        2.0         2.9
Growth in real fixed investment (%)                                                               3.4          4.2      -1.9      -1.0        7.0       -2.1       -1.3        1.6         2.1
Fixed investment (% of GDP)                                                                      28.7         28.5     29.3      29.1       28.6        27.1       26.2       25.9        25.6
Nominal GDP ($bn)                                                                              951.2        1049.1    929.1     829.6    1,011.6    1,134.0    1,170.0     1,263.4     1,321.3
Population (million)                                                                             48.3         48.5     48.6      48.7       48.9        49.0       49.2       49.3        49.5
GDP per capita ($)                                                                            19,695        21,650   19,115    17,018    20,696      23,132     23,795     25,618      26,712
Unemployment (% of labor force, end-year)                                                         3.3          3.1       3.3      3.4         3.4        3.1        3.0        3.3         3.3
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                     2.1          3.6       4.1      2.8         3.0        4.2        1.4        2.8         3.3
CPI inflation (% change in average index for the year)                                            2.2          2.5       4.7      2.8         2.9        4.0        2.2        2.2         2.8
Exchange rate (KRW per USD, end-year)                                                            930         938.2   1,257.5    1,168      1,139      1,153      1,064       1,070       1,060
Exchange rate (KRW per USD, average)                                                             955         929.4   1,104.8    1,281      1,159      1,108      1,108       1,067       1,065
REER (% year-on-year change) (1)                                                                  4.4         -6.6     -24.5      7.0         0.5       -2.7        9.8        2.2         4.2
Nominal wage growth (% year-on-year change)                                                       5.6          5.9       3.1      -0.7        6.1       -0.7       -0.9        1.0         3.1
Overnight base rate (%, end year)                                                                4.50         5.00     3.00      2.00       2.50        3.25       2.75       2.50        2.50
Fiscal data
Consolidated government fiscal balance, (% of GDP) (2)                                            1.5          1.9      -0.3      -2.7       -0.8       -0.4       -0.5        -0.5       -1.1
Consolidated government primary balance, (% of GDP)                                               2.5          3.0       0.8      -1.6        0.4        0.7        0.5        0.4        -0.2
Consolidated government expenditure, (% of GDP)                                                  29.2         28.0     29.6      31.0       27.7        28.2       27.9       27.6        27.0
Consolidated government debt, (% of GDP, end-year) (3)                                           33.8         36.3     36.2      39.6       39.4        40.9       40.2       38.9        37.1
Money supply and credit
Broad money supply (M2, % of GDP)                                                              126.5         130.6    138.9     147.1      141.5      141.8      144.3       148.2       153.6
Broad money supply (M2, % year-on-year change)                                                   12.5         10.8     12.0       9.9         6.0        5.5        4.8        6.8         8.8
Domestic credit (% of GDP)                                                                       99.9        101.8    112.3     112.1      103.1      103.6      103.4       106.2       110.1
Domestic credit (% year-on-year change)                                                          14.8          9.4     16.1       3.6         1.3        5.8        2.8        6.8         8.8
Domestic credit to the private sector (% of GDP)                                                 95.1         99.6    108.8     107.4      100.8      101.7      100.5       105.2       111.1
Domestic credit to the private sector (% year-on-year change)                                    14.7         12.4     14.9       2.4         3.4        6.2        1.8        8.8        10.8
Balance of payments
Exports (goods and non-factor services, % of GDP)                                                41.4         44.1     56.5      52.0       54.2        57.1       56.7       54.9        54.3
Imports (goods and non-factor services, % of GDP)                                                39.4         41.7     56.6      48.3       51.1        54.8       53.2       51.7        51.6
Exports (goods and non-factor services, % year-on-year change in $ value)                        15.8         17.6     13.6     -17.8       27.1        17.9        2.5        2.6         4.0
Imports (goods and non-factor services, % year-on-year change in $ value)                        18.5         16.6     20.2     -23.8       29.1        20.1        0.2        3.0         5.0
Current account balance ($bn)                                                                    14.1         21.8       3.2     32.8       29.4        26.1       43.1       38.0        31.9
Current account balance (% of GDP)                                                                1.5          2.1       0.3      4.0         2.9        2.3        3.7        3.0         2.4
Net FDI inflows ($bn)                                                                            -7.6        -17.9     -16.9    -14.9      -22.2       -16.4      -18.6      -17.6       -16.6
Scheduled debt amortization ($bn) (4)                                                            17.9         35.4     39.1      30.5       33.7        34.3       35.2       36.1        37.0
Foreign debt and reserves
Foreign debt ($bn) (5)                                                                         225.2         333.4    317.4     345.4      360.0      398.7      413.4       408.6       403.8
   Public ($bn) (6)                                                                              28.4         61.3     61.8      80.3       96.0      104.1      107.6       110.1       112.6
   Private ($bn)                                                                               196.8         272.1    255.6     265.1      264.0      294.7      305.9       298.6       291.3
Foreign debt (% of GDP)                                                                          23.7         31.8     34.2      41.6       35.6        35.8       36.0       33.0        31.0
Foreign debt (% of exports of goods and services)                                                57.3         72.1     60.4      80.0       65.6        61.6       62.3       60.0        57.1
Central bank gross FX reserves ($bn)                                                           239.0         262.2    201.2     270.0      291.6      306.4      327.0       331.7       333.3
Central bank gross non-gold FX reserves ($bn) (7)                                              238.9         262.1    201.1     269.9      291.5      306.3      326.9       331.6       333.3
(1) Real effective exchange rate (CPI-deflated); increase indicates appreciation. (2) Include social security funds. (3) Include Grain Securities, Seoul Metro bonds, National Housing Bonds,
Seoul Metro Subway Bonds, and Industrial Finance Debentures (4) Scheduled amortizations of medium- and long-term external debt of both the public and private sectors. (5) Liabilities vis-à-vis
non-residents (i.e., includes FX-denominated and local-currency debt). (6) Includes government and central bank. (7) Central bank forex reserves minus monetary authorities’ other liabilities.
Source: Bank of Korea, National Statistical Office, Ministry of Strategy and Finance, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                        53
                                                                                                                                       09 April 2013




                                                 Malaysia: Living with election uncertainty
                       Santitarn Sathirathai      We have kept our above-consensus 2013 real GDP forecast for Malaysia at 5.5%
                             +65 6212 5675         (versus consensus of 5%1). While the economy displayed impressive macroeconomic
       santitarn.sathirathai@credit-suisse.com     performance last year, the economic outlook for this year will likely be sensitive to the
                                                   election outcome. Our current forecast is based on the assumption of no change in
                                                   leadership after the general election (The prime minister dissolved parliament on 4 April.
                                                   The election must be held within 60 days, but can take place as soon as within 10 days.)
                                                   However, with the situation remaining highly fluid – the election now looks likely to be the
                                                   toughest contest Malaysia’s long-ruling Barisan Nasional (BN) coalition has faced – we
                                                   focus on what political uncertainty might mean for the economy.
                                                  Fiscal consolidation measures will likely be off the table this year. Malaysia’s fiscal
                                                   situation remains one of the worst in ASEAN with public debt close to 55% of GDP and
                                                   government-guaranteed debt adding another 15% of GDP. While a combination of fuel
                                                   price hikes and implementation of goods and service taxes can help stabilize its fiscal
                                                   debt, we now think it is highly unlikely that these measures will be carried out this year,
                                                   even after the election. Given that the election will be very close, whoever takes up the
                                                   leadership will likely postpone any reforms that are deemed ‘unfriendly’ to the people in the
                                                   short run. In fact, we would not be surprised to see more ‘goodies’ for consumers even
                                                   after the election. It should be noted that the opposition’s policy manifesto also implies
                                                   significant fiscal spending given its focus on providing welfare measures such as free
                                                   education, and energy and utility subsidies. We still expect the fiscal deficit-to-GDP ratio in
                                                   2013 to be larger than the government’s target of 4% and closer to 5%.
                                                  Private consumption growth will likely be more robust than investment. While
                                                   election uncertainty will likely weigh on both consumer and business spending, the former
                                                   should be supported by an expansionary fiscal policy stance and more populist policy
                                                   measures. On the other hand, rising political risk and potential lack of government
                                                   continuity could force businesses to hold back investments that have so far benefited
                                                   greatly from the Economic Transformation Program (ETP). Within the investment space,
                                                   our sense is that projects in Johor (e.g., Iskandar) are, in the long run, less vulnerable
                                                   given their more international nature.
                                                  We continue to expect Bank Negara to keep the policy rate at 3% through 2013. We
                                                   have revised down our 2013 average inflation forecast to 2.1% from 2.5%, reflecting our
                                                   view that the government will not adjust fuel prices upwards this year. With inflation
                                                   remaining tame and heightened election risk, we think Bank Negara will likely keep its
                                                   options open in 2013. We maintain our view that, barring significant negative shocks to
                                                   GDP growth from the election, the next move is likely to be a hike rather than a cut as the
                                                   lagged impact of strong growth starts to feed into price pressure later this year.
                                                  Balance of payment flows – better current account but exposed to election-
                                                   dependent capital flows. With election uncertainty acting as a drag on investment, import
                                                   growth will likely slow, reducing pressure on the current account. As such, we project that
                                                   the basic balance (current account plus net direct investment) should improve to USD19bn
                                                   from USD12bn last year. However, the overall position of the balance of payments will
                                                   largely depend on short-term capital flows, which in turn depend on the election outcome
                                                   as highlighted by our fixed income strategists (see Asia Macro Strategy: Malaysia Election
                                                   Manual, 21 February 2013). The risk of leadership change will likely trigger concerns over
                                                   policy uncertainty and result in capital flight from portfolios and other investment accounts
                                                   that could easily be combined to produce USD20bn net outflows, erasing the surplus in the
                                                   basic balance.
                                                  Malaysia’s central bank (BNM), will likely intervene on both sides to cap significant
                                                   volatility in the ringgit. Our FX strategists suggest that the BNM tends to intervene
                                                   aggressively when the trade-weighted MYR depreciates 3-4%, or appreciates by 2%,
                                                   which implies that USDMYR will stay in the range of 3.00-3.25.

                                                 1   February issue of Consensus Economics.



Focus Asia (2Q 2013)                                                                                                                             54
                                                                                                                                                                                   09 April 2013




                                   Exhibit 85: Domestic demand strength                                                        Exhibit 86: Export outlook

    Domestic demand growth                                Real exports (% yoy)
                                                                                                                                                      US ISM new order (index)
  has significantly decoupled       25                    Real domestic demand (% yoy, RHS)                   16               70             Exports (%3m on 3m sa)                         15
          from export growth,       20                                                                        14               65                                                            10
   explaining the strong GDP        15                                                                        12               60
       growth performance in        10                                                                        10               55
                                                                                                                                                                                             5
                        2012.        5                                                                        8
                                                                                                                               50                                                            0
                                     0                                                                        6
                                                                                                                               45                                                            -5
  We expect export growth to        -5                                                                        4
                                                                                                                               40                                                            -10
  stay robust on a sequential      -10                                                                        2
                                                                                                                               35
     basis in 1Q but will likely   -15                                                                        0
                                                                                                                               30
                                                                                                                                                                                             -15
      soften in 2Q due to the      -20                                                                        -2
                                                                                                                               25                                                            -20
 impact of US sequestration.       -25                                                                        -4
                                                                                                                               20                                                            -25
                                           2005




                                                                                2010
                                                   2006

                                                          2007

                                                                 2008

                                                                         2009



                                                                                        2011

                                                                                                2012

                                                                                                       2013
                                                                                                                                 2007 2008 2009 2010 2011 2012 2013

                                   Source: CEIC, Credit Suisse                                                                 Source: CEIC, Credit Suisse



                                   Exhibit 87: Investment by ownership                                                         Exhibit 88: Investment by type
  Domestic demand strength         % yoy                                                                                       % yoy
 was led by the surge in both        % yoy                                                                                       % yoy                       Total investment
            public and private      50                      Public inv                 Private inv                              40                           Asset structure
       investment – the latter
                                    40                                                                                          30                           Machinery
         actually exhibited an
                                    30
   even more robust growth                                                                                                      20
                    rate in 4Q.     20
                                                                                                                                10
                                    10
 Construction investment led                                                                                                      0
   the gain last year. Barring        0
                                                                                                                               -10
   major political shocks, this    -10
  should continue in 2013 as       -20                                                                                         -20
  several large ETP projects       -30                                                                                         -30
            come on stream.           2007 2008 2009 2010 2011 2012 2013                                                          2007 2008 2009 2010 2011 2012 2013

                                   Source: : CEIC, Credit Suisse                                                               Source: CEIC, Credit Suisse



                                   Exhibit 89: Foreign direct investment                                                       Exhibit 90: Trade balance
                                   % yoy growth of 12 rolling FDI sum
                                                  Mining                         Wholesale & retail                                                          TB commodity
 Direct investment in mining,                     Communication                  Finance                                                                     TB non-commodity
                                                  Other services                 manu                                          14
           manufacturing and                                                                                                                                 Trade balance (USD bn)
                                                                                                                   Thousands




                                     12           others
       communications was a                                                                                                    12
                                     10
 significant contributor to FDI                                                           FDI inflows                          10
                                       8
      growth, partly reflecting
  projects in Johor, including         6                                                                                         8
                                                                                               0.6% yoy
                     Iskandar.         4                                                                                         6
                                       2
       Non-commodity trade                                                                                                       4
                                       0
 balance in deficit throughout                                                                                                   2
                                      -2
  2012 due to strong imports                                                                                                     0
                                      -4
             of capital goods.
                                      -6                                                                                        -2
                                      -8                                                                                        -4
                                                                        2012                                                      2007      2008      2009       2010       2011      2012
                                   Source: : CEIC, Credit Suisse                                                               Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                          55
                                                                                                                                                                      09 April 2013




        We expect investment        Exhibit 91: Basic balance flows                                               Exhibit 92: Short-term flows
  growth to moderate amidst         *Current account + net direct investment                                      ST flows = portfolio and other investment flows
 election uncertainty, leading
     to slowing import growth                         ID            TH                 MA                   PH               Average ST flows 2007-2012 (USD bn)
                                      40                                                                            10
          and a higher current                                     Basic balance (USD bn)
       account surplus, which         30                                                                              5
      declined significantly in
                         2012.        20                                                                              0

              Despite the likely      10                                                                             -5
    improvement in the basic
                                          0                                                                        -10
   balance, history suggests
      political uncertainty can      -10                                                                           -15
            drive big swings in
                                     -20                                                                           -20
 short-term flows, making the




                                                                                                    2013F
                                              2006

                                                     2007

                                                            2008

                                                                   2009

                                                                             2010

                                                                                    2011

                                                                                             2012
         balance of payments                                                                                                    ID              MA         PH             TH
                    vulnerable.     Source: CEIC, Credit Suisse                                                   Source: CEIC, Credit Suisse



                                    Exhibit 93: Fiscal position                                                   Exhibit 94: Credit guarantee
   We expect the fiscal deficit
          to be wider than the
                                                             Central govt debt (% of GDP)
   government’s target of 4%                                                                                                   Credit guaranteed by govt (% of GDP)
                                                                                                                   18%
              in 2013 as fiscal                              Fiscal deficit (% of GDP, RHS)
                                    60%                                                                     7.5    16%
  consolidation will likely take
                                    55%                                                                     7.0    14%
                  a back seat.
                                    50%                                                                     6.5    12%
      The credit guaranteed by                                                                              6.0    10%
                                    45%
     the government has been                                                                                5.5     8%
                                    40%                                                                             6%
     increasing rapidly and the                                                                             5.0
 trend should continue as the       35%                                                                             4%
                                                                                                            4.5
    government uses this as a       30%                                                                             2%
                                                                                                            4.0
      quasi-fiscal stimulus tool.                                                                                   0%
                                    25%                                                                     3.5
                                                                                                                            2007 2008 2009 2010 2011 2012F
                                    20%                                                                     3.0
                                                2007 2008 2009 2010 2011 2012 2013F
                                    Source: CEIC, Credit Suisse                                                   Source: CEIC, Credit Suisse



                                    Exhibit 95: Inflation and policy rate                                         Exhibit 96: Credit growth
                                                                                                                  Excluding loans sold to Cagamas
We think inflation will remain
                                    10                                    CPI (% yoy)
   manageable and that the
                                                                          Policy rate (%)                                                       Total loans (% yoy)
 central bank will not be in a        8                                                                           15
 rush to hike rates this year.                                                                                    14
                                      6                                                                           13
                                                                                    F'cast
 However, given the strength                                                                                      12
                                      4
    of credit growth, we think                                                                                    11
 the BNM will start hiking the        2                                                                           10
    policy rate in early 2014,                                                                                     9
                                      0                                                                            8
    once election uncertainty
                                                                                                                   7
                    clears up.       -2
                                                                                                                   6
                                     -4                                                                            5
                                       2007 2008 2009 2010 2011 2012 2013                                          Jan-07            Jan-09           Jan-11            Jan-13

                                    Source: CEIC, Credit Suisse                                                   Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                             56
                                                                                                                                                                                   09 April 2013




Malaysia: Selected economic indicators
                                                                                                2006        2007       2008        2009       2010        2011     2012E       2013F       2014F
National accounts, population and unemployment
Real GDP growth (%) (1)                                                                           5.8         6.3        4.6        -1.6        7.2         5.1        5.6         5.5        5.1
Growth in real private consumption (%)                                                            6.5       10.8         8.5         0.7        6.5         7.1        7.7         6.0        4.8
Growth in real fixed investment (%)                                                               7.9         9.2        0.8        -5.6        9.8         6.5       19.9         7.0        7.0
Fixed investment (% of GDP)                                                                      20.8       21.6        19.5       20.1        20.0       19.8        21.9       22.4        22.9
Nominal GDP ($bn)                                                                               156.6      186.8      222.3       193.0      238.6       279.0      303.6       331.3      365.7
Population (mn)                                                                                  26.8       27.2        27.5      27.89        28.3       28.8        29.4       30.0        30.6
GDP per capita ($)                                                                              5876        6889       8022        6920       8446        9678      10321      11036       11942
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                     3.1         2.4        4.5         1.0        2.1         3.0        1.2         2.9        2.6
CPI inflation (% change in average index for the year)                                            3.6         2.0        5.4         0.7        1.7         3.2        1.7         2.1        2.5
Exchange rate (MYR per USD, end-year)                                                            3.53       3.31        3.46       3.42        3.06       3.17        3.06       3.08        3.05
Exchange rate (MYR per USD, average)                                                             3.67       3.44        3.33       3.52        3.21       3.06        3.09       3.10        3.05
REER (% year-on-year change, December over December) (2)                                          1.5         1.6        5.5        -1.9        5.7        -2.0        3.0         1.5        2.0
Nominal wage growth (% year-on-year change) (3)                                                   9.5         7.3        2.9        -4.3       11.8         7.8        7.8         7.0        7.0
Overnight policy rate (%, end-year) (4)                                                          3.50       3.50        2.50       2.00        2.75       3.00        3.00       3.00        3.50
Fiscal data (5)
General government budget balance (% of GDP)                                                     -3.5        -3.7       -4.8        -7.0       -5.8        -5.0       -4.4        -4.9       -4.3
General government primary fiscal balance (% of GDP)                                             -1.3        -1.7       -3.1        -4.9       -3.8        -2.9       -2.8        -2.0       -2.6
General government expenditure (% of GDP)                                                        25.0       25.4        26.4       30.3        26.7       26.9        26.7       26.6        26.5
General government revenue (% of GDP)                                                            21.5       21.7        21.6       23.3        20.8       21.9        21.7       22.2        21.6
Gross general government debt (% of GDP, end-year)                                               42.2       41.5        41.4       53.3        55.3       55.8        52.0       53.5        55.8
Money supply and credit
Broad money supply (M2, % of GDP)                                                               132.8      129.7      125.8       149.6      141.8       145.7      142.0       149.1      152.6
Broad money supply (M2, % year-on-year change)                                                   13.0         9.5       11.9         9.1        6.8       14.3         9.6       10.0        10.0
Domestic credit (% of GDP)                                                                      119.0      113.4      115.3       137.0      131.6       130.5      133.6       136.0      139.1
Domestic credit (% year-on-year change)                                                           6.9         6.5       17.4         9.0        8.2       10.4        11.1         9.0       10.0
Domestic credit to the private sector (% of GDP)                                                107.7      105.3      100.7       118.3      118.4       120.8      128.5       122.5      125.3
Domestic credit to the private sector (% year-on-year change)                                     6.8         9.2       10.4         7.8       12.7       13.6        11.9         8.0       10.0
Balance of payments
Exports (goods and non-factor services, % of GDP)                                               116.5      110.4      103.3        96.7        96.5       94.6        87.4       88.1        87.0
Imports (goods and non-factor services, % of GDP)                                                94.3       90.1        80.1       75.1        78.9       77.9        75.5       75.8        78.1
Exports (goods and non-factor services, % year-on-year change in $ value)                        12.7       13.0        11.4      -18.8        23.4       14.6         7.9       10.0         9.0
Imports (goods and non-factor services, % year-on-year change in $ value)                        13.2       13.9         5.9      -18.7        29.9       15.4        15.4         9.5       13.8
Current account balance ($bn)                                                                    26.2       29.7        39.4       31.8        27.1       32.4        19.4       26.0        18.6
Current account balance (% of GDP)                                                               16.7       15.9        17.7       16.5        11.4       11.6         6.4         7.8        5.1
Net FDI inflows ($bn)                                                                             0.0        -2.7       -7.8        -6.6       -4.4        -2.9       -7.1        -7.0       -5.0
Scheduled external debt amortization ($bn)                                                        4.3         5.2        6.2         6.2        6.8         7.4        7.7         7.8        7.8
Foreign debt and reserves
Foreign debt ($bn)                                                                               52.3       56.7        68.1       68.0        74.1       81.2        83.7       84.7        93.5
   Public ($bn)                                                                                  21.4       18.6        23.1       24.9        27.2       26.2        24.7       23.7        26.2
  Private ($bn)                                                                                  30.9       38.1        45.0       43.0        46.9       55.0        59.0       61.0        67.3
Foreign debt (% of GDP)                                                                          33.4       30.4        30.6       35.2        31.1       29.1        27.6       25.6        25.6
Foreign debt (% of exports of goods and services)                                                27.5       27.4        29.7       36.4        32.2       30.8        31.5       29.0        29.4
Central bank gross FX reserves ($bn)                                                             82.5      101.1        91.4       96.7      106.5       133.6      139.7       140.0      150.0
Central bank gross FX reserves, including forward FX transactions ($bn)                          85.1      115.1        91.4       96.7      114.3       140.2      146.3       146.6      156.6
Central bank gross non-gold FX reserves ($bn) (6)                                                82.2      101.1        91.2       95.4      104.9       132.0      138.1       138.4      148.4
(1) Real GDP from 2001 has been rebased to 2000 = 100. (2) Real effective exchange rate, increase indicates appreciation. (3) Salaries and wages in the manufacturing sector. (4) BNM
changed the policy rate from the intervention rate to the overnight rate in May 2004. (5) Refers to the federal government’s financial position. The government assumed an oil price of $70 per
barrel for 2009 in its revised budget announced in November 2008. (6) Not including forward FX purchases.
Source: Bank Negara Malaysia, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                              57
                                                                                                                                                           09 April 2013




                                            Philippines: Making the grade
                          Michael Wan        We have kept our 2013 GDP growth estimate at 6.6% putting us comfortably above
                        +65 6212 3418         the consensus estimate of 6.1%2. In addition to the stronger base going into 2013, this
            michael.wan@credit-suisse.com
                                              upgrade reflects our expectation that investment, both from the government
                                              infrastructure program and private business investment, will pick up further. The lagged
                                              impact of an accommodative policy rate, coupled with the recent cuts in the Special
                                              Deposit Account rate (SDA), should also provide a boost to investment and GDP over
                                              the course of this year.
                                             Fitch upgraded the Philippines to investment grade; we expect either S&P or
                                              Moody’s to follow by this year: Fitch upgraded the Philippines to BBB- (investment
                                              grade) from BB+, the first amongst all the credit rating agencies to do so, citing the
                                              country’s strong external balance sheet, resilient domestic economy, and improvements
                                              in fiscal management as key reasons. We note that funds which can only invest in
                                              investment grade credit require two of the big three rating agencies to have the country
                                              at investment grade before they can invest in it. As such, we expect more capital inflows
                                              into bonds and credit should S&P and/or Moody’s upgrade the country to investment
                                              grade, which we expect to happen by this year.
                                             Investment rating upgrade will drive more capital inflows – we expect the BSP to
                                              cut the SDA rate to 1.5% by this year: With more capital inflows expected following
                                              the investment rating upgrade, coupled with a very strong growth outlook, we think
                                                 that this will push the peso to appreciate further, and/or increase the cost of
                                                 sterilised intervention. As such, we think that the central bank will likely cut the SDA
                                                 rate further, from the current 2.5% to 1.5% by this year, to reduce sterilization costs
                                                 and discourage currency speculation.
                                             A difficult balancing act? We see the risk that moves to cut the SDA rate could spur
                                              banks and funds to channel money to other assets such as property. We think some of
                                              the extra liquidity from the SDA has already found its way into the bond market, with the
                                              10-year benchmark falling around 100bps over two months, since the first SDA rate cuts
                                              in January. In addition, the 91-Day T-Bill rate has fallen to a historical low of 0.04%.
                                              Eventually, the BSP may not have any choice but to raise the Reserve Ratio
                                              Requirement (RRR) despite its current reluctance to do so, to mop up any extra liquidity.
                                             When will inflation start to pick up? With GDP growth remaining robust, investors
                                              have started to wonder if the Philippines will soon see rising inflationary pressures.
                                              Based on our analysis, we think that 2013 inflation will remain manageable at 3.3%.
                                              However, the lagged impact of stronger GDP growth, accommodative policy rate, and
                                              rising money supply growth will likely push inflation up more significantly in 2014,
                                              averaging 4.4%. We also think inflation will breach the central bank’s target of 3-5% by
                                              4Q 2014 (see Philippines: Assessing the inflation and rates risks).
                                             How will the central bank respond to rising inflation? We expect no hikes in 2013,
                                              but 100bps of increases in 2014: With inflation expected to rise more significantly in
                                              2014, we expect the central bank to hike the key policy rate by a cumulative 100bps,
                                              with the first hike starting in the first quarter next year. In the near term, however, we
                                              expect the central bank to continue its focus on macroprudential measures to control
                                              credit to the real estate sector. In addition to potentially imposing measures such as
                                              Reserve Ratio Requirements (RRRs) on banks’ trust products, we think that the central
                                              bank could further tighten rules on investing in the real estate sector if it finds that real
                                              estate exposure exceeds what is prudent.




                                            2   According to the March issue of Consensus Economics, consensus expectations for GDP growth were 6.1% and 5.9% for 2013
                                                 and 2014 respectively.



Focus Asia (2Q 2013)                                                                                                                                                 58
                                                                                                                                                                                                                                                                  09 April 2013




                                     Exhibit 97: GDP growth was strong                                                                            Exhibit 98: GDP growth should remain
  Strong GDP growth in 2012          across the board                                                                                             strong in 2013 and 2014
       was not just driven by                                                                                                                     Index
   government spending, but                                            12%                 Private consumption                                                                  12%
                                                                                                                                                                                                           GDP %yoy




                                     contribution to %yoy GDP growth
         also by resilience in                                                             Government                        f'csts
                                                                       10%                 Investment                                                                           10%
    investment spending and                                                                Net Exports                                                                                                     Historical average (1995 to 2011)
               consumption.                                            8%                  Others                                                                                   8%                                                                                          f'cst

                                                                       6%                                                                                                           6%
  Moving forward, we expect




                                                                                                                                                           %yoy
       investment and private                                          4%                                                                                                           4%
       consumption growth to                                           2%
                                                                                                                                                                                    2%
  continue to be an important                                          0%
                                                                                                                                                                                    0%
   driver of GDP growth, with
                                                                       -2%
     GDP expected to remain                                                                                                                                                     -2%
                                                                       -4%
    above historical averages                                                                                                                                                   -4%
                                                                               2007

                                                                                        2008

                                                                                               2009

                                                                                                      2010

                                                                                                             2011

                                                                                                                    2012

                                                                                                                           2013

                                                                                                                                      2014
         over 2013 and 2014.                                                                                                                                                              95 97 99 01 03 05 07 09 11 13

                                     Source: CEIC, Credit Suisse                                                                                  Source: CEIC, Credit Suisse



                                     Exhibit 99: Strong capital inflows have                                                                      Exhibit 100: But risk that further SDA
   Strong capital inflows have
                                     increased sterilisation costs for the                                                                        rate cuts might shift funds to other
  increased sterilisation costs
                                     BSP in the SDA account                                                                                       assets
       for the BSP in the SDA
     account, causing the net
                                                                                      Net Revaluation of reserves                                                                                    Profile of Trust Fund assets in
    worth on the BSP balance                                       400                                                            8                                             60%                   Philippines banking system
   sheet to hit its lowest since                                                      BSP Net Worth
                                                                                                                                                                                                       SDAs


                                                                                                                                                   % of assets in trust funds
                          1997.                                    300                SDA monthly interest                        6                                             50%                    Financial Assets (potentially properties)
                                                                                      payments* (RHS)
                                     Bn Peso




                                                                                                                                        Bn Peso



 While we expect the BSP to
                                                                   200                                                            4                                             40%                                                                 Move from
cut the SDA rate cut to 1.5%                                                                                                                                                                                                                        SDAs to
                                                                                                                                                                                                                                                    financial
from the current 2.5%, partly                                                                                                                                                                                                                       assets?
                                                                   100                                                            2                                             30%
     to reduce the cost on its
balance sheet, we see a risk
                                                                        0                                                         0                                             20%
   that it might spur funds to




                                                                                                                                                                                                                                                                                       Sep-12
                                                                                                                                                                                                           Sep-10




                                                                                                                                                                                                                                                Sep-11
                                                                                                                                                                                                                             Mar-11
                                                                                                                                                                                         Mar-10




                                                                                                                                                                                                                    Dec-10




                                                                                                                                                                                                                                                         Dec-11
                                                                                                                                                                                                                                                                    Mar-12
                                                                                                                                                                                                                                      Jun-11
                                                                                                                                                                                                  Jun-10




                                                                                                                                                                                                                                                                              Jun-12
                                                                            94 95 97 98 00 01 03 04 06 07 09 10 12
  shift liquidity towards other
     assets such as property.
                                     Source: CEIC, Credit Suisse                                                                                  Source: BSP, Credit Suisse




                                     Exhibit 101: Inflation is expected to                                                                        Exhibit 102: We are calling for 100bps
          We expect inflation to     pick up in 2014                                                                                              of policy rate hikes in 2014
         remain manageable in
          2013, but to rise more                                                                                                                                                                                Real Policy rate (%)
                                       12                                                                CPI (%yoy)                                                   12
      significantly in 2014, with                                                                                                                                                                               Actual CPI (%yoy)
                                                                                                                                                                      10
  the level of inflation likely to     10                                                                Inflation target (Lower                                                                                CPI forecast
                                                                                                                                                                                8                                                                                 f'csts
     exceed the central bank’s                                                                           Bound)                                                                                                 Nominal Policy rate
   inflation target by 4Q 2014.                            8                                             Inflation target (Upper                                                6
                                                                                                                                                   %yoy




                                                                                                         Bound)
                                                                                                                                                                                4
  We expect the BSP to hike                                6                                                                                                                    2
        rates by a cumulative
                                                                                                                                                                                0
 100bps starting 1Q 2014 on                                4
                                                                                                                                                                            -2                                                                                     100 bps
   rising inflation. In the near                                                                                                                                                                                                                                   of hikes
                                                           2                                                                                                                -4                                                                                     in 2014
          term, there will be a
         greater push towards                                                                                                                                               -6
                                                           0                                                                                                                        08            09            10           11                12         13                 14
        macroprudential tools.                                         05 06 07 08 09 10 11 12 13 14 15
                                     Source: CEIC, Credit Suisse                                                                                  Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                   59
                                                                                                                                                                                09 April 2013




Philippines: Selected economic indicators
                                                                                               2006       2007       2008        2009       2010       2011      2012E      2013F       2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                              5.2        6.6        4.2         1.1        7.6        3.9         6.6        6.6        6.2
Growth in real private consumption (%)                                                           4.2        4.6        3.7         2.3        3.4        6.3         6.1        5.6        5.2
Growth in real fixed investment (%)                                                              5.4        5.2        3.2        -1.7       19.1        0.2         8.7        7.8        7.8
Fixed investment (% of GDP)                                                                    20.1        19.9       19.7       19.0        20.5       20.0       20.4       20.6        20.9
Nominal GDP ($bn)                                                                             122.2      149.4       173.6      168.5      199.6      224.8       251.6      290.0      324.7
Population (mn)                                                                                87.0        88.7       90.5       92.1        93.7       95.4       97.1       98.9      100.7
GDP per capita, $                                                                              1406       1692       1910        1824       2132       2355       2590        2932       3225
Prices, interest rates and exchange rates
CPI inflation (%, December to December)                                                          4.1        3.7        7.8         4.4        3.6        4.2         3.0        3.5        5.1
CPI inflation (%, average)                                                                       5.5        2.9        8.2         4.2        3.8        4.7         3.1        3.3        4.4
Exchange rate (PHP per USD, end-year)                                                          49.1        41.4       47.5       46.4        43.9       43.9       41.2       41.1        40.8
Exchange rate (PHP per USD, average)                                                           51.3        46.1       44.5       47.6        45.1       43.3       42.6       41.3        40.8
REER (% change, December to December) (2)                                                        5.7       14.5       -6.7         1.8        4.0        0.6         7.2        3.0        1.0
Nominal wage growth (% year-on-year change) (1)                                                  7.9        4.5        5.3         2.2        3.4        5.9         6.0        6.0        6.0
Overnight borrowing rate (%, end-year)                                                         7.50        5.45       5.86       4.00        4.00       4.50       3.50       3.50        4.50
Fiscal data
Central government budget balance (% of GDP)                                                    -1.1       -1.5       -1.3        -3.7       -3.5       -2.0        -2.1       -2.1       -2.0
Central government budget balance including privatization receipts (% of GDP)                   -1.0       -0.2       -0.9        -3.7       -3.5       -2.0        -2.5       -2.0       -2.0
Central government primary fiscal balance (% of GDP)                                             3.8        2.4        2.2        -0.2       -0.2        1.6         1.0        0.8        1.0
Central government expenditure (% of GDP)                                                      16.7        16.7       16.5       17.7        16.9       15.7       16.8       17.6        17.8
Central government revenue (% of GDP)                                                          15.5        15.2       15.2       14.0        13.4       13.6       14.7       15.5        15.8
Gross government debt (% of GDP)                                                               66.4        53.9       54.7       54.8        52.3       50.7       47.5       43.3        45.0
Net central government debt (% of GDP)                                                         58.4        45.9       47.7       48.3        45.8       43.9       42.5       36.8        38.5
Money supply and credit
Broad money supply (M2, % of GDP)                                                              45.1        45.4       46.8       48.5        47.8       47.1       48.1       49.7        49.5
Broad money supply (M2, % year-on-year change)                                                 22.1        10.7       15.4         7.7       10.7        6.5       10.9       12.0        10.0
Domestic credit (% of GDP)                                                                     49.9        45.9       47.8       49.4        47.9       50.8       50.4       51.2        52.3
Domestic credit (% year-on-year)                                                                 4.8        3.6       16.8         7.4        8.7       14.7         7.8      10.0        13.0
Domestic credit to private sector (% of GDP)                                                   32.6        31.0       32.3       33.6        32.6       34.8       37.8       38.0        37.8
Domestic credit to private sector (% year-on-year)                                               7.4        4.8       16.8         8.2        8.7       15.7       17.8         9.0       10.0
Balance of payments
Exports (goods and non-factor services, % of GDP)                                              43.3        39.7       33.4       28.9        32.5       28.0       29.0       27.5        27.9
Imports (goods and non-factor services, % of GDP)                                              48.7        43.8       40.1       32.9        36.6       33.3       33.5       32.5        32.5
Exports (goods and non-factor services, % change in $ value)                                   18.3        11.9       -2.2      -16.1        33.4       -2.9       13.0         9.5       13.5
Imports (goods and non-factor services, % change in $ value)                                   10.5         9.8        6.5      -20.6        32.0        2.5       10.0       12.0        12.0
Current account balance ($bn)                                                                    5.3        7.1        3.6         9.4        8.5        6.6         8.4        6.4        7.0
Current account (% of GDP)                                                                       4.4        4.8        2.1         5.6        4.5        3.1         3.4        2.2        2.2
Net FDI ($bn) (3)                                                                                2.8       -0.6        1.3         1.6        0.7        1.9         2.0        2.5        4.0
Foreign debt and reserves
Foreign debt ($bn)                                                                             53.9        55.5       54.3       54.9        60.0       61.7       64.0       66.5        70.0
   Public ($bn)                                                                                33.6        34.7       35.5       38.6        41.5       42.8       48.2       49.0        52.0
   Private ($bn)                                                                                 9.9        9.9       10.3         9.6       10.3        9.6       15.8       17.5        18.0
Foreign debt (% of GDP, end-year)                                                              44.1        37.1       31.3       32.6        30.1       27.5       25.4       22.9        21.6
Foreign debt (% of exports of goods and services)                                             101.8        93.6       93.7      112.8        92.6       98.0       89.6       85.0        78.9
Central bank gross FX reserves ($bn)                                                           22.8        33.6       37.4       44.1        62.1       74.8       83.3       95.8      110.2
Central bank gross FX reserves, including forward FX purchases ($bn)                           29.1        44.5       39.4       57.8        80.1       82.8       91.3      103.8      118.2
Central bank gross non-gold FX reserves ($bn) (4)                                              19.9        30.1       33.1       38.6        55.1       66.8       72.9       86.8      101.2
(1) Nominal minimum wage in non-agricultural sector. Figures from 2005 onwards also include cost of living allowance and daily equivalent of 13th month pay. (2) Real effective exchange rate,
increase indicates appreciation. (3) 2007 number includes a large direct investment abroad in the amount of $2.7bn. (4) Not i ncluding forward FX purchases.
Source: CEIC, Bangko Sentral Ng Pilipinas, Ministry of Finance, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                        60
                                                                                                                               09 April 2013




                                            Singapore: Pressing on with restructuring
                          Michael Wan        We have kept our below-consensus 2013 forecast at 1.5% (versus consensus of
                        +65 6212 3418
                                              2.7%), while also keeping our 2014 forecast at 3.5%. The 2013 forecast reflects our
            michael.wan@credit-suisse.com
                                              expectation that global growth will be softer than previously expected – the main culprit
                                              being the US sequestration, which is expected to shave 0.5pp off US GDP growth this
                                              year. In addition, likely continuing weakness in the electronics sector together with
                                              slower biomedical output growth, given that most pharmaceutical plants are already
                                              running at full capacity, should keep a lid on activity.
                                             Our GDP forecast also reflects likely domestic restructuring efforts: Our below-
                                              consensus GDP forecast does not just reflect the external environment, but also our
                                              expectation that the restructuring process will increasingly hit growth. In particular, we
                                              think that (1) employment growth should start to moderate this year and (2) less
                                              productive companies, which have not made the necessary adjustments to adapt, will
                                              start to get weeded out in the restructuring process. Both should prove to be a
                                              dampener on GDP growth this year.
                                             Two key recent events will have important implications for Singapore’s
                                              macroeconomy and its restructuring process moving forward:
                                              #1: Population White Paper – Some way to go before we can reach population and
                                              productivity targets: Based on projections in the Population White Paper, which details
                                              the government’s long-term thinking behind its population policies, foreign population
                                              growth would have to drop significantly to around 45,000 to 55,000 pa (or 2.6% pa),
                                              from +97,800 in 2012 (or 7% pa previously). It seems to us that the government will
                                              have to do much more to wean companies off their dependence on manpower to attain
                                              these numbers (see Population White Paper – more foreign worker curbs expected). In
                                              addition, the labour productivity target of 2-3% per annum set out in the White Paper is
                                              perhaps difficult to achieve. We expect GDP growth to trend at about 2-4% on the basis
                                              of a more realistic 1-2% annual average increase in the labour force and productivity
                                              over the rest of this decade.
                                              #2: The Budget – Pressing on with restructuring: As we had expected, the
                                              government introduced additional foreign worker tightening measures on S-Pass holders
                                              (low to mid-tier workers) and also reduced the ratio of foreign workers to local workers a
                                              company can hire (or dependency ratio) in the recent budget. These measures come on
                                              the back of additional levies that are set to kick in by July 2013 as well as reduced
                                              dependency ratios on existing workers to start from by June 2014. We expect these
                                              measures to continue to have the largest impact on sectors that depend on low-wage
                                              foreign workers, such as the retail, accommodation and food sectors.
                                             We have kept our below-consensus inflation forecast of 3.5% for 2013 and 3.0%
                                              for 2014: This reflects our expectation that housing accommodation inflation will
                                              continue to trend down and the lagged impact of slower nominal wage growth will keep
                                              a lid on CPI. In addition, although we think it is too early to gauge the full impact of the
                                              recent car loan restrictions on private transport costs, the good news is that this should
                                              at least cap the upside risks in CoE premiums.
                                             We expect the central bank to maintain its current policy stance in its next
                                              meeting in April. Although both headline and core inflation have fallen from highs seen
                                              in 2012, given that the government still sees the economy running a positive output gap
                                              this year, we think that the central bank will keep the current pace of appreciation and
                                              width of the exchange rate band unchanged at its next meeting in April to facilitate the
                                              restructuring process. We view the tight labour market as the binding constraint on any
                                              easing by the central bank.




Focus Asia (2Q 2013)                                                                                                                     61
                                                                                                                                                                                                  09 April 2013




                                                                                                                                Exhibit 104: … while electronics
                                      Exhibit 103: We expect slower growth                                                      exports should underperform the
              Given that most         in the biomedical sector this year …                                                      region
    pharmaceutical plants are
        already running at full                                                                                                                         Overall cumulative net shifts in
                                       160                          Biomedical output (2011 =100)
   capacity, we expect slower                                                                                                                                     electronics
                                       140                   2011: 32% yoy
  growth in biomedical output                                                                                                                   10,000              1997 to 2001             2002 to 2006
                                                             2012: 10% yoy
                    this year.         120                                                                                                                          2007 to 2011
                                                             2013F: <5%                                                                          5,000
                                       100




                                                                                                                                 USD Millions
   Based on our analysis, we                                                                                                                            0
                                        80
        think that electronics
                                        60                                                                                                       -5,000
      exports from Singapore
           should continue to           40                                                                                                      -10,000

     underperform the region            20                                                                                                      -15,000
                      in 2013.             0                                                                                                    -20,000
                                                    03       04    05    06    07    08    09        10   11     12       13                                KR       MY        PH       SG        TW        TH
                                      Source: CEIC, Credit Suisse                                                               Source: UNCTAD, Credit Suisse



                                      Exhibit 105: Employment growth has been strong despite weak GDP growth
       Despite efforts by the
        government to wean                           80                       Employment growth                                                                                                   25%
         companies off their                                                  Employment growth ex construction
                                                     60                                                                                                                                           20%
  dependence on manpower,
                                                                              Real GDP %yoy (RHS)
           the gap between                                                                                                                                                                        15%
                                                     40
                                        Thousands




     employment growth and
                                                                                                                                                                                                  10%




                                                                                                                                                                                                            %yoy
    GDP has not closed yet.                          20
                                                                                                                                                                                                  5%
   Moving forward, we expect
  employment growth to slow                              0
                                                                                                                               Strong                                                             0%
 in 2013, with less productive                                                                                                 population
                                                    -20                                                                                                              Restructuring                -5%
   companies getting weeded                                                                                                    growth
          out as restructuring                      -40                                                                                                                                           -10%
             continues to bite.
                                                              98


                                                                         99


                                                                                    00


                                                                                                02


                                                                                                            03


                                                                                                                      04


                                                                                                                               06


                                                                                                                                                   07


                                                                                                                                                             08


                                                                                                                                                                         10


                                                                                                                                                                                   11


                                                                                                                                                                                             12
                                      Source: CEIC, Credit Suisse



                                      Exhibit 106: Car loan restrictions by                                                     Exhibit 107: … while we expect
                                      the MAS should cap the upside risk in                                                     accommodation CPI to fall further on
                                      private transport costs in 2013 …                                                         a year-on-year basis into 2013
     While it is still too early to
  gauge the full impact of the                                                                                                    80%                                                                       20%
                                       160                        Private transport CPI                                                                          URA Rental Index
   recent car loan restrictions                                                                                       100
                                       150                                                                                                                       (%yoy)
    on private transport costs,                                   Average CoE prices (SGD in                          80
                                                                                                                                  60%
                                                                                                                                                                                                            15%
                                       140                                                                                                                       Accomodation CPI
  we think that the measures                                      thousands, RHS)                                                                                (RHS) (%yoy)
     will cap the upside risk in       130                                                                            60          40%
                                                                                                                                                                                                            10%
     private transport costs in        120                                                                                        20%
                                                                                                                      40
                            2013.      110                                                                                                                                                                  5%
                                                                                                                      20                  0%
  We expect accommodation              100
      CPI to continue to fall           90                                                                            0                                                                                     0%
                                                                                                                                 -20%
           further this year.                  May                May     May            May         May
                                               2008               2009    2010           2011        2012
                                                                                                                                 -40%                                                                       -5%
                                                                                                                                                   95       98      01        04    07       10        13
                                      Average of Cat A, Cat B and Cat E CoE Premiums.                                           Numbers are all in %yoy terms.
                                      Source: CEIC, Credit Suisse                                                               Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                           62
                                                                                                                                          09 April 2013




                                    Exhibit 108: Population White Paper implies that growth in foreign population
       For the government to        has to come down significantly
  achieve the projections set
  out in the Population White
                                                      12%         Actual and projected population growth (CAGR %)
 Paper, growth of the foreign
 population will have to slow                         10%             1980 to 1990     1990 to 2000
   from about 7% per annum                            8%              2000 to 2012     2006 to 2012
 now (+98,000), to about 2%



                                           CAGR (%)
                                                      6%              2012 to 2020     2020 to 2030
   to 3% (+45,000 to 55,000)
  over the next two decades.                          4%

       It seems to us that the                        2%
   government would have to                           0%
 do more to wean companies
     off their dependence on                          -2%
                                                             Overall           Residents      Citizens              PRs           Foreigners
              foreign workers.                              Population
                                    Source: NPTD, Credit Suisse



                                    Exhibit 109: The economy is expected to register a positive output gap
                                    according to the Ministry of Finance

        The government in its
 recent budget highlighted its
          expectation that the
     economy will continue to
    run a positive output gap.
     This is a reflection of the
   government’s view that the
    labour market will remain
                 tight this year.



                                    Source: Ministry of Finance



     We think that the central      Exhibit 110: With the economy still expected to run at full capacity in 2013, we
  bank is much more focused         expect the MAS to keep its current exchange rate stance unchanged come its
      on structural rather than     April meeting
    cyclical issues, and views
 the exchange rate as a blunt           128                             SGD NEER                      Upper/lower band
  tool to alleviate the ongoing
                                        124                             Lower band                    Mid point of policy band
         weakness in exports.
        With the economy still          120
    expected to run a positive          116
    output gap, we expect the
     central bank to keep the           112
                                                                                                                          Apr 2013: Keep
         current policy stance          108                                                                               current pace of
        unchanged at its next                                                                                             appreciation and
                                        104                                                                               maintain width of
    meeting in April 2013. We                                                                                             band unchanged?
  view the tight labour market          100
      as the key constraint on            Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
          central bank easing.      Source: Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                63
                                                                                                                                                                                 09 April 2013




Singapore: Selected economic indicators
                                                                                               2006        2007       2008       2009        2010       2011      2012E      2013F       2014F
National accounts, population, and unemployment
Real GDP growth (%)                                                                              8.8         8.9        1.7        -1.0      14.8         5.2        1.3         1.5           3.5
Growth in real private consumption (%)                                                           5.0         6.8        3.3        0.1         6.2        4.6        2.2         2.3           2.1
Growth in real fixed investment (%)                                                             13.6       17.4        13.0        -2.9        6.1        6.3        6.6         5.9           5.8
Fixed investment (as % of GDP)                                                                  21.7       22.9        27.4       27.5       23.7        22.9       23.6       24.0        23.8
Nominal GDP ($bn)                                                                              145.1      177.6      189.9       188.9      231.8      266.4       277.3      296.6      315.4
Population (mn)                                                                                  4.6         4.8        5.0        5.0         5.1        5.2        5.3         5.4           5.5
GDP per-capita ($)                                                                            31626      36707       38084      37868      45665       51375      52622      54918       57354
Unemployment (% of labor force, end-year)                                                        2.8         1.8        2.7        2.3         2.2        2.0        1.8         2.0           2.2
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                    0.8         3.7        5.5        -0.5        4.6        5.5        4.3         3.0           3.0
CPI inflation (% change in average index for the year)                                           1.0         2.1        6.6        0.6         2.8        5.2        4.6         3.5           3.0
Exchange rate (SGD per USD, end-year)                                                           1.53       1.44        1.44       1.40       1.29        1.30       1.22       1.26        1.27
Exchange rate (SGD per USD, average)                                                            1.59       1.51        1.41       1.45       1.36        1.25       1.24       1.26        1.27
REER (% year-on-year change, December to December) (1)                                           1.5         1.6        5.5        -1.9        5.7        2.6        5.0         3.0           3.0
Nominal wage growth (% year-on-year change)                                                      3.2         6.2        5.4        -2.6        5.6        6.0        2.3         3.5           3.5
3-month SIBOR (%, end-year)                                                                      3.4         2.4        1.0        0.7         0.4        0.4        0.4         0.4           0.5
Fiscal data
Central government fiscal balance (% of GDP)                                                     0.0         2.8       -0.3        -0.3        0.5        0.7        1.1         0.5           0.1
Central government primary fiscal balance (% of GDP) (2)                                         0.6         2.7        1.1        -0.9        0.3        0.9        1.3         0.7           0.3
Central government expenditure (% of GDP)                                                       12.6       12.1        14.3       15.3       16.5        14.5       14.9       15.3        15.1
Central government revenue (% of GDP)                                                           13.2       14.8        15.4       14.4       16.8        15.5       16.2       16.1        15.3
Money supply and credit
Broad money supply (M2, % of GDP)                                                              103.3      107.6      118.7       129.2      122.4      127.6       132.0      135.9      135.9
Broad money supply (M2, % year-on-year change)                                                  11.9       20.4        10.8       11.3         8.9       10.3        7.0         7.5           6.5
Domestic credit (% of GDP)                                                                     107.6      104.1      120.9       128.4      120.9      131.5       142.6      146.7      145.1
Domestic credit (% year-on-year change)                                                          3.3       11.8        16.6        8.5         8.4       15.0       12.2         7.5           5.3
Domestic credit to the private sector (% of GDP)                                                83.8       79.9        94.9       97.6       92.0      102.4       112.9      117.1      115.8
Domestic credit to the private sector (% year-on-year change)                                    3.6       10.3        19.3        5.1         8.4       17.7       14.0         8.4           5.3
Balance of payments
Exports (goods and non-factor services, % of GDP)                                              233.4      217.7      233.2       195.2      203.3      204.4       200.8      197.6      192.6
Imports (goods and non-factor services, % of GDP)                                              204.0      187.0      212.6       171.9      175.4      178.3       176.0      172.8      168.2
Exports (goods and non-factor services, % year-on-year change in $ value)                       12.7         7.8        7.6      -14.4       19.8         6.3        1.6         2.8           3.8
Imports (goods and non-factor services, % year-on-year change in $ value)                       13.0         5.9       14.2      -17.4       17.4         7.5        2.1         2.6           3.6
Current account balance ($bn) (3)                                                               35.7       45.9        26.3       30.1       55.5        57.2       58.8       57.5        59.1
Current account balance (% of GDP)                                                              24.5       25.8        13.9       16.0       24.0        21.5       21.2       19.4        18.7
Net FDI inflows ($bn)                                                                           18.1       10.0         5.0        6.7       27.4        38.9       36.9       32.6        26.6
Foreign debt and reserves
Central bank gross FX reserves ($bn)                                                         127.49      148.44     174.02     176.37      206.68     235.35       250.0      285.0      290.2
Central bank gross FX reserves, including forward FX transactions ($bn)                        170.8      208.2      243.6       219.4      274.5      347.9       370.0      405.0      415.2
Central bank gross non-gold FX reserves ($bn) (4)                                              127.3      148.2      173.8       176.2      206.5      235.1       249.8      284.8      290.0
(1) Real effective exchange rate, increase indicates appreciation. (2) Operating revenue minus total expenditure. (3) Current account data were revised in early 2008, leading to a downward
revision of around 6pp of GDP in the 2007 current account balance. The adjustment mostly reflected revisions to the income balance. (4) Not including forward FX purchases.
Source: Monetary Authority of Singapore, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                           64
                                                                                                                                  09 April 2013




                                               Taiwan: Slow growth and aging stress fiscal position
                       Christiaan Tuntono       Growth momentum for 4Q 2012 in Taiwan was in line with expectations, driven by a
                          +852 2101 7409         strong cyclical upturn in the electronic sector. GDP growth in 4Q 2012 exceeded the
        christiaan.tuntono@credit-suisse.com
                                                 market’s expectation, at 3.4% yoy and 1.5% on a sequential basis. Driving the
                                                 improvement was a 5.8% yoy rebound in gross fixed capital formation, which was helped
                                                 by a weak statistical base and increased investments by technology and transportation
                                                 businesses. Real exports and imports also rose 4% yoy and 2.2% yoy, respectively, as
                                                 momentum picked up towards the end of the year.
                                                IP growth in January-February was supported by an upswing in electronic
                                                 shipments, but was milder than anticipated. Industrial production weakened in
                                                 February, dragged down by the lunar new year effect and a negative monthly sequential
                                                 contraction. For January-February, IP rose 3.2% yoy, better than the 2.4% yoy gain in
                                                 December, but weaker than the 4.3% yoy gain in 4Q 2012. This suggests that while
                                                 production growth remained supported by the current upswing in electronic shipments, the
                                                 strength of the recovery seems to be milder than we have been anticipating. We believe
                                                 continued demand from developed markets remains critical to the sustainability of
                                                 Taiwan’s production growth, on which we maintain a cautiously optimistic outlook.
                                                Exports recorded a moderate gain in January-February, supported by the growth in
                                                 electronic exports. Exports rose 2% yoy during the first two months of the year, still
                                                 positive, but softening from the 9% yoy gain in December last year. This latest data point
                                                 makes us think that the recovery in Taiwan’s trade momentum has remained moderate so
                                                 far, and that the December uptick may not represent stronger momentum. Driving the
                                                 growth was a 2.7% yoy increase during the period, though information and communication
                                                 exports, machinery exports, transportation, and basic metals exports contracted and
                                                 deducted from overall export growth.
                                                We maintain our 2013 GDP growth forecast at 3.4%, expecting the positive growth
                                                 momentum to continue supporting a moderate uptick in growth. 1Q13 GDP growth
                                                 should remain sanguine at over 3%, in our view. What concerns us is that January export
                                                 orders moderated and contracted on an official sequential basis. We will see if this latest
                                                 development suggests a moderation in the technology upcycle that is driving Taiwan’s
                                                 growth momentum at this juncture.
                                                Domestic demand is likely to remain moderate before we see a more substantial
                                                 pick-up in the external sector. Gross fixed capital formation rose only by 1.3% yoy in 4Q
                                                 2012, though this was better than the previous five consecutive quarters of yearly
                                                 contraction. Domestic commercial sales rose under 2% yoy in 4Q 2012, reflecting the still
                                                 moderate demand from the local economy. They weakened further in the first two months
                                                 of the year, rising by only 1% yoy, supported by a 2.1% yoy gain in retail sales, a 0.5% yoy
                                                 gain in wholesale trade and a 1.2% yoy gain in restaurant trade.
                                                While growth is expected to improve from 2012, it is likely to stay below trend,
                                                 which we think will continue to exert pressure on the fiscal account. We expect the
                                                 general government to record another year of deficit in 2012 at about 2.5% of GDP, as
                                                 revenue growth remains restrained while expenditure is raised by the approval of a special
                                                 budget to stimulate the economy. If growth continues to stay below trend in the years to
                                                 come, we expect there will be continued pressure on the government to provide policy
                                                 support.
                                                We project that if growth stays below trend at 3% in the coming years, the fiscal
                                                 deficit is likely to widen further, pushing the government debt level above its
                                                 existing statutory limit. Besides slow growth, another important driver is a rapidly aging
                                                 population in Taiwan, which we think will structurally increase the government’s spending
                                                 on social security and pensions. We believe the government’s recent effort to reform the
                                                 civil servant and military pension system is a positive move, but more bold action on fiscal
                                                 consolidation is needed to stabilize Taiwan’s rising debt level, in our view.


Focus Asia (2Q 2013)                                                                                                                        65
                                                                                                         09 April 2013



                        Inflation has picked up a bit, but a slow economy will likely keep demand-pull price
                         pressure low. We have made some adjustments to our inflation trajectory, but maintain
                         our view that sub-trend growth momentum will help put a cap on price pressure in Taiwan.
                         Barring any significant surge in food prices due to bad weather conditions or a pick-up in
                         international oil prices, we think headline CPI inflation should stay contained.
                        The Central Bank of China (CBC) kept the policy rediscount rate on pause again on
                         28 March at 1.875%, in line with consensus and our expectations. Although the recent
                         pace of recovery was milder than we had expected, we believe the CBC would prefer to
                         keep its monetary policy stance unchanged and let a better external economy to do the
                         work. But, that said, we think the US sequestration and moderate Chinese economic
                         growth are likely to pose headwinds to Taiwan’s growth. The risk of seeing a slowdown in
                         Taiwan’s growth in the coming quarters remains, in our view, maintaining the chance of
                         seeing a policy rate cut by the CBC.
                        We have revised up our end-2013 USDTWD forecast mildly to 29.4, from 29.2 before,
                         anticipating only limited upside in the cross. The TWD has weakened against the USD
                         since the beginning of this year, as the USD gained strength across the board on its
                         better-than-expected macro performance. As we think the momentum in the US may slow
                         in the coming months, we think there is still upside risk to TWD strength, though the CBC
                         may try to cap its strength in view of a still sluggish export performance. We maintain our
                         view that the recent weakness in JPY is unlikely to materially affect Taiwan’s export
                         competitiveness, given that there is less direct competition between the products of the
                         two economies. Taiwan may even benefit from the weak JPY on equipment and raw
                         material imports from Japan.
                        We think the outcome of the referendum on Taiwan’s fourth nuclear power plant will
                         have implications for future fuel imports, CPI inflation and the fiscal position. A very
                         large public protest against the completion of the Longmen Nuclear Power Plant has
                         prompted President Ma Ying-jeou to launch a referendum. If the nuclear plant is indeed
                         suspended, we would be concerned that it would create significant losses for the state-
                         owned Taiwan Power Company, which would have an impact on Taiwan’s fiscal account.
                         Increased conventional power generation would also raise Taiwan’s reliance on fuel
                         imports and the sensitivity of CPI inflation to oil price movements.
                        The US and Taiwan re-opened talks under the long-stalled Trade and Investment
                         Framework Agreement (TIFA), making important progress in concluding the
                         bilateral trade agreement. Established in 1994, the Taiwan-US TIFA is an important
                         mechanism for both parties to resolve bilateral trade issues. In the recent talks in March,
                         the two sides agreed to establish two new working groups to handle investment and
                         technical barriers to trade. Further progress under the TIFA framework could help to
                         resolve difficult trade disagreements between the two sides, leading to the conclusion of a
                         Free Trade Agreement (FTA). We think a Taiwan-US FTA would be an important
                         milestone for Taiwan in terms of reducing the threat of marginalization in the global trade
                         system. The agreement would provide preferential tariffs and market access to the US for
                         Taiwan’s businesses, helping to re-attract domestic and foreign direct investments into the
                         domestic economy.
                        We do not expect changes in Taiwan’s ratings over the next six months. Taiwan is
                         currently rated at Aa3 (Moody’s), AA- (S&P) and A+ (Fitch), with a stable outlook.




Focus Asia (2Q 2013)                                                                                               66
                                                                                                                                                                                                                           09 April 2013




                                   Exhibit 111: Real GDP growth                                                                        Exhibit 112: Domestic demand
                                                                       Taiwan: Real GDP (% yoy)                                                       TW: Private consumption (% yoy)
                                    15                                                                                                                TW: Gross fixed capital formation (% yoy, RHS)
                                                                                                                                          6                                                                                                40
                                                                                                                        Forecast          5
                                    10
  We maintain our 2013 GDP                                                                                                                4
                                                                                                                                                                                                                                           20
    growth forecast at 3.4%,                                                                              3.4%                            3
                                      5
     and expect the positive                                                                                                              2
       growth momentum to                                                                                                                 1                                                                                                0
                                      0                                                                                                   0
       continue supporting a
                                                                                                                                         -1
   moderate uptick in growth.        -5                                                                                                  -2
                                                                                                                                                                                                                                           -20
                                                                                                                                         -3
                                   -10                                                                                                   -4                                                                                                -40




                                                                                                                                              2Q08
                                                                                                                                                      4Q08
                                                                                                                                                               2Q09
                                                                                                                                                                         4Q09
                                                                                                                                                                                    2Q10
                                                                                                                                                                                             4Q10
                                                                                                                                                                                                      2Q11
                                                                                                                                                                                                                4Q11
                                                                                                                                                                                                                           2Q12
                                                                                                                                                                                                                                    4Q12
                                          4Q09


                                          3Q10




                                          2Q13
                                          1Q09
                                          2Q09
                                          3Q09

                                          1Q10
                                          2Q10

                                          4Q10
                                          1Q11
                                          2Q11
                                          3Q11
                                          4Q11
                                          1Q12
                                          2Q12
                                          3Q12
                                          4Q12
                                          1Q13

                                          3Q13
                                          4Q13
                                   Source: DGBAS, Credit Suisse                                                                        Source: DGBAS, Credit Suisse



                                   Exhibit 113: Export order, IP                                                                       Exhibit 114: External trade
                                                               Export orders (% yoy)                                                                          Trade balance ($ bn, 12 roll sum, LHS)
                                    60                         Industrial production (% yoy)                                                                  Exports (% yoy)
       We believe continued                                                                                                                                   Imports (% yoy)
                                    50                                                                                                  30                                                                                                 100
    demand from developed           40
   markets remains critical to                                                                                                                                                                                                             80
                                    30                                                                                                  20
         the sustainability of                                                                                                                                                                                                             60
                                    20
        Taiwan’s IP growth.                                                                                                             10                                                                                                 40
                                    10
                                     0                                                                                                                                                                                                     20
          Exports recorded a                                                                                                              0                                                                                                0
                                   -10
   moderate gain in January-                                                                                                                                                                                                               -20
                                   -20                                                                                                 -10
  February, supported by the       -30                                                                                                                                                                                                     -40
 growth in electronic exports.     -40                                                                                                 -20                                                                                                 -60
                                          2000
                                          2001
                                          2002
                                          2003
                                          2004
                                          2005
                                          2006
                                          2007
                                          2008
                                          2009
                                          2010
                                          2011
                                          2012
                                          2013



                                                                                                                                              2005
                                                                                                                                                      2006
                                                                                                                                                                2007
                                                                                                                                                                             2008
                                                                                                                                                                                      2009
                                                                                                                                                                                                   2010
                                                                                                                                                                                                             2011
                                                                                                                                                                                                                       2012
                                                                                                                                                                                                                                   2013
                                   Source: DGBAS, Credit Suisse                                                                        Source: MoF, Credit Suisse



                                   Exhibit 115: Taiwan and US tech                                                                     Exhibit 116: Retail sales
                                     7
                                                               Consumer price index (% yoy)                                                                           Real retail sales (% yoy)
                                     6
  Inflation picked up a bit, but                               Core CPI (% yoy)                                                          15                           Employment (% mom, RHS)                                              0.8
                                     5
    a slow economy will likely                                                                                                                                                                                                             0.6
                                     4                                                                                                   10
       keep demand-pull price                                                                                                                                                                                                              0.4
                                     3
                 pressure low.                                                                                                            5
                                                                                                                                                                                                                                           0.2
                                     2
       We believe domestic                                                                                                                0                                                                                                0.0
                                     1
        demand will remain                                                                                                                                                                                                                 -0.2
                                     0                                                                                                   -5
  moderate before we see a          -1
                                                                                                                                                                                                                                           -0.4
                                                                                                                                        -10
  more substantial pick-up in       -2
                                                                                                                                                                                                                                           -0.6
         the external sector.       -3
                                                                                                                                        -15                                                                                                -0.8
                                                                                                                                                                                            2008
                                                                                                                                               2002
                                                                                                                                                      2003
                                                                                                                                                             2004
                                                                                                                                                                      2005
                                                                                                                                                                             2006
                                                                                                                                                                                     2007


                                                                                                                                                                                                    2009
                                                                                                                                                                                                             2010
                                                                                                                                                                                                                    2011
                                                                                                                                                                                                                            2012
                                                                                                                                                                                                                                    2013
                                          2001




                                                                                            2008
                                                 2002
                                                        2003
                                                                2004
                                                                       2005
                                                                              2006
                                                                                     2007


                                                                                                   2009
                                                                                                          2010
                                                                                                                 2011
                                                                                                                         2012
                                                                                                                                2013




                                   Source: CEIC, Credit Suisse                                                                         Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                           67
                                                                                                                                                                                                                                     09 April 2013




                                     Exhibit 117: Subtrend GDP growth                                                                                        Exhibit 118: Worsened fiscal account
                                                                            Real GDP growth (% yoy)                                                          % yoy                                         2004 - 2007               2008 - 2011
                                     12
                                                                                                                                                             GDP                                                 5.6                         3.4
                                     10                                                                                               Forecast
  While growth is expected to                                                                                                                                Private consumption                                 2.9                         1.7
                                       8
      improve from 2012, it is                                                                                                                               Govn't consumption                                  0.5                         1.9
                                       6
       expected to stay below                                                                                                                                GFCF                                                4.3                         -1.4
                                       4
  trend, which we think would                                      Average trend growth: 4%
                                       2                                                                                                                     Good exports                                       10.5                         5.2
    continue to exert pressure
         on the fiscal account.        0                                                                                                                     Good imports                                        7.4                         2.8
                                      -2
                                      -4                                                                                                                     Govn't net revenue                                  3.8                         0.8
                                               2002



                                               2005



                                               2008



                                               2011



                                               2014
                                               2000
                                               2001

                                               2003
                                               2004

                                               2006
                                               2007

                                               2009
                                               2010

                                               2012
                                               2013
                                                                                                                                                             Govn't net expenditure                              0.9                         3.5
                                     Source: DGBAS, Credit Suisse                                                                                            Source: DGBAS, Credit Suisse



                                     Exhibit 119: Social security and
                                     pension                                                                                                                 Exhibit 120: Government debt level
                                                                                                                                                                            General government debt outstanding (% of GDP)
                                                      General government expenditure                                                                          70%
                                                          Pension and Survivors Benefit (% of GDP)                                                                          Central government debt outstanding (% of GDP)
                                     8%                   Community & Environment (% of GDP)
                                                                                                                                  Forecast                    60%
   We believe a rapidly aging
                                     7%                   Social welfare (% of GDP)                                                                                          General government debt limit
    population will structurally                                                                                                                              50%
                                     6%                                                                                                                                      Central government debt limit
   increase the government’s
                                     5%                                                                                                                       40%
  spending on social security
                                     4%
   and pensions, pushing the                                                                                                                                  30%
                                     3%                                                                                                                                                                                          Forecast
        government debt level                                                                                                                                 20%
                        higher.      2%
                                     1%                                                                                                                       10%

                                     0%                                                                                                                        0%
                                            1990
                                                   1992
                                                            1994
                                                                     1996
                                                                            1998
                                                                                   2000
                                                                                           2002
                                                                                                  2004
                                                                                                         2006
                                                                                                                2008
                                                                                                                        2010
                                                                                                                               2012
                                                                                                                                       2014
                                                                                                                                              2016
                                                                                                                                                      2018




                                                                                                                                                                                          2002




                                                                                                                                                                                                                              2012
                                                                                                                                                                     1996
                                                                                                                                                                            1998
                                                                                                                                                                                   2000


                                                                                                                                                                                                 2004
                                                                                                                                                                                                        2006
                                                                                                                                                                                                               2008
                                                                                                                                                                                                                       2010


                                                                                                                                                                                                                                      2014
                                                                                                                                                                                                                                              2016
                                                                                                                                                                                                                                                     2018
                                     Source: MoF, Credit Suisse                                                                                              Source: MoF, Credit Suisse



                                     Exhibit 121: Policy rediscount rate                                                                                     Exhibit 122: USDTWD
                                                                            Taiwan rediscount rate (%)
                                                                            Taiwan overnight rate (%)                                 Projection              36                                        USDTWD
     The CBC did not ease in                                                US Federal Funds rate (%)
                                        6                                                                                                                     35
    March, though the chance
 of a rate cut still exists in the      5                                                                                                                     34
   event global growth falters                                                                                                                                33
                                        4
  in the later part of the year.
                                                                                                                                                              32
                                        3
      We have revised up our                                                                                                                                  31
          end-2013 USDTWD               2
                                                                                                                                                              30
       forecast mildly to 29.4,         1                                                                                                                                                                  TWD strength
                                                                                                                                                              29
      anticipating only limited
                                        0                                                                                                                     28
           upside in the cross.
                                                                                                                                                                   2003

                                                                                                                                                                   2005
                                                                                                                                                                   2000
                                                                                                                                                                   2001
                                                                                                                                                                   2002

                                                                                                                                                                   2004

                                                                                                                                                                   2006
                                                                                                                                                                   2007
                                                                                                                                                                   2008
                                                                                                                                                                   2009
                                                                                                                                                                   2010
                                                                                                                                                                   2011
                                                                                                                                                                   2012
                                                                                                                                                                   2013
                                                                                    2004
                                                                                              2005
                                                                                                         2007
                                                                                                                 2008
                                                                                                                           2010
                                            1998

                                                     1999
                                                                   2001

                                                                            2002




                                                                                                                                      2011

                                                                                                                                               2013




                                     Source: CEIC, Credit Suisse                                                                                             Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                                                 68
                                                                                                                                                                                 09 April 2013




Taiwan: Selected economic indicators
                                                                                                2006       2007        2008         2009     2010       2011        2012      2013F       2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                              5.4        6.0         0.7         -1.8     10.7         4.0        1.3        3.4            3.4
Growth in real private consumption (%)                                                           1.5        2.1        -0.9          0.8      3.7         3.4        1.5        2.3            2.3
Growth in real fixed investment (%)                                                              0.1        0.6       -12.4      -11.2       24.0        -5.3       -4.4        1.7            1.6
Fixed investment (% of GDP)                                                                     22.3       22.0       21.1          18.9     21.3       20.8        19.6       19.3           19.0
Nominal GDP ($bn)                                                                             376.7       393.1      400.2      377.6       428.2      463.5      470.5       497.3       520.3
Population (mn)                                                                                 22.9       23.0       23.0          23.1     23.2       23.2        23.3       23.4           23.5
GDP per capita ($)                                                                           16,465     17,122      17,372     16,331      18,488     19,949     20,183     21,267      22,178
Unemployment (% of labor force, end-year)                                                        3.8        3.8         5.0          5.8      4.7         4.2        4.2        4.2            4.2
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                    0.7        3.3         1.3         -0.2      1.0         2.0        1.6        2.3            1.6
CPI inflation (% change in average index for the year)                                           0.6        1.8         3.5         -0.9      1.0         1.4        1.9        1.8            1.9
Exchange rate (TWD per USD, end-year)                                                           32.6       32.4       33.1          32.3     30.5       30.3        29.0       30.6           30.8
Exchange rate (TWD per USD, average)                                                            32.5       32.8       31.5          33.1     31.6       29.5        29.7       30.3           30.8
REER (% year-on-year change) (1)                                                                -2.6        -4.1       -2.2          2.5      6.7         2.8        5.9        1.1            3.7
Nominal wage growth (% year-on-year change)                                                      1.0        1.7         0.2         -2.0      1.8         1.5       -0.4        2.6            3.7
Rediscount rate (end-year, %)                                                                   2.75       3.38       2.00          1.25     1.63       1.88        1.88       1.75           1.75
Overnight rate (%, end year)                                                                     1.7        2.1         0.9          0.1      0.3         0.4        0.4        0.3            0.3
Fiscal data
Consolidated government fiscal balance, (% of GDP) (2)                                          -0.3        -0.4       -0.9         -4.5      -3.3       -2.2       -2.5        -2.5          -2.7
Consolidated government primary balance, (% of GDP) (2)                                          0.5        0.4         0.0         -3.8      -3.0       -2.1       -2.5        -2.7          -2.9
Consolidated government expenditure, (% of GDP) (2)                                             18.1       17.7       18.6          21.4     18.9       19.1        19.6       19.4           19.6
Consolidated government debt, (% of GDP, end-year) (2)                                          45.2       40.9       43.4          48.4     48.3       49.7        50.9       51.8           52.8
Money supply and credit
Broad money supply (M2, % of GDP)                                                             209.6       200.5      219.9      235.2       228.4      237.3      240.5       241.3       242.0
Broad money supply (M2, % year-on-year change)                                                   5.8        1.4         6.4          5.8      5.4         4.8        3.5        4.5            4.5
Domestic credit (% of GDP)                                                                    143.4       139.4      146.3      149.1       146.6      153.3      155.4       155.9       156.4
Domestic credit (% year-on-year change)                                                          2.5        2.5         2.6          0.8      6.8         5.6        3.5        4.5            4.5
Domestic credit to the private sector (% of GDP)                                              126.0       124.1      130.1      131.1       129.5      136.0      139.1       140.9       142.7
Domestic credit to the private sector (% year-on-year change)                                    4.2        3.9         2.5         -0.4      7.2         6.0        4.5        5.5            5.5
Balance of payments
Exports (goods and non-factor services, % of GDP)                                               67.2       71.2       72.9          62.3     73.4       76.1        74.1       72.2           71.7
Imports (goods and non-factor services, % of GDP)                                               61.7       63.8       67.8          53.7     66.6       69.3        66.3       64.8           64.4
Exports (goods and non-factor services, % year-on-year change in $ value)                       12.8       10.6         4.3      -19.4       33.6       12.3        -1.2        3.0            3.9
Imports (goods and non-factor services, % year-on-year change in $ value)                        9.9        8.0         8.1      -25.3       40.7       12.6        -2.9        3.2            4.0
Current account balance ($bn)                                                                   26.3       35.2       27.5          42.9     39.9       41.2        49.6       48.4           48.4
Current account balance (% of GDP)                                                               7.0        8.9         6.9         11.4      9.3         8.9       10.5        9.7            9.3
Net FDI inflows ($bn)                                                                            0.0        -3.3       -4.9         -3.1      -9.1     -14.7        -9.8        -8.8          -8.8
Scheduled debt amortization ($bn) (3)                                                            1.7        3.7         6.2         -0.5      4.8         9.7        6.8        7.3            7.8
Foreign debt and reserves
Foreign debt ($bn) (4)                                                                          85.8       94.5       90.4          81.9    101.6      122.5      124.6       129.0       132.9
   Public ($bn) (5)                                                                             10.6        3.5         1.5          5.9      8.0         4.5        2.8        2.8            2.8
   Private ($bn)                                                                                75.2       91.1       88.9          76.0     93.5      118.0      121.8       126.3       130.1
Foreign debt (% of GDP)                                                                         22.8       24.0       22.6          21.7     23.7       26.4        26.5       25.9           25.5
Foreign debt (% of exports of goods and services)                                               33.9       33.8       31.0          34.8     32.3       34.7        35.7       35.9           35.6
Central bank gross FX reserves ($bn)                                                          266.1       270.3      291.7      348.2       382.0      385.5      403.2       425.4       447.9
Central bank gross non-gold FX reserves ($bn) (6)                                             261.5       265.6      287.0      343.4       376.8      380.5      397.9       420.1       442.7
(1) Real effective exchange rate (CPI-deflated), increase indicates appreciation. (2) General government statistics as interpreted by the Taiwan government. (3) Scheduled amortizations of
medium- and long-term external debt of both the public and private sectors. (4) Liabilities vis-à-vis non-residents (i.e., includes FX-denominated and local-currency debt).
(5) Includes government and central bank. (6) Central bank forex reserves minus monetary authorities’ other liabilities.
Source: Directorate-general of Budget, Accounting and Statistics, Central Bank of China, Ministry of Finance, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                           69
                                                                                                                                   09 April 2013




                                                 Thailand: Tempted to tighten
                       Santitarn Sathirathai      We have kept our above-consensus 2013 real GDP growth forecast at 5.9%. This
                             +65 6212 5675         reflects (1) strong sequential growth momentum in 2012 and (2) the likelihood that
       santitarn.sathirathai@credit-suisse.com     domestic demand, especially investment, will offset much of the weaknesses in exports
                                                   due to the US sequestration this year. This puts us near the top of the consensus
                                                   forecast table for 20133.
                                                  Expansionary fiscal and monetary policy stance and a relatively stable political
                                                   backdrop are key factors propelling GDP growth, in our view. On the fiscal side,
                                                   while the on-budget central government deficit amounts to 2.5% of GDP, off-budget
                                                   infrastructure spending – mainly the water management infrastructure program – should
                                                   add about 1% of GDP. Meanwhile, the government’s rice subsidy program will likely cost
                                                   it roughly an additional 1% of GDP, putting the total fiscal deficit around 4.5% of GDP.
                                                   On the monetary side, the real policy rate is now the lowest in ASEAN, and will likely
                                                   become more even more negative from 2Q onwards unless the Bank of Thailand starts
                                                   to normalize its policy rate.
                                                  Investment and private consumption growth should stay robust, although
                                                   consumer spending will likely moderate due to slower growth of car sales. We
                                                   continue to think investment will benefit from an expansionary monetary policy stance,
                                                   the government’s infrastructure spending and Japanese firms’ expansion. Although
                                                   consumer spending will be supported by wage and rice price support measures, we see
                                                   some headwinds to private consumption growth. First, expiration of the first car scheme
                                                   will likely slow car purchases significantly while the local automotive association has
                                                   reported that a number of subscribers to the scheme will have a problem financing car
                                                   purchases they made last year. Second, with the central bank signalling rising concerns
                                                   over household debt, we see a good chance that it might introduce measures to slow
                                                   growth in unsecured personal loans.
                                                  We are more concerned about the risk of overheating than downside risks to GDP
                                                   growth. After all, this is an economy that: (1) grew 15% qoq annualized in 4Q 2012 and
                                                   so far is showing no signs of slowing, (2) the stock market surged 34% in 2012 and just
                                                   under 13% YTD, (3) 2012 a saw 40% minimum wage increase and roughly an additional
                                                   20% this year. Yet, we continue to have an expansionary fiscal and monetary policy
                                                   stance as argued above. We are now keeping a close watch on signs of economic
                                                   overheating that are likely to become more visible later in the year. These include a
                                                   positive output gap, higher inflation, a deteriorating external balance, strong credit
                                                   growth, and rapidly rising asset prices.
                                                  We do not yet see imminent signs of overheating but think symptoms may start to
                                                   become more visible in some areas later this year. While we still think that inflation
                                                   will surprise the current central bank’s expectation (2.8% in 2013) on the upside, recent
                                                   developments and currency strength suggest inflation pressure should remain
                                                   contained. However, we reiterate our concerns about the pace of consumer credit
                                                   growth(the strongest in ASEAN) as well as signs of froth in various asset prices
                                                   (provincial property prices).
                                                  When will the BoT tighten its monetary policy? While the market tends to focus on
                                                   political pressure to cut rates, we think the macro data flow will not provide the central
                                                   bank with sufficient basis to do so. Instead, we think the central bank will soon think
                                                   about hiking to ‘normalize’ the policy rate and pre-empt a potential overheating problem.
                                                   However, with some members of the Monetary Policy Committee (MPC) worrying about
                                                   stronger capital inflows and currency strength due to a policy rate increase, we maintain
                                                   our view that the MPC will refrain from raising rates until early 2014, delivering a 75bps
                                                   increase to 3.5% next year. In 2013, the central bank will likely rely on macro-prudential
                                                   measures to address rapid expansion in consumer loans, and start delivering
                                                   increasingly hawkish statements later this year.

                                                 3   February Issue of Consensus Economics.



Focus Asia (2Q 2013)                                                                                                                         70
                                                                                                                                                                                            09 April 2013




                                   Exhibit 123: GDP and production                                                                      Exhibit 124: GDP contribution

                                                                  Indus prod. (% qoq sa)
                                                                                                                                                        Contribution to YoY GDP growth
       Real GDP surged on a                                       Real GDP (% qoq sa, RHS)                                                                     Investment
                                    20                                                                                             7     20
       sequential basis in 4Q,                                                                                                                                 Priv consumption
                                    15                                                                                             5                           Govt consumption
     thanks to the very strong                                                                                                           15
                                    10                                                                                                                         Net exports
         industrial production                                                                                                     3
                                      5                                                                                                  10
                      rebound.                                                                                                     1
                                      0                                                                                                    5
       This was partly due to                                                                                                      -1
                                     -5
   recovery in exports, which                                                                                                              0
                                   -10                                                                                             -3
     added to already strong                                                                                                       -5     -5
                                   -15
   domestic demand growth.
                                   -20                                                                                             -7   -10
                                          2003
                                                 2004
                                                           2005
                                                                   2006
                                                                          2007
                                                                                   2008
                                                                                           2009
                                                                                                  2010
                                                                                                           2011
                                                                                                                    2012
                                                                                                                           2013
                                                                                                                                        -15
                                                                                                                                          Mar-11              Sep-11      Mar-12     Sep-12
                                   Source: CEIC, Credit Suisse                                                                          Source: CEIC, Credit Suisse



                                   Exhibit 125: Export outlook                                                                          Exhibit 126: Domestic demand

   We think sequential export                           Exports % 3m-on-3m sa                                                                         Private consumption index (% yoy)
  growth will remain robust in                          CRB metal index (%3m on 3m, RHS)                                                              Private investment index (%yoy, RHS)
                                    25                                                                                       20
    1Q but will likely soften in
      2Q when the impact of         20                                                                                       15         11                                                              35
         sequestration hit US       15                                                                                                   9
                                                                                                                             10
                                                                                                                                         7                                                              25
         demand for imports.        10
                                                                                                                             5
                                                                                                                                         5
                                      5                                                                                                                                                                 15
       Private investment and                                                                                                0           3
  consumption growth should           0
                                                                                                                             -5          1                                                              5
        continue to be robust        -5
                                                                                                                                        -1
                                   -10                                                                                       -10                                                                        -5
  although car purchases will                                                                                                           -3
         likely see substantial    -15                                                                                       -15        -5                                                              -15
                                                                                                                                               2007




                                                                                                                                                                       2010




                                                                                                                                                                                                 2013
                                                                                                                                                       2008


                                                                                                                                                                2009




                                                                                                                                                                              2011


                                                                                                                                                                                     2012
        moderation in coming       -20                                   -20
                      months.         2007 2008 2009 2010 2011 2012 2013
                                   Source: BLOOMBERG PROFESSIONAL™ service, Credit Suisse                                               Source: CEIC, Credit Suisse




                                   Exhibit 127: Import growth                                                                           Exhibit 128: Trade balance

    Strong investment growth                     Consumer goods imports (% yoy 3mma)                                                                           Trade balance (USD mn, RHS)
     explained the strength of                   Capital goods imports (%yoy 3mma)                                                                             Imports (USD mn)
         capital goods import       60                                                                                                                         Exports (USD mn)
                                                                                                                                        26000                                                       4000
                    growth ...      50
                                                                                                                                        24000
                                    40                                                                                                                                                              2000
                                                                                                                                        22000
       … which has driven the
      trade balance lower. We       30                                                                                                  20000                                                       0
                                                                                                                                        18000
          think Thailand’s trade    20
                                                                                                                                                                                                    -2000
                                                                                                                                        16000
        balance will continue to    10
                                                                                                                                        14000
     trend lower over the next        0                                                                                                                                                             -4000
                                                                                                                                        12000
         couple of years as the    -10                                                                                                  10000                                                       -6000
       economy relies more on
                                                                                                                                                      Apr-10

                                                                                                                                                      Oct-10

                                                                                                                                                      Apr-11

                                                                                                                                                      Oct-11

                                                                                                                                                      Apr-12

                                                                                                                                                      Oct-12
                                                                                                                                                      Jan-10




                                                                                                                                                      Jan-11




                                                                                                                                                      Jan-12




                                                                                                                                                      Jan-13
                                                                                                                                                       Jul-10




                                                                                                                                                       Jul-11




                                                                                                                                                       Jul-12




                                   -20
              domestic demand.
                                                    2007
                                          2006




                                                                   2008

                                                                            2009

                                                                                          2010

                                                                                                    2011

                                                                                                                  2012

                                                                                                                            2013




                                   Source: Board of Investment, CEIC, Credit Suisse                                                     Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                     71
                                                                                                                                                                                                        09 April 2013




                                    Exhibit 129: Fiscal position                                                                         Exhibit 130: High speed train project
   The fiscal stance remains
      expansionary, partially                                           Series3                                                                    High speed train project schedule (USD bn)
                                                                        Fiscal balance/ GDP (%)
  reflecting off-budget water         1                                 Public debt/GDP (%, RHS)                                    30               Distance: 2563 km
  management infrastructure           0                                                                                                              Cost: USD 32.3bn
                                                                                                                                    35
                    spending.        -1
                                                                                                                                         9                                        8.3
                                                                                                                                    40
      While high speed trains        -2                                                                                                  8                                                     7.1
 attract a lot of attention, this    -3                                                                                             45   7                               6.1
                                                                                                                                         6
   is at best a 2015 onwards         -4
                                                                                                                                    50   5                                                              4.1
                story, given the                                                                                                                                3.8
                                     -5                                                                                                  4
         government’s current        -6
                                                                                                                                    55
                                                                                                                                         3
                                                   around 3.5-4% with off -budget                                                                                                                                  1.9
               project timeline.     -7                                                                                             60   2         1.0
                                                                                                                                         1
                                            2002
                                                   2003
                                                          2004
                                                                 2005
                                                                         2006
                                                                                2007
                                                                                       2008
                                                                                              2009
                                                                                                     2010
                                                                                                            2011
                                                                                                                   2012F
                                                                                                                           2013F
                                                                                                                                         0
                                                                                                                                                  2014      2015         2016    2017      2018         2019    2020

                                    Source: Ministry of Finance, Credit Suisse                                                           Source: Ministry of Finance, Credit Suisse



                                    Exhibit 131: Real policy rates in the
                                    region                                                                                               Exhibit 132: Inflation and policy rate
                                                          TH                    ID                    MA                           PH                                 Headline CPI (% yoy)
   Meanwhile, the real policy                                             Real policy rate (%)                                               9                        Policy rate (%)
                                       5
 rate is already negative and                                                                                                                8
                                       4                                                                                                                                                                   fcast
     is lower than its ASEAN                                                                                                                 7
                                       3
                        peers.                                                                                                               6
                                       2                                                                                                     5
  The real policy rate is likely       1                                                                                                     4
   to become more negative             0                                                                                                     3
  with inflation rising and the       -1                                                                                                     2
 central bank unlikely to hike        -2                                                                                                     1
          rates anytime soon.         -3                                                                                                     0
                                      -4                                                                                                     -1
                                                                                                                                                  2005

                                                                                                                                                         2006

                                                                                                                                                                  2007

                                                                                                                                                                          2008

                                                                                                                                                                                 2009

                                                                                                                                                                                        2010

                                                                                                                                                                                                 2011

                                                                                                                                                                                                         2012

                                                                                                                                                                                                                2013
                                      -5
                                          2006 2007 2008 2009 2010 2011 2012 2013
                                    Source: CEIC, Credit Suisse                                                                          Source: CEIC, Credit Suisse




                                                                                                                                         Exhibit 134: Consumer credit and
                                    Exhibit 133: Consumer credit growth                                                                  spending
    Consumer loan growth in
  Thailand is now the highest
                                                          TH                    ID                    MA                           PH                    Bank credit to consumer/GDP (%)
     among the fast-growing
        ASEAN-4 group, and                                       consumer loans (% yoy)                                                  60%
   running at the fastest rate      35
                                                                                                                                         55%
    since the global financial
                                    30
                        crisis.                                                                                                          50%
                                    25
       The consumer credit to                                                                                                            45%
     private consumption ratio      20
                                                                                                                                         40%
  has been rising rapidly over
                                    15
   the years, which is likely to                                                                                                         35%
    be why the central bank is      10
  becoming more concerned.                                                                                                               30%
                                      5
                                       2008          2009               2010            2011                2012            2013
                                    Source: CEIC, Credit Suisse                                                                          Source: CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                                                   72
                                                                                                                                                                               09 April 2013




Thailand: Selected economic indicators
                                                                                              2006        2007       2008       2009       2010        2011       2012      2013F      2014F
National accounts, population and unemployment
Real GDP growth (%)                                                                             5.1         4.9        2.5       -2.2        7.8         0.1        6.4        5.9         5.0
Growth in real private consumption (%)                                                          3.2         1.7        2.7       -1.1        4.8         1.3        6.6        4.7         4.3
Growth in real fixed investment (%)                                                             3.9         1.5        1.2       -9.0        9.4         3.3       13.3        9.7         8.8
Fixed investment (% of GDP)                                                                    23.1       22.3        22.1       20.5       20.8       21.5        22.8       23.6       24.5
Nominal GDP ($bn)                                                                             207.1      264.7      275.4      263.8       318.8      340.8      366.0       444.5      497.9
Population (mn)                                                                                62.8       63.0        63.4       63.5       63.9       64.2        64.5       64.9       65.2
GDP per capita ($)                                                                          3296.6      4198.3     4344.9     4152.5     4990.4      5307.9     5669.8     6850.4     7634.7
Prices, interest rates and exchange rates
CPI inflation (% year-on-year change, December over December)                                   3.5         3.2        0.4        3.5        3.0         3.5        3.6        3.9         3.6
CPI inflation (% change in average index for the year)                                          4.7         2.2        5.5       -0.8        3.3         3.8        3.0        3.4         3.8
Exchange rate (THB per USD, end-year)                                                          35.7       29.6        34.7       33.2       30.1       31.0        30.6       30.1       30.5
Exchange rate (THB per USD, average)                                                           37.9       32.2        33.0       34.3       31.7       30.8        31.1       29.7       30.5
REER (% year-on-year change, December over December) (1)                                       11.3         1.3       -3.2        2.5        8.0         0.2        0.3        1.0         0.2
Nominal wage growth (% year-on-year change) (2)                                                 6.2         3.0       10.2       -2.5        6.5         7.5       12.1       10.0         5.0
Overnight policy rate (%, end-year) (3)                                                        5.00       3.25        2.75       1.25       2.00       3.25        2.75       2.75       3.50
Fiscal data (4)
General government budget balance (% of GDP)                                                    -0.7       -1.6       -1.0       -5.7        -0.9       -2.7       -3.1       -2.5        -1.7
General government primary fiscal balance (% of GDP)                                            0.9        -0.3        0.2       -4.4        0.3        -1.2       -1.5       -1.0        -1.0
General government expenditure (% of GDP)                                                      18.1       19.0        17.9       21.7       18.0       20.7        20.4       19.9       19.6
General government revenue (% of GDP)                                                          17.4       17.4        16.9       15.9       17.1       18.0        17.5       17.4       17.6
Gross general government debt (% of GDP, end-year) (5)                                         42.0       38.3        37.3       45.2       42.6       42.3        43.5       45.1       46.3
Money supply and credit
Broad money supply (M2, % of GDP)                                                             109.3      106.9      109.6      117.3       116.5      125.9      131.7       122.3      122.2
Broad money supply (M2, % year-on-year change)                                                  8.2         6.3        9.2        6.8       10.9       12.3        10.3       10.5       12.0
Domestic credit (% of GDP)                                                                    109.0      104.2      105.4      110.6       109.0      123.0      129.4       125.6      126.7
Domestic credit (% year-on-year change)                                                         1.1         3.9        7.7        4.7       10.0       10.6        15.0        9.0       13.0
Domestic credit to the private sector (% of GDP)                                               95.2       91.8        93.8       96.4       97.0      104.6      114.6       104.6      103.6
Domestic credit to the private sector (% year-on-year change)                                   4.5         4.8        8.8        2.5       12.3       12.0        13.5        8.5       11.0
Balance of payments
Exports (goods and non-factor services, % of GDP)                                              73.8       68.6        75.8       68.5       71.4       78.7        75.2       68.9       68.8
Imports (goods and non-factor services, % of GDP)                                              71.0       61.6        74.1       59.1       65.0       75.5        74.0       69.3       70.2
Exports (goods and non-factor services, % year-on-year change in $ value)                      17.9       18.9        14.9      -13.4       26.0       17.5         2.9       11.0       12.0
Imports (goods and non-factor services, % year-on-year change in $ value)                      10.6       10.7        25.3      -23.7       33.0       24.0         5.4       13.5       13.6
Current account balance ($bn)                                                                   2.3       15.7         1.6       21.9       14.8       11.9         2.7       -0.8        -4.9
Current account balance (% of GDP)                                                              1.1         5.9        0.6        8.3        4.6         3.5        0.7       -0.2        -1.0
Net FDI inflows ($bn)                                                                           8.5         8.3        4.4        0.7        4.2        -2.4       -3.0        1.0         1.0
Scheduled external debt amortization ($bn)                                                     15.4       19.5        13.2       11.0       11.0         8.0       10.7       10.5       10.5
Foreign debt and reserves
Foreign debt ($bn)                                                                             70.0       74.4        76.1       75.3      100.5      106.6      121.0       142.2      169.3
   Public ($bn)                                                                                15.4       14.9        14.8       15.4       11.0       16.6        18.0       18.0       20.0
  Private ($bn)                                                                                54.6       59.5        61.3       59.9       89.5       90.0      103.0       124.2      149.3
Foreign debt (% of GDP)                                                                        33.8       28.1        27.6       28.5       30.4       31.3        33.1       32.0       34.0
Foreign debt (% of exports of goods and services)                                              45.8       41.0        36.5       41.7       42.6       39.8        44.0       46.6       49.5
Central bank gross FX reserves ($bn)                                                           67.0       87.6      111.0      138.4       172.1      178.6      181.6       190.0      200.0
Central bank gross FX reserves, including forward FX transactions ($bn)                        73.9      106.7      117.8      154.1       191.7      198.2      201.2       209.6      219.6
Central bank gross non-gold FX reserves ($bn) (6)                                              65.3       85.2      108.7      135.5       167.5      174.0      173.3       181.7      191.7
(1) Real effective exchange rate, increase indicates appreciation. (2) From Labor Force Survey: Average Monthly Wage in the private sector. (3) Through 2006, the policy rate was the 14-day
repo rate. (4) Data for central government, based on cash basis prior to 2004, based on fiscal year ending September. (5) Includes central government, non-financial SOEs and financial
institution development fund. (6) Not including forward FX purchases.
Source: Bank of Thailand, National Economic & Social Development Board, CEIC, Credit Suisse




Focus Asia (2Q 2013)                                                                                                                                                                           73
                                                                                                                                                               09 April 2013




    Historical data and Credit Suisse forecasts
Exhibit 135: Quarterly and annual forecasts of real GDP
                                                                                           Real GDP
                                                                               Quarterly Forecast                                             Annual Average
                                        Q3’12          Q4’12        Q1’13(F)   Q2’13(F)    Q3’13(F)   Q4’13(F)   Q1’14(F)   Q2’14(F)   2011     2012    2013(F)     2014(F)
          China         % yoy              7.4            7.9            7.9        8.3         8.3        7.7        8.1        8.2    9.2       7.8       8.0         8.2
                    % qoq (sa)             2.2            2.2            2.0        2.1         1.9        1.6        2.2        2.1
     Hong Kong          % yoy              1.4            2.5            2.6        2.6         3.5        4.1        3.7        2.8    4.9       1.4       3.2         3.4
                    % qoq (sa)             0.8            1.2            0.4        1.3         1.2        0.9        0.1        0.9
          India1        % yoy              5.3            4.5            4.7        5.2         6.5        7.2        7.1        7.4    6.3       5.0       6.5         7.5
                    % qoq (sa)             0.7            0.8            1.8        1.9         1.8        1.6        1.6        2.2
      Indonesia         % yoy              6.2            6.1            6.0        5.9         5.8        5.7        5.5        5.5    6.5       6.2       5.8         5.3
                    % qoq (sa)             1.4            1.5            1.3        1.5         1.4        1.4        1.2        1.4
         Korea          % yoy              1.6            2.4            2.0        2.6         3.1        3.0        3.2        3.1    3.7       2.0       2.7         3.2
                    % qoq (sa)             0.0            0.3            0.9        0.8         0.7        0.8        0.8        0.8
       Malaysia         % yoy              5.3            6.4            5.7        5.7         6.0        4.7        4.7        5.0    5.1       5.6       5.5         5.1
                    % qoq (sa)             0.8            2.4            1.3        1.0         1.2        1.1        1.3        1.3
     Philippines        % yoy              7.2            6.8            6.0        6.7         7.0        6.6        6.3        6.1    3.9       6.6       6.6         6.2
                    % qoq (sa)             1.3            1.8            1.7        1.7         1.6        1.4        1.5        1.5
     Singapore          % yoy               0.1           1.5           -0.4        0.4         2.7        3.1        4.0        3.9    5.2       1.3       1.5         3.5
                    % qoq (sa)             -1.2           0.8            0.0        0.8         1.1        1.2        0.8        0.7
        Taiwan          % yoy              0.7            3.7            3.0        3.4         3.4        3.5        3.3        3.3    4.1       1.3       3.4         3.4
                    % qoq (sa)             1.0            1.8            0.5        0.5         0.9        0.9        1.0        0.8
       Thailand         % yoy              3.1           18.9            8.8        6.0         5.8        3.4        4.5        5.0    0.1       6.4       5.9         5.0
                    % qoq (sa)             1.5            3.6            0.4        0.5         1.2        1.2        1.2        1.3
          NJA2           % yoy             5.7            6.6            6.2        6.6         6.8        6.5        6.7        6.8    7.3       6.1       6.6         6.8
                    % qoq (sa)             1.5            1.7            1.6        1.7         1.6        1.4        1.7        1.8
        NJCA3            % yoy             3.7            5.1            4.2        4.4         5.1        5.1        5.1        5.2    4.9       4.0       4.9         5.2
                    % qoq (sa)             0.7            1.2            1.1        1.3         1.3        1.2        1.2        1.4
        NJCIA4           % yoy             3.0            5.4            3.9        4.0         4.4        4.1        4.2        4.1    4.2       3.6       4.1         4.1
                    % qoq (sa)             0.7            1.4            0.8        1.0         1.1        1.0        1.0        1.0
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




    Focus Asia (2Q 2013)                                                                                                                                                 74
                                                                                                                                                                                                                                                              09 April 2013




Exhibit 136: Real GDP growth in NJA, NJCA and NJCIA


                                                                                                                                                                                                                          CS forecasts
           11
            9
            7
            5
   % yoy




            3                               NJA                              NJCA                                 NJCIA

            1
           -1
           -3
           -5
                                                                         Jun-07




                                                                                                                                                           Jun-10




                                                                                                                                                                                                                                     Jun-13
                Mar-05




                                                                                             Mar-08




                                                                                                                                                                                Mar-11




                                                                                                                                                                                                                                                     Mar-14
                                 Dec-05


                                                        Sep-06




                                                                                                                   Dec-08


                                                                                                                                         Sep-09




                                                                                                                                                                                                 Dec-11


                                                                                                                                                                                                                      Sep-12




                                                                                                                                                                                                                                                                          Dec-14
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 137: 2013 growth forecasts


                                                                                                                            Real GDP growth
           9
           8
           7
           6
   % yoy




           5
           4
           3
           2
           1
           0




                                                                                                                                                                                                                                                                  NJCIA
                                                                                                                                                                                                                               NJA


                                                                                                                                                                                                                                              NJCA
                                                                                                                                                                    Hong Kong


                                                                                                                                                                                         Korea
                                                                 India




                                                                                                      Indonesia
                         China


                                          Philippines




                                                                                  Thailand




                                                                                                                                                  Taiwan
                                                                                                                              Malaysia




                                                                                                                                                                                                          Singapore




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                               75
                                                                                                                                                                                                                                                                                     09 April 2013




Exhibit 138: Quarterly and annual forecasts of real private consumption
                                                                                                                        Private Consumption
                                                                                                                        Quarterly Forecast                                                                                                              Annual Average
                                                        Q3’12                   Q4’12              Q1’13(F)             Q2’13(F)              Q3’13(F)       Q4’13(F)            Q1’14(F)                 Q2’14(F)                       2011                    2012       2013(F)          2014(F)
Hong Kong             % yoy                                   2.8                  4.1                        3.4                3.7               1.8               1.5                  1.5                           1.6                  9.0                  4.0               2.6           2.2
India1                % yoy                                   2.0                  4.6                        4.9                5.5               6.0               6.5                  6.0                           7.0                  7.1                  3.4               6.0           6.4
Indonesia             % yoy                                   5.6                  5.4                        5.6                5.2               5.0               5.0                  5.0                           4.5                  4.7                  5.3               5.2           4.4
Korea                 % yoy                                   1.7                  2.7                        2.3                2.1               2.0               1.8                  3.1                           3.1                  2.4                  1.7               2.0           2.9
Malaysia              % yoy                                   8.5                  6.1                        6.2                6.3               6.7               5.0                  5.0                           5.0                  7.1                  7.7               6.0           4.8
Philippines           % yoy                                   6.3                  6.9                        6.0                5.5               6.0               5.2                  5.4                           4.9                  6.3                  6.1               5.6           5.2
Singapore             % yoy                                   0.5                  2.0                        1.5                2.0               2.8               2.9                  2.0                           2.4                  4.6                  2.2               2.3           2.1
Taiwan                % yoy                                   0.9                  1.6                        2.3                2.3               2.2               2.3                  2.0                           2.2                  3.1                  1.5               2.3           2.3
Thailand              % yoy                                   6.0                  8.0                        5.8                5.8               4.5               2.7                  3.6                           4.6                  1.3                  6.6               4.7           4.3
NJCA2                 % yoy                                   3.0                  4.3                        4.2                4.3               4.3               4.2                  4.3                           4.6                  5.0                  3.6               4.3           4.4
NJCIA3                % yoy                                   3.5                  4.1                        3.8                3.7               3.4               3.0                  3.4                           3.4                  4.0                  3.7               3.5           3.4
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJCA stands for Non-Japan Asia excluding China
3
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 139: Aggregate growth in private                                                                                                            Exhibit 140: 2013 private consumption forecasts
consumption


             8                                                                     CS forecasts                                                                                                     Private Consumption
             7                                                                                                                                                   7
             6                                                                                                                                                   6
             5                                                                                                                                                   5
             4
                                                                                                                                                         % yoy




                                                                                                                                                                 4
    % yoy




             3                              NJCA
                                                                                                                                                                 3
             2                              NJCIA
                                                                                                                                                                 2
             1
                                                                                                                                                                 1
             0
                                                                                                                                                                 0
            -1
                                                                                                                                                                                                                                                                                      NJCA
                                                                                                                                                                                            Philippines




                                                                                                                                                                                                                                         Hong Kong




                                                                                                                                                                                                                                                                                               NJCIA
                                                                                                                                                                                  India



                                                                                                                                                                                                            Indonesia

                                                                                                                                                                                                                              Thailand




                                                                                                                                                                                                                                                                   Taiwan
                                                                                                                                                                      Malaysia




                                                                                                                                                                                                                                                     Singapore



                                                                                                                                                                                                                                                                            Korea
            -2
                                            Jun-07




                                                                                 Jun-10




                                                                                                                        Jun-13
                 Mar-05




                                                     Mar-08




                                                                                          Mar-11




                                                                                                                                 Mar-14
                          Dec-05




                                                              Dec-08
                                                                       Sep-09




                                                                                                     Dec-11




                                                                                                                                          Dec-14
                                   Sep-06




                                                                                                               Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                          Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                               76
                                                                                                                                                                                                                                                                                             09 April 2013




Exhibit 141: Quarterly and annual forecasts of real government consumption
                                                                                                                 Government Consumption
                                                                                                                         Quarterly Forecast                                                                                                                Annual Average
                                                       Q3’12                       Q4’12          Q1’13(F)               Q2’13(F)              Q3’13(F)      Q4’13(F)                  Q1’14(F)                       Q2’14(F)                   2011                2012          2013(F)           2014(F)
Hong Kong           % yoy                                      4.0                   3.5                       2.9                 2.7               2.9               3.2                          3.7                            4.0            2.5                 3.7                   2.9            3.7
India1              % yoy                                      8.0                   1.9                       0.0                 1.5               3.0               4.0                          5.0                            6.0            7.6                 4.1                   3.5            5.3
Indonesia           % yoy                                      -2.8                 -3.3                       3.0                 5.0               5.0               6.0                          6.0                            7.0            3.2                 1.2                   5.0            5.7
Korea               % yoy                                      3.5                   3.5                       2.6                 3.0               3.2               3.0                          3.2                            3.0            2.1                 3.9                   3.0            2.9
Malaysia            % yoy                                      2.3                   1.1                       8.0                 5.8               6.0               3.0                          3.0                            3.0           16.1                 5.0                   5.3            3.0
Philippines         % yoy                                  12.0                      9.1                       3.0                 6.1               6.5               6.5                          4.0                            4.0            1.0                11.8                   5.5            3.8
Singapore           % yoy                                      -2.4                 -4.6                       0.3                 0.6               1.7               2.0                          2.0                            1.5            0.5                -3.6                   1.1            1.7
Taiwan              % yoy                                      -0.7                 -1.7                       0.9                 0.8               1.1               1.3                          1.4                            1.2            2.2                 0.4                   1.0            1.0
Thailand            % yoy                                  10.0                     12.1                  11.5                     0.0               1.0               7.0                          4.0                            3.0            1.1                 7.4                   4.5            2.9
NJCA2               % yoy                                      4.2                   1.9                       2.4                 2.5               3.2               3.9                          4.0                            4.4            4.5                 3.5                   3.4            3.9
NJCIA3              % yoy                                      2.4                   1.9                       3.6                 3.0               3.3               3.9                          3.6                            3.6            3.1                 3.3                   3.4            3.2
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJCA stands for Non-Japan Asia excluding China
3
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 142: Aggregate growth in government                                                                                                           Exhibit 143: 2013 government consumption
consumption                                                                                                                                           forecasts


                                            NJCA                      NJCIA
                                                                                                                                                                                                     Government Expenditure
            23
                                                                                                                                                                   6
            18                                                                                                                                                     5
                                                                                                        CS forecasts
                                                                                                                                                                   4
                                                                                                                                                           % yoy




            13
    % yoy




                                                                                                                                                                   3
            8                                                                                                                                                      2
                                                                                                                                                                   1
            3                                                                                                                                                      0

                                                                                                                                                                                                                                                                                              NJCA

                                                                                                                                                                                                                                                                                                       NJCIA
                                                                                                                                                                                                                                                         Hong Kong
                                                                                                                                                                                                          Indonesia



                                                                                                                                                                                                                                         India
                                                                                                                                                                                                                        Thailand
                                                                                                                                                                         Philippines




                                                                                                                                                                                                                                                                                   Taiwan
                                                                                                                                                                                         Malaysia




                                                                                                                                                                                                                                                 Korea



                                                                                                                                                                                                                                                                       Singapore


            -2
                                             Jun-07




                                                                                    Jun-10




                                                                                                                          Jun-13
                                                                                                                                   Mar-14
                 Mar-05




                                                      Mar-08




                                                                                             Mar-11




                                                                                                                                            Dec-14
                          Dec-05




                                                                 Dec-08




                                                                                                      Dec-11
                                   Sep-06




                                                                          Sep-09




                                                                                                                Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                            Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                           77
                                                                                                                                                                                                                                                                                          09 April 2013




Exhibit 144: Quarterly and annual forecasts of real gross fixed capital formation
                                                                                                                                           GFCF
                                                                                                                         Quarterly Forecast                                                                                                                Annual Average
                                                        Q3’12                     Q4’12              Q1’13(F)            Q2’13(F)              Q3’13(F)       Q4’13(F)               Q1’14(F)                    Q2’14(F)                     2011                    2012       2013(F)          2014(F)
Hong Kong             % yoy                                     8.3                10.5                        6.5                 7.5              7.8                 6.0                        5.8                       3.6              10.2                     9.1               6.9           6.1
India1                % yoy                                    -1.0                  6.0                       5.5                 6.0              8.5                 9.0                        9.0                  10.5                    4.7                    1.5               8.2         12.0
Indonesia             % yoy                                     9.8                  7.3                       8.5                 7.5              9.5                 9.0                        8.0                       7.0                8.8                    9.8               8.6           6.4
Korea                 % yoy                                    -2.5                 -4.2                       0.3                 0.4              2.6                 2.8                        2.7                       2.6              -1.0                    -1.7               1.6           2.1
Malaysia              % yoy                                    22.7                14.9                        4.5                 7.0              9.0                 7.0                        7.0                       7.0                6.5                   19.9               7.0           7.0
Philippines           % yoy                                     9.0                10.6                        6.0                 9.0              7.2                 9.0                        7.5                       7.5                0.2                    8.7               7.8           7.8
Singapore             % yoy                                    -3.8                  5.8                       2.1                 6.0              5.5                10.2                        5.4                       7.0                6.3                    6.6               5.9           5.8
Taiwan                % yoy                                    -0.9                  1.3                       2.8                 1.9              1.2                 1.0                        1.5                       1.5              -3.1                    -4.4               1.7           1.6
Thailand              % yoy                                    15.5                23.5                    13.0                    8.0              8.0                10.0                        8.0                       9.0                3.3                   13.3               9.7           8.8
NJCA2                 % yoy                                     3.1                  5.6                       5.0                 5.0              6.5                 6.9                        6.3                       6.7                3.5                    3.9               6.2           7.1
NJCIA3                % yoy                                     5.0                  5.4                       4.7                 4.6              5.6                 5.8                        5.1                       4.9                3.0                    5.1               5.2           4.7
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJCA stands for Non-Japan Asia excluding China
3
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 145: Aggregate growth in fixed investment                                                                                                    Exhibit 146: 2013 fixed investment forecasts


                                      NJCA                               NJCIA                                  CS forecasts                                                                              Real fixed investment
            17
                                                                                                                                                                  12
            12
                                                                                                                                                                  10
             7                                                                                                                                                    8
                                                                                                                                                          % yoy
    % yoy




             2                                                                                                                                                    6
                                                                                                                                                                  4
             -3
                                                                                                                                                                  2
             -8                                                                                                                                                   0

                                                                                                                                                                                                                                                                                           NJCA
                                                                                                                                                                                                                                              Hong Kong




                                                                                                                                                                                                                                                                                                    NJCIA
                                                                                                                                                                                       Indonesia

                                                                                                                                                                                                         India
                                                                                                                                                                          Thailand




                                                                                                                                                                                                                                                                        Taiwan
                                                                                                                                                                                                                   Philippines

                                                                                                                                                                                                                                   Malaysia



                                                                                                                                                                                                                                                          Singapore



                                                                                                                                                                                                                                                                                 Korea
            -13
                                             Jun-07




                                                                                   Jun-10




                                                                                                                         Jun-13
                  Mar-05




                                                      Mar-08




                                                                                            Mar-11




                                                                                                                                  Mar-14
                                                                         Sep-09
                           Dec-05
                                    Sep-06




                                                                Dec-08




                                                                                                      Dec-11
                                                                                                                Sep-12




                                                                                                                                           Dec-14




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                           Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                    78
                                                                                                                                                                                                                                                                                            09 April 2013




Exhibit 147: Quarterly and annual forecasts of real exports
                                                                                                                                            Exports
                                                                                                                          Quarterly Forecast                                                                                                            Annual Average
                                                           Q3’12                   Q4’12             Q1’13(F)             Q2’13(F)               Q3’13(F)       Q4’13(F)            Q1’14(F)                   Q2’14(F)                   2011                      2012       2013(F)              2014(F)
Hong Kong                  % yoy                                3.0                   5.0                      3.9                  4.0               5.3                 5.4                 7.1                       6.3                 3.7                      1.3                   4.7           6.1
India1                     % yoy                                5.2                  -2.1                      3.0                  6.8               9.0                11.0            12.0                        15.0                 16.7                       3.2                   9.9         15.0
Indonesia                  % yoy                                -2.6                  0.5                      4.0                  5.5               5.0                 5.0                 6.0                       7.0               13.6                       2.0                   4.9           6.8
Korea                      % yoy                                3.2                   4.4                      6.0                  6.3               7.0                 4.2                 7.2                       7.0                 9.1                      4.2                   5.9           6.9
Malaysia                   % yoy                                -3.0                 -1.5                      5.9                  5.5               6.7                 4.0                 4.8                       4.7                 4.2                      0.1                   5.5           5.0
Philippines                % yoy                                6.7                   9.1                      -2.5                 6.5               5.5                 8.0                 4.0                       4.8               -4.2                       8.7                   4.2           5.1
Singapore                  % yoy                                -2.1                 -1.9                      0.3                  1.6               2.0                 3.3                 3.0                       3.1                 3.5                      0.3                   1.8           3.2
Taiwan                     % yoy                                2.3                   4.0                      4.9                  4.5               3.9                 3.0                 5.0                       4.8                 4.4                      0.1                   4.0           4.4
Thailand                   % yoy                                -2.8                19.0                       6.9                  4.6               5.7                 6.0                 5.0                       4.0                 9.5                      2.9                   5.8           4.8
NJCA2                      % yoy                                2.2                   2.3                      4.0                  5.7               6.6                 6.7                 7.8                       8.8               12.4                       2.8                   6.5           8.8
NJCIA3                     % yoy                                0.8                   4.4                      4.5                  5.2               5.5                 4.6                 5.8                       5.8                 7.5                      2.6                   4.9           5.8
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJCA stands for Non-Japan Asia excluding China
3
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 148: Aggregate growth in exports                                                                                                               Exhibit 149: 2013 export forecasts


                                                  NJCA                             NJCIA                        CS forecasts                                                                                      Real Exports
            22
            17                                                                                                                                                      12
            12                                                                                                                                                      10
             7                                                                                                                                                       8
    % yoy




                                                                                                                                                            % yoy




                                                                                                                                                                     6
             2
                                                                                                                                                                     4
             -3
                                                                                                                                                                     2
             -8                                                                                                                                                      0
            -13                                                                                                                                                     -2
                                                                                                                                                                                                                                                      Philippines
                                                                                                                                                                                                                                          Hong Kong




                                                                                                                                                                                                                                                                                             NJCA

                                                                                                                                                                                                                                                                                                      NJCIA
                                                                                                                                                                            India




                                                                                                                                                                                                                              Indonesia
                                                                                                                                                                                                    Thailand




                                                                                                                                                                                                                                                                      Taiwan
                                                                                                                                                                                      Korea



                                                                                                                                                                                                                 Malaysia




                                                                                                                                                                                                                                                                               Singapore
            -18
                                                                                                                          Jun-13
                                              Jun-07




                                                                                   Jun-10
                  Mar-05




                                                       Mar-08




                                                                                            Mar-11




                                                                                                                                   Mar-14
                                                                 Dec-08
                            Dec-05




                                                                                                      Dec-11




                                                                                                                                             Dec-14
                                     Sep-06




                                                                          Sep-09




                                                                                                                 Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                             Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                      79
                                                                                                                                                                                                                                                                                09 April 2013




Exhibit 150: Quarterly and annual forecasts of real imports
                                                                                                                                           Imports
                                                                                                                         Quarterly Forecast                                                                                              Annual Average
                                                        Q3’12                    Q4’12              Q1’13(F)             Q2’13(F)              Q3’13(F)       Q4’13(F)      Q1’14(F)              Q2’14(F)                      2011               2012              2013(F)                2014(F)
Hong Kong             % yoy                                    3.8                   6.4                      4.7                  4.8              5.3             4.8              6.6                    6.0                  4.6                   2.5                     4.9              6.0
India1                % yoy                                   13.8                 -0.3                       2.5                  6.6              8.5            10.2           12.3                   15.6                   15.6                   4.9                     9.3             15.9
Indonesia             % yoy                                   -0.2                   6.8                      6.0                  6.6              6.7             7.3              6.8                    6.5                 13.3                   6.6                     6.7              5.9
Korea                 % yoy                                    1.4                   3.5                      3.5                  5.4              4.9             4.4              7.0                    6.4                  6.1                   2.5                     4.5              6.7
Malaysia              % yoy                                    4.4                 -0.9                       3.1                  6.6              5.3             6.5              5.5                    5.0                  6.2                   4.5                     5.4              5.1
Philippines           % yoy                                    4.9                   4.6                      -1.0                 4.0              5.8             4.0              3.2                    3.4                  0.2                   4.2                     3.3              3.9
Singapore             % yoy                                    0.0                   3.5                      2.8                  2.8              3.0             3.2              2.8                    2.9                  3.6                   3.2                     3.0              3.0
Taiwan                % yoy                                    1.9                   2.2                      3.0                  2.7              2.2             1.8              2.8                    2.6                 -0.5                   -1.9                    2.4              2.7
Thailand              % yoy                                   -1.8                14.7                        1.0                  0.6              9.3             7.5              5.5                    4.9                 13.7                   6.2                     4.7              5.2
NJCA2                 % yoy                                    5.4                   3.3                      3.1                  5.2              6.3             6.7              7.8                    8.6                  9.6                   3.8                     6.1              8.7
NJCIA3                % yoy                                    1.3                   5.0                      3.4                  4.6              5.3             5.0              5.6                    5.2                  6.7                   3.3                     4.6              5.3
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJCA stands for Non-Japan Asia excluding China
3
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 151: Aggregate growth in imports                                                                                                             Exhibit 152: 2013 import forecasts


                                                       NJCA                                                        CS forecasts                                                                          Real Imports
            25                                         NJCIA                                                                                                      12
            15                                                                                                                                                    10
                                                                                                                                                                  8
                                                                                                                                                          % yoy




            5
    % yoy




                                                                                                                                                                  6
            -5                                                                                                                                                    4
                                                                                                                                                                  2
        -15
                                                                                                                                                                  0
                                                                                                                                                                                                         Hong Kong




                                                                                                                                                                                                                                                         Singapore
                                                                                                                                                                          India




                                                                                                                                                                                                                                                                                     NJCA

                                                                                                                                                                                                                                                                                              NJCIA
                                                                                                                                                                                  Indonesia




                                                                                                                                                                                                                     Thailand
                                                                                                                                                                                              Malaysia




                                                                                                                                                                                                                                 Korea




                                                                                                                                                                                                                                                                      Taiwan
                                                                                                                                                                                                                                         Philippines



        -25
                                            Jun-07




                                                                                                                         Jun-13
                                                                                  Jun-10
                 Mar-05




                                                     Mar-08




                                                                                           Mar-11




                                                                                                                                  Mar-14
                          Dec-05




                                                               Dec-08




                                                                                                     Dec-11
                                                                                                                Sep-12




                                                                                                                                           Dec-14
                                   Sep-06




                                                                        Sep-09




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                           Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                              80
                                                                                                                                                                                                                                                                                              09 April 2013




Exhibit 153: Quarterly and annual forecasts of industrial production
                                                                                                                             Industrial Production
                                                                                                                             Quarterly Forecast                                                                                                            Annual Average
                                                             Q3’12                   Q4’12             Q1’13(F)              Q2’13(F)              Q3’13(F)        Q4’13(F)       Q1’14(F)                Q2’14(F)                               2011              2012             2013(F)          2014(F)
China                      % yoy                                  9.1                 10.0                       9.9                  10.5              10.6            11.0               11.0                        11.3                      13.7              10.1                     10.5          11.2
Hong Kong                  % yoy                                  0.0                   1.3                      0.4                   1.1               2.0             2.1                  2.5                       2.1                       0.7              -0.8                      1.4            1.9
India1                     % yoy                                  0.4                   2.1                      2.0                   4.0               5.5             6.0                  6.5                       6.8                       2.9               1.1                      5.5            7.0
Indonesia                  % yoy                                  1.6                 11.2                       8.0                   4.5               3.4             3.2                  3.0                       3.0                       4.1               4.1                      4.7            3.0
Korea                      % yoy                                  0.4                   1.1                      1.0                   2.2               3.8             4.4                  3.9                       4.3                       6.9               1.7                      2.9            4.3
Malaysia                   % yoy                                  2.4                   5.6                      2.0                   4.4               6.5             0.5                  1.7                       2.2                       1.2               4.1                      3.3            2.3
Philippines                % yoy                                  4.1                   9.0                      4.0                   4.1               4.1             4.4                  4.5                       4.4                       2.1               6.7                      4.1            4.2
Singapore                  % yoy                                  -1.4                 -0.2                      -0.9                  0.4               3.2             4.0                  1.4                       2.3                       7.8               0.4                      1.7            2.5
Taiwan                     % yoy                                  1.5                   4.2                      3.3                   3.7               2.2             2.0                  2.2                       2.4                       5.0              -0.1                      2.8            3.2
Thailand                   % yoy                                 -11.0                43.8                       7.0                  10.6              10.2             4.8                  7.3                       8.3                      -9.1               2.5                      8.1            8.4
NJA2                       % yoy                                  5.0                   8.3                      6.8                   7.5               7.9             7.9                  8.0                       8.3                       9.0               6.3                      7.7            8.3
NJCA3                      % yoy                                  0.1                   6.3                      2.9                   3.8               4.6             4.2                  4.4                       4.7                       3.3               1.8                      4.3            4.8
NJCIA4                     % yoy                                  -0.1                  8.3                      3.3                   3.7               4.2             3.4                  3.4                       3.7                       3.5               2.2                      3.6            3.8
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 154: NJA, NJCA and NJCIA aggregates of
industrial production                                                                                                                                     Exhibit 155: 2013 industrial production forecasts


             25                                        NJA                            NJCA                                  NJCIA                                                                    Industrial production
             20                                                                                                                                                        12
             15                                                                                                                                                        10
             10
                                                                                                                                                                       8
              5
                                                                                                                                                               % yoy
    % yoy




                                                                                                                                                                       6
              0
                                                                                                                                                                       4
             -5
            -10                                                                                                                                                        2
            -15                                                                                                  CS forecasts                                          0
                                                                                                                                                                                                                        Philippines




                                                                                                                                                                                                                                                                                            NJA
                                                                                                                                                                                                                                                                                                   NJCA
                                                                                                                                                                                                                                                                                Hong Kong




                                                                                                                                                                                                                                                                                                          NJCIA
                                                                                                                                                                                                  India
                                                                                                                                                                                                           Indonesia
                                                                                                                                                                               China
                                                                                                                                                                                       Thailand




                                                                                                                                                                                                                                      Malaysia


                                                                                                                                                                                                                                                          Taiwan
                                                                                                                                                                                                                                                  Korea


                                                                                                                                                                                                                                                                    Singapore




            -20
                                              Jun-07




                                                                                     Jun-10




                                                                                                                             Jun-13
                  Mar-05




                                                        Mar-08




                                                                                              Mar-11




                                                                                                                                      Mar-14
                            Dec-05
                                     Sep-06




                                                                   Dec-08
                                                                            Sep-09




                                                                                                        Dec-11
                                                                                                                   Sep-12




                                                                                                                                               Dec-14




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                                Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                         81
                                                                                                                                                                                                                                                                                         09 April 2013




Exhibit 156: Quarterly and annual forecasts of inflation
                                                                                                                                         Inflation
                                                                                                              Quarterly Average Forecast                                                                                                                     Annual Average
                                                       Q3’12                    Q4’12              Q1’13(F)            Q2’13(F)               Q3’13(F)       Q4’13(F)              Q1’14(F)                  Q2’14(F)                             2011             2012          2013(F)        2014(F)
China               % yoy                                     1.9                   2.0                      2.6                  2.9              3.3               3.9                        3.6                      4.3                       5.4               2.6                3.2            4.3
Hong Kong           % yoy                                     3.1                   3.8                      3.7                  4.4              5.5               4.4                        3.9                      3.7                       5.3               4.1                4.5            3.9
India1              % yoy                                     7.9                   7.3                      6.6                  5.5              5.7               6.0                        6.2                      6.5                       8.9               7.3                5.9            7.0
Indonesia           % yoy                                     4.5                   4.4                      5.3                  5.5              5.3               6.0                        6.3                      6.4                       5.4               4.3                5.5            6.2
Korea               % yoy                                     1.6                   1.7                      1.4                  1.9              2.6               3.0                        3.2                      3.0                       4.0               2.2                2.2            2.8
Malaysia            % yoy                                     1.4                   1.3                      1.5                  2.0              2.4               2.5                        2.5                      2.6                       3.2               1.7                2.1            2.5
Philippines         % yoy                                     3.5                   3.0                      3.2                  3.1              3.4               3.5                        3.6                      4.1                       4.7               3.1                3.3            4.4
Singapore           % yoy                                     4.2                   4.0                      4.1                  3.7              3.3               3.1                        3.1                      3.1                       5.2               4.6                3.5            3.0
Taiwan              % yoy                                     2.9                   1.8                      2.3                  1.7              1.0               2.0                        2.2                      2.0                       1.4               1.9                1.7            1.9
Thailand            % yoy                                     2.9                   3.2                      3.1                  3.2              3.5               3.7                        3.8                      4.0                       3.8               3.0                3.4            3.8
NJA2                % yoy                                     3.1                   3.0                      3.3                  3.3              3.7               4.1                        4.0                      4.4                       5.5               3.4                3.6            4.5
NJCA3               % yoy                                     4.5                   4.2                      4.1                  3.9              4.1               4.4                        4.5                      4.6                       5.6               4.4                4.1            4.7
NJCIA4              % yoy                                     2.9                   2.8                      2.9                  3.1              3.3               3.6                        3.8                      3.7                       4.1               3.0                3.2            3.6
1
  Annual figures are calculated on the fiscal yr (April to March), WPI figures have been used
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 157: NJA, NJCA and NJCIA aggregates of
inflation                                                                                                                                            Exhibit 158: 2013 inflation forecasts


                                                                                                                                                                                                                             Inflation
                                                               NJA                           NJCA                               NJCIA
            9
                                                                                                                                                                 7
                                                                                     CS forecasts
            7                                                                                                                                                    6
                                                                                                                                                                 5
                                                                                                                                                                 4
                                                                                                                                                         % yoy
    % yoy




            5
                                                                                                                                                                 3
            3                                                                                                                                                    2
                                                                                                                                                                 1
            1
                                                                                                                                                                 0
                                                                                                                                                                                                                         Thailand




                                                                                                                                                                                                                                                                                       NJA
                                                                                                                                                                                                                                                                                              NJCA
                                                                                                                                                                                                                                                                                                     NJCIA
                                                                                                                                                                                    Indonesia




                                                                                                                                                                                                                                                   China
                                                                                                                                                                                                 Hong Kong
                                                                                                                                                                           India




                                                                                                                                                                                                             Singapore




                                                                                                                                                                                                                                                                              Taiwan
                                                                                                                                                                                                                                                           Korea
                                                                                                                                                                                                                                    Philippines




                                                                                                                                                                                                                                                                   Malaysia




            -1
                                                                                 Jun-10
                                            Jun-07




                                                                                                                       Jun-13
                 Mar-05




                                                     Mar-08




                                                                                          Mar-11




                                                                                                                                Mar-14
                                                                                                                                         Dec-14
                          Dec-05
                                   Sep-06




                                                              Dec-08




                                                                                                    Dec-11
                                                                       Sep-09




                                                                                                              Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                           Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                    82
                                                                                                                                                                                                                                                                                   09 April 2013




Exhibit 159: Quarterly and annual forecasts for nominal policy rates
                                                                                                                       Nominal Policy Rates1
                                                                                                                 Quarterly Forecast                                                                                                              End Year
                                                       Q3’12                 Q4’12             Q1’13             Q2’13(F)            Q3’13(F)          Q4’13(F)        Q1’14(F)                Q2’14(F)                         2011                    2012             2013(F)           2014(F)
China                 % period end                         6.00               6.00                 6.00                    6.00               6.00          6.00               6.00                      6.25                        6.56               6.00                     6.00          6.75
Hong Kong             % period end                         0.45               0.50                 0.40                    0.40               0.40          0.40               0.40                      0.40                        0.33               0.50                     0.40          0.40
India2                % period end                         8.00               8.00                 7.50                    7.25               6.75          6.75               6.75                      6.75                        8.50               7.50                     6.75          7.25
Indonesia             % period end                         5.75               5.75                 5.75                    5.75               6.00          6.25               6.25                      6.25                        6.00               5.75                     6.25          6.75
Korea                 % period end                         3.00               2.75                 2.75                    2.50               2.50          2.50               2.50                      2.50                        3.25               2.75                     2.50          2.50
Malaysia              % period end                         3.00               3.00                 3.00                    3.00               3.00          3.00               3.25                      3.50                        3.00               3.00                     3.00          3.50
Philippines           % period end                         3.75               3.50                 3.50                    3.50               3.50          3.50               3.75                      4.00                        4.50               3.50                     3.50          4.50
Singapore             % period end                         0.38               0.38                 0.38                    0.38               0.38          0.38               0.45                      0.45                        0.38               0.38                     0.38          0.50
Taiwan                % period end                         1.88               1.88                 1.88                    1.75               1.75          1.75               1.75                      1.75                        1.88               1.88                     1.75          1.75
Thailand              % period end                         3.00               2.75                 2.75                    2.75               2.75          2.75               3.00                      3.25                        3.25               2.75                     2.75          3.50
NJA3                  % period end                         5.39               5.36                 5.28                    5.22               5.16          5.18               5.20                      5.35                        5.83               5.29                     5.18          5.74
NJCA4                 % period end                         4.66               4.59                 4.42                    4.28               4.15          4.18               4.22                      4.26                        4.95               4.43                     4.18          4.53
NJCIA5                % period end                         3.06               2.95                 2.95                    2.85               2.90          2.95               3.01                      3.07                        3.25               2.95                     2.95          3.22
1
  NJA Policy Rates: China - average one year lending rate, Hong Kong - 3 month interbank rate, India - repo rate, Indonesia - overnight rate, Korea - base rate, Malaysia - overnight rate,
Philippines - overnight rate, Singapore - 3 month interbank rate, Taiwan - discount rate, Thailand - overnight repo rate
2
  Yr End figures refer to the March end figure, for example End-2011 refers to March 2012 figure
3
  NJA stands for Non-Japan Asia
4
  NJCA stands for Non-Japan Asia excluding China
5
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 160: NJA, NJCA and NJCIA aggregates of
nominal policy rates                                                                                                                                 Exhibit 161: End-2013 policy rate forecasts


         8                                       NJA                          NJCA                               NJCIA                                                                                          Policy Rate

         7                                                                        CS forecasts                                                             7
                                                                                                                                                           6
         6                                                                                                                                                 5
                                                                                                                                                           4
         5
                                                                                                                                                       %
    %




                                                                                                                                                           3
         4                                                                                                                                                 2
                                                                                                                                                           1
         3
                                                                                                                                                           0
                                                                                                                                                                   India




                                                                                                                                                                                                                                                                                 NJA
                                                                                                                                                                                                                                                         Hong Kong




                                                                                                                                                                                                                                                                                               NJCIA
                                                                                                                                                                           Indonesia




                                                                                                                                                                                                                                                                                        NJCA
                                                                                                                                                                                       China




                                                                                                                                                                                                                          Thailand


                                                                                                                                                                                                                                               Taiwan
                                                                                                                                                                                                               Malaysia


                                                                                                                                                                                                                                       Korea




                                                                                                                                                                                                                                                                     Singapore
                                                                                                                                                                                                 Philippines




         2
             Mar-05




                                                                             Jun-10
                                        Jun-07




                                                                                                                  Jun-13
                                                  Mar-08




                                                                                      Mar-11




                                                                                                                            Mar-14
                      Dec-05
                               Sep-06




                                                           Dec-08
                                                                    Sep-09




                                                                                               Dec-11
                                                                                                        Sep-12




                                                                                                                                     Dec-14




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                           Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                              83
                                                                                                                                                                                                                                                                                        09 April 2013




Exhibit 162: Quarterly and annual forecasts for real policy rates
                                                                                                             Real Policy Rates(Nominal Policy Rate-Headline CPI)1
                                                                                                                       Quarterly Forecast                                                                                                          End Year
                                                        Q3’12                   Q4’12          Q1’13(F)                Q2’13(F)            Q3’13(F)          Q4’13(F)      Q1’14(F)            Q2’14(F)                          2011                       2012             2013(F)            2014(F)
China                  % period end                          4.1                   4.0                      3.4                  3.1                2.7            2.1             2.4                      2.0                        2.0                   4.0                      2.1             2.2
Hong Kong              % period end                          -2.7                 -3.3                 -3.3                      -4.0               -5.1          -4.0            -3.5                    -3.3                         -5.4                 -3.3                      -4.0           -3.6
India2                 % period end                          0.1                   0.7                      0.9                  1.8                1.1            0.8             0.6                      0.3                        1.0                   0.9                      0.6            -0.3
Indonesia              % period end                          1.3                   1.3                      0.5                  0.3                0.7            0.3             0.0                    -0.2                         1.9                   1.3                      0.3             0.8
Korea                  % period end                          1.4                   1.0                      1.3                  0.6                -0.1          -0.5            -0.7                    -0.5                         -0.7                  1.0                      -0.5           -0.1
Malaysia               % period end                          1.6                   1.7                      1.5                  1.0                0.6            0.5             0.7                      0.9                        -0.2                  1.7                      0.5             1.1
Philippines            % period end                          0.2                   0.5                      0.3                  0.4                0.1            0.0             0.2                    -0.1                         -0.2                  0.5                      0.0            -0.6
Singapore              % period end                          -3.8                 -3.6                 -3.7                      -3.3               -2.9          -2.7            -2.7                    -2.7                         -5.2                 -3.6                      -2.7           -2.5
Taiwan                 % period end                          -1.1                  0.0                 -0.4                      0.1                0.8           -0.3            -0.5                    -0.3                         0.4                   0.0                      -0.3            0.2
Thailand               % period end                          0.1                  -0.5                 -0.3                      -0.5               -0.8          -1.0            -0.8                    -0.7                         -0.7                 -0.5                      -1.0           -0.2
NJA3                   % period end                          2.3                   2.4                      2.0                  1.9                1.5            1.1             1.2                      0.9                        1.0                   2.4                      1.0             1.1
NJCA4                  % period end                          0.2                   0.4                      0.3                  0.4                0.1           -0.2            -0.3                    -0.4                         -0.1                  0.4                      -0.3           -0.3
NJCIA5                 % period end                          0.2                   0.2                      0.0                  -0.2               -0.4          -0.7            -0.7                    -0.7                         -0.6                  0.2                      -0.7           -0.3
1
  NJA Policy Rates: China - average one year lending rate, Hong Kong - 3 month interbank rate, India - repo rate, Indonesia - overnight rate, Korea - base rate, Malaysia - overnight rate,
Philippines - overnight rate, Singapore - 3 month interbank rate, Taiwan - discount rate, Thailand - overnight repo rate
2
  Yr End figures refer to the March end figure, for example End-2011 refers to March 2012 figure
3
  NJA stands for Non-Japan Asia
4
  NJCA stands for Non-Japan Asia excluding China
5
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 163: NJA, NJCA and NJCIA aggregates of
real policy rates                                                                                                                                          Exhibit 164: End-2013 real policy rate forecasts


          6                                        NJA                             NJCA                                  NJCIA                                                                                  Policy Rate
          5                                                                                                                                                       3
                                                                                               CS forecasts
          4                                                                                                                                                       2
          3                                                                                                                                                       1
          2                                                                                                                                                      -1
                                                                                                                                                             %
    %




          1                                                                                                                                                      -2
          0                                                                                                                                                      -3
         -1                                                                                                                                                      -4
         -2                                                                                                                                                      -5
                                                                                                                                                                                 India




                                                                                                                                                                                                                                                                                      NJA
                                                                                                                                                                                                                                                                          Hong Kong


                                                                                                                                                                                                                                                                                             NJCA
                                                                                                                                                                                                                                                                                                    NJCIA
                                                                                                                                                                                                    Indonesia
                                                                                                                                                                         China




                                                                                                                                                                                                                              Taiwan


                                                                                                                                                                                                                                                 Thailand
                                                                                                                                                                                                                                                              Singapore
                                                                                                                                                                                         Malaysia




                                                                                                                                                                                                                                         Korea
                                                                                                                                                                                                                Philippines




         -3
                                                    Mar-08




                                                                                                                        Jun-13
                                          Jun-07




                                                                                 Jun-10
              Mar-05




                                                                                          Mar-11




                                                                                                                                  Mar-14
                        Dec-05




                                                              Dec-08




                                                                                                   Dec-11




                                                                                                                                           Dec-14
                                 Sep-06




                                                                       Sep-09




                                                                                                              Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                                 Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                   84
                                                                                                                                                                                                                                                                                09 April 2013




Exhibit 165: Quarterly and annual forecasts of 10yr government bond yields
                                                                                                                         10 yr Government Bond Yields
                                                                                                                      Quarterly Forecast                                                                                                                 End Year
                                                   Q3’12                    Q4’12                 Q1’13               Q2’13(F)              Q3’13(F)    Q4’13(F)          Q1’14(F)                    Q2’14(F)                      2011                 2012          2013(F)         2014(F)
China          % period end                                 3.5                 3.6                        3.6                  3.5               3.8           3.8                    3.8                       3.8                  3.4                 3.6                  3.8            4.0
Hong Kong      % period end                                 0.8                 0.7                        1.2                  1.0               1.3           1.3                    1.5                       1.5                  1.5                 0.7                  1.3            1.5
India1         % period end                                 8.2                 8.1                        8.0                  7.8               7.8           7.5                    7.5                       7.6                  8.6                 8.0                  7.5            8.2
Indonesia      % period end                                 6.0                 5.2                        5.6                  5.8               6.0           6.3                    6.5                       6.5                  6.0                 5.2                  6.3            6.5
Korea          % period end                                 3.0                 3.2                        2.7                  3.0               3.3           3.5                    3.5                       3.5                  3.8                 3.2                  3.5            3.5
Malaysia       % period end                                 3.6                 3.5                        3.5                  3.5               3.8           3.8                    4.0                       4.0                  3.7                 3.5                  3.8            4.0
Philippines    % period end                                 4.9                 4.4                        3.5                  4.0               4.3           4.5                    5.0                       5.2                  5.4                 4.4                  4.5            5.5
Singapore      % period end                                 1.5                 1.3                        1.5                  1.5               1.8           1.8                    2.0                       2.0                  1.6                 1.3                  1.8            2.0
Taiwan         % period end                                 1.2                 1.2                        1.3                  1.3               1.5           1.5                    1.5                       1.5                  1.3                 1.2                  1.5            1.5
Thailand       % period end                                 3.5                 3.5                        3.5                  3.8               4.0           4.3                    4.5                       4.5                  3.3                 3.5                  4.3            4.5
NJA2           % period end                                 4.0                 4.0                        4.0                  4.0               4.2           4.2                    4.3                       4.3                  4.2                 4.0                  4.2            4.5
NJCA3          % period end                                 4.8                 4.7                        4.6                  4.7               4.9           4.9                    5.0                       5.0                  5.2                 4.7                  4.9            5.2
NJCIA4         % period end                                 3.3                 3.1                        3.1                  3.2               3.5           3.6                    3.8                       3.8                  3.6                 3.1                  3.6            3.8
1
  Yr End figures refer to the March end figure, for example End-2011 refers to March 2012 figure
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 166: NJA, NJCA and NJCIA aggregates of
10yr bond yields                                                                                                                                   Exhibit 167: End-2013 10yr bond yield forecasts


         8.0                                                                                                                                                                      10 yr Government Bond Yields
         7.5                                            NJA                              NJCA                               NJCIA                           8
         7.0                                                                                                                                                7
         6.5                                                                                                CS forecasts                                    6
         6.0                                                                                                                                                5
         5.5                                                                                                                                                4
                                                                                                                                                        %
    %




         5.0                                                                                                                                                3
         4.5                                                                                                                                                2
         4.0                                                                                                                                                1
         3.5                                                                                                                                                0
                                                                                                                                                                                                                                                         Taiwan
                                                                                                                                                                                                                                                                  Hong Kong
                                                                                                                                                                                                                                                                              NJA
                                                                                                                                                                                                                                                                                     NJCA
                                                                                                                                                                                                                                                                                            NJCIA
                                                                                                                                                                  India
                                                                                                                                                                           Indonesia




                                                                                                                                                                                                                                             Singapore
                                                                                                                                                                                                      Thailand
                                                                                                                                                                                                                 China
                                                                                                                                                                                        Philippines




                                                                                                                                                                                                                         Malaysia
                                                                                                                                                                                                                                     Korea




         3.0
         2.5
                                          Jun-07




                                                                                Jun-10




                                                                                                                       Jun-13
               Mar-05




                                                   Mar-08




                                                                                         Mar-11




                                                                                                                                Mar-14
                                                              Dec-08
                        Dec-05




                                                                                                  Dec-11




                                                                                                                                         Dec-14
                                 Sep-06




                                                                       Sep-09




                                                                                                             Sep-12




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                         Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                           85
                                                                                                                                                                                                                                                                                     09 April 2013




Exhibit 168: Quarterly and annual forecasts of exchange rates against USD
                                                                                                               Exchange Rate against USD1
                                                                                                                        Quarterly Forecast                                                                                                                      End Yr
                                                      Q3’12                       Q4’12               Q1’13             Q2’13(F)                Q3’13(F)        Q4’13(F)       Q1’14(F)               Q2’14(F)                        2011                     2012         2013(F)         2014(F)
China              period end                             6.34                     6.29                  6.27                     6.27               6.26            6.24                  6.23               6.23                    6.30                     6.29                6.24           6.23
Hong Kong          period end                             7.75                     7.75                  7.80                     7.80               7.80            7.80                  7.80               7.80                    7.78                     7.75                7.80           7.80
India2             period end                             52.9                     55.0                  54.0                     55.0               55.5            56.0                  56.5               56.5                    50.9                     54.0                56.5           56.5
Indonesia          period end                            9588                     9670                  9719                     10200              10250           10300             10350                  10350                    9068                     9670               10300          10350
Korea              period end                            1111                     1071                  1111                     1175               1183            1192                   1200              1200                     1152                     1071               1192           1200
Malaysia           period end                             3.07                     3.06                  3.09                     3.13               3.10            3.08                  3.05               3.05                    3.18                     3.06                3.08           3.05
Philippines        period end                             41.9                     41.2                  40.9                     41.7               41.4            41.1                  40.8               40.8                    43.9                     41.2                41.1           40.8
Singapore          period end                             1.23                     1.22                  1.24                     1.26               1.26            1.26                  1.27               1.27                    1.30                     1.22                1.26           1.27
Taiwan             period end                             29.5                     29.0                  29.7                     30.3               30.5            30.6                  30.8               30.8                    30.3                     29.0                30.6           30.8
Thailand           period end                             30.9                     30.6                  29.5                     29.4               29.8            30.1                  30.5               30.5                    31.0                     30.6                30.1           30.5
NJA3               % yoy                                       1.9                  0.3                       0.7                 -0.2                1.1             1.6                   1.7                  0.4                   -0.4                      0.0                2.0            0.0
NJCA4              % yoy                                       4.4                  1.0                       2.0                  0.7                4.1             4.4                   4.5                  1.7                     5.0                     0.3                5.3            0.3
NJCIA5             % yoy                                   -0.9                    -2.5                       0.0                  1.5                3.7             5.6                   4.5                  1.2                     1.4                   -2.5                 5.6            0.4
1
  There may be small differences in these numbers and the numbers in the FX strategy section
2
  Yr End figures refer to the March end figure, for example, End-2011 refers to March 2012 figure
3
  NJA stands for Non-Japan Asia
4
  NJCA stands for Non-Japan Asia excluding China
5
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 169: NJA, NJCA and NJCIA aggregates of
exchange rates against USD                                                                                                                              Exhibit 170: End-2013 exchange rate forecasts


            25                               NJA                                                                                                                                               Forex Rates against USD
                                                                                                              CS forecasts                                     12
            20                               NJCA                                                                                                              10
            15
                                             NJCIA                                                                                                              8
            10                                                                                                                                                  6
                                                                                                                                                            % yoy
    % yoy




             5                                                                                                                                                  4
             0                                                                                                                                                  2
             -5                                                                                                                                                 0
            -10                                                                                                                                                -2                                                                                                                                 NJCIA
                                                                                                                                                                                                                                                                                   NJA
                                                                                                                                                                                                                                                                                          NJCA
                                                                                                                                                                                                                          Hong Kong
                                                                                                                                                                               Indonesia


                                                                                                                                                                                                     India
                                                                                                                                                                                                              Singapore
                                                                                                                                                                                            Taiwan




                                                                                                                                                                                                                                                               China
                                                                                                                                                                                                                                                                       Thailand
                                                                                                                                                                       Korea




                                                                                                                                                                                                                                      Malaysia
                                                                                                                                                                                                                                                 Philippines




            -15
                                             Jun-07




                                                                                   Jun-10




                                                                                                                        Jun-13
                                                                                                                                  Mar-14
                  Mar-05




                                                      Mar-08




                                                                                            Mar-11
                                                                         Sep-09
                           Dec-05
                                    Sep-06



                                                                Dec-08




                                                                                                     Dec-11
                                                                                                               Sep-12



                                                                                                                                           Dec-14




Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates                                                                              Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                                                                                                                                                 86
                                                                                                                                                               09 April 2013




Exhibit 171: Annual forecasts of current account balance
                                                                                    Current Account Balance, % GDP
                                                                                                         Annual
                                                         2007             2008                 2009                2010              2011    2012    2013(F)        2014(F)
China                              % GDP                  10.1              9.3                  4.8                 4.1               2.8     2.6       2.9            3.0
Hong Kong                          % GDP                  12.4             13.5                  8.4                 5.4               5.2     4.8       1.8            1.6
India1                             % GDP                  -1.3             -2.3                 -2.8                -2.7              -4.3    -4.8      -3.5           -4.0
Indonesia                          % GDP                   2.4              0.0                  2.0                 0.7               0.2    -2.8      -3.5           -2.5
Korea                              % GDP                   2.1              0.3                  3.9                 2.9               2.3     3.8       3.1            2.4
Malaysia                           % GDP                  15.4             17.1                 15.7                11.1              11.6     6.4       7.8            5.1
Philippines                        % GDP                   4.8              2.1                  5.6                 4.5               3.1     3.4       2.2            2.2
Singapore                          % GDP                  25.8             13.9                 16.0                24.0              21.5    21.2      19.4           18.7
Taiwan                             % GDP                   8.9              6.9                 11.4                 9.3               8.9    10.5       9.7            9.3
Thailand                           % GDP                   5.9              0.6                  8.3                 4.6               3.5     0.7      -0.2           -1.0
NJA2                               % GDP                   7.5               6.1                 4.4                  3.6             2.4     2.1        2.2            2.0
NJCA3                              % GDP                   4.3               2.2                 3.9                  3.0             2.1     1.5        1.3            0.9
NJCIA4                             % GDP                   6.9               4.4                 7.0                  5.8             5.1     4.5        3.6            3.3
1
  Annual figures are calculated on the fiscal yr (April to March)
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 172: Annual forecasts of fiscal balance
                                                                                            Fiscal Balance, % GDP
                                                                                                         Annual
                                                         2007             2008                 2009                2010              2011    2012    2013(F)        2014(F)
China                              % GDP                   0.6             -0.4                 -2.2                -1.6              -1.1    -1.5      -2.0           -1.5
Hong Kong                          % GDP                   7.7              0.1                  1.6                 4.2               3.8     3.2       0.2            0.6
India1                             % GDP                  -2.5             -6.0                 -6.4                -4.7              -5.8    -5.1      -4.8           -4.5
Indonesia                          % GDP                  -1.3             -0.1                 -1.6                -0.7              -1.1    -1.9      -2.1           -2.3
Korea                              % GDP                   1.9             -0.3                 -2.7                -0.8              -0.4    -0.5      -0.5           -1.1
Malaysia                           % GDP                  -3.1             -4.6                 -6.7                -5.4              -5.0    -4.4      -4.9           -4.3
Philippines                        % GDP                  -0.2             -0.9                 -3.7                -3.5              -2.0    -2.5      -2.0           -2.0
Singapore                          % GDP                   2.8             -0.3                 -0.3                 0.5               0.7     1.1       0.5            0.1
Taiwan                             % GDP                  -0.4             -0.9                 -4.5                -3.3              -2.2    -2.4      -2.5           -2.7
Thailand                           % GDP                  -1.6             -1.0                 -5.7                -0.9              -2.7    -3.1      -2.5           -1.7
NJA2                               % GDP                   0.2             -1.3                 -3.0                 -1.9             -1.8    -2.0      -2.3           -2.0
NJCA3                              % GDP                  -0.4             -2.4                 -4.0                 -2.3             -2.6    -2.5      -2.6           -2.6
NJCIA4                             % GDP                   0.7             -0.7                 -2.9                 -1.1             -1.0    -1.3      -1.6           -1.7
1
  Annual figures are calculated on the fiscal yr (April to March), Central Government budget deficit has been calculated for India
2
  NJA stands for Non-Japan Asia
3
  NJCA stands for Non-Japan Asia excluding China
4
  NJCIA stands for Non-Japan Asia excluding China and India
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                     87
                                                                                                                                                                  09 April 2013




Exhibit 173: 2013 forecasts – current account as % of GDP


                                                                                 Current Account Balance
              20
              15
      % GDP




              10
               5
               0
              -5




                                                                                                       Hong Kong
                         Singapore



                                       Taiwan




                                                                                                                                          India



                                                                                                                                                     NJA



                                                                                                                                                           NJCA



                                                                                                                                                                       NJCIA
                                                                                                                              Indonesia
                                                   Malaysia




                                                                             China




                                                                                                                   Thailand
                                                                 Korea




                                                                                        Philippines
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Exhibit 174: 2013 forecasts – fiscal balance as % of GDP


                                                                                     Fiscal balance
               1
               0
              -1
      %GDP




              -2
              -3
              -4
              -5
              -6
                                                                                       Indonesia




                                                                                                                                                                       NJCIA
                                                                                                                                                     NJA



                                                                                                                                                           NJCA
                                     Hong Kong



                                                  Korea




                                                                                                                              India
                                                                             China




                                                                                                                   Taiwan
                                                                                                      Thailand
                       Singapore




                                                               Philippines




                                                                                                                                          Malaysia




*
    For India, the number refers to Central Government budget deficit
Source: Central banks, CEIC, Statistical agencies, Credit Suisse estimates




Focus Asia (2Q 2013)                                                                                                                                                           88
                                  GLOBAL FIXED INCOME AND ECONOMIC RESEARCH
                        Dr. Neal Soss, Managing Director                                                       Eric Miller, Managing Director
              Chief Economist and Global Head of Economic Research                                   Global Head of Fixed Income and Economic Research
                                 +1 212 325 3335                                                                       +1 212 538 6480
                           neal.soss@credit-suisse.com                                                         eric.miller.3@credit-suisse.com

US AND CANADA ECONOMICS
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neville.hill@credit-suisse.com
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+44 20 7883 3738                         +44 20 7883 7360                            +44 20 7888 7536
axel.lang@credit-suisse.com              steven.bryce@credit-suisse.com              yiagos.alexopoulos@credit-suisse.com

EASTERN EUROPE, MIDDLE EAST & AFRICA ECONOMICS AND STRATEGY
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Head of EEMEA Economics                  +44 20 7888 3694                            +27 11 012 8054                           +33 1 7039 0103
+44 20 7883 3431                         sergei.voloboev@credit-suisse.com           carlos.teixeira@credit-suisse.com         gergely.hudecz@credit-suisse.com
berna.bayazitoglu@credit-suisse.com      Russia, Ukraine, Kazakhstan                 South Africa                              Czech Republic, Hungary, Poland
Turkey
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+7 495 967 8772                          +44 20 7888 1065                            +44 20 7888 1257
alexey.pogorelov@credit-suisse.com       natig.mustafayev@credit-suisse.com          nimrod.mevorach@credit-suisse.com
Russia, Ukraine, Kazakhstan              EM and EEMEA cross-country analysis         EEMEA Strategy, Israel

JAPAN ECONOMICS
Hiromichi Shirakawa, Managing Director                  Takashi Shiono, Associate
+81 3 4550 7117                                         +81 3 4550 7189
hiromichi.shrirakawa@credit-suisse.com                  takashi.shiono@credit-suisse.com

NON-JAPAN ASIA ECONOMICS
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Head of NJA Economics                    +65 6212 3707                               +852 2101 7409                            +65 6212 5675
+852 2101 7469                           robert.priorwandesforde@credit-suisse.com   christiaan.tuntono@credit-suisse.com      santitarn.sathirathai@credit-suisse.com
dong.tao@credit-suisse.com               Regional, India, Indonesia, Australia       Hong Kong, Korea, Taiwan                  Regional, Malaysia, Thailand
China
Michael Wan, Analyst                     Weishen Deng, Analyst
+65 6212 3418                            +852 2101 7162
michael.wan@credit-suisse.com            weishen.deng@credit-suisse.com
Singapore, Philippines                   China
                                                  ASIA MACRO STRATEGY

                   Ric Deverell, Managing Director                              Eric Miller, Managing Director
          Global Head of Commodities, GFX and Asia Strategy          Global Head of Fixed Income and Economic Research
                            +44 20 7883 2523                                            +1 212 538 6480
                     ric.deverell@credit-suisse.com                             eric.miller.3@credit-suisse.com




SINGAPORE                                                                                        One Raffles Link, Singapore 039393
                                                              Ashish Agrawal, Director
Ray Farris, Managing Director                                 Non-Japan Asia Strategy
Chief Asia Strategist                                         +65 6212 3405
+65 6212 3412                                                 ashish.agrawal@credit-suisse.com
ray.farris@credit-suisse.com

Trang Thuy Le, Associate
+65 6212 4260
trangthuy.le @credit-suisse.com




TOKYO                                                                           6-1 Roppongi 1-Chome, Minato-Ku, Tokyo 106-6024

Tomohiro Miyasaka, Director
Japan Interest Rate Strategy
+81 3 4550 7171
tomohiro.miyasaka@credit-suisse.com
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posted:5/5/2013
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pages:93
Description: Still waters run deep