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					                                                                                                                                                                                                    WEDNESDAY
                       Top 5 FAQ on Japanese Yen                                                                                                                                                    16 JULY 2013

                                                                                                                                                                                                   EDITOR
                        Focus: Top 5 FAQ on Japanese Yen - After an explosive 2012, Yen weakness is taking a                                                                                       Sean Yokota
                                                                                                                Head of Asia Strategy
                        breather. Is the short Yen trade over? We answer the 5 most frequently asked questions.
                                                                                                                sean.yokota@seb.se
                        1) Which flows are driving Yen weakness?
                                                                                                                +65 6505 0583
                        2) What is Mrs. Watanabe doing?
                        3) Where are the Japanese shopping?
                        4) What should we look for in the upcoming Upper House election on July 21?
                        5) Is the short Yen trade over? What needs to happen to make Yen weaker from
                            here?

                        Asia FX Portfolio – We have had a tough month in June and are down -1.4% for the year. All of
                        our losses came in the JPY short correction where we lost 2.4% in the portfolio (see Asia Strategy
                        Comment: Japan: The Silent Treatment; June 13, 2013). On other Asian currencies, we made gains
                        being long USDMYR (+3.7%) and gained carry in being short USDCNH (+6bp).

                        We are looking to short JPY around 95 and look to put on relative value trades such as long CNY vs
                        THB, long SGD vs MYR or PHP. PHP is seasonally weak in August and become a candidate for
                        short since it also has very little carry cost.


                        FX Tracker - A look at Asian across asset performance, FX forwards and volatility over
                        the last month. What stands out?
                        1) Performance – 1) The cyclical Korea and Taiwan are starting to outperform. They lagged the
                        region over the last 12 months and were likely the least crowded 2) Indonesia hiked interest rates
                        and yields are rising much faster than the rest. We think it still has further to rise. 3) Despite more
                        stable yields, the 2s5s part of the yield curve is steepening. Short term rates can fall and rise from
                        Fed comments and US data but we think the longer yields will remain anchored since the Fed has
                        pushed up term premium by making QE exit a higher probability. Also, higher oil prices despite fall
                        in other commodities may be keeping long end yields in check.

                        2) Forwards – Carry has settled lower as USD strength fears subside with the exception of IDR
                        since spot has started to moved higher. CNH carry has fallen in short end as the liquidity crunch
                        subsides but NDF yields remain high and hence we like NDF better than CNH currently. INR’s 1M
                        carry has collapsed with the interest rate hikes and looks too rich.  


                        3) Volatility - Vol is declining from more stable US yields but still increasing in INR, AUD and EUR
                        while JPY vol has fallen.       

                         




You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are
given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changes
may be made to opinions or information contained herein without notice.
             Asia Strategy Focus




Focus: Top 5 FAQ on Japanese Yen
After an explosive 2012, Yen weakness is taking a breather. Is the short Yen trade over? We answer the 5 most frequently
asked questions.

1) Which flows are driving Yen weakness?

We now have complete set of balance of payments or flow data for May, which covers the timeframe after Bank of Japan
decided to double the size of its monetary base on April 4th known as “Kuroda Shock” day. What do the flows tell us?

First, we have not had the massive outflows from Japanese purchasing foreign securities in hunt for yield (red and green line in
Chart 1). Japanese retail characterized by the term “Mrs. Watanabe” is missing in action. Instead, the outflows are led by the
black line known as other investment, which are mostly short term bank credit flows and typically speculating on currency
movements. The flow data matches with the speculative positioning data by the commitment of traders report assembled by
our Senior Quantitative Strategist Karl Steiner (see FX Quant and Positioning Weekly) where JPY short positions are in the top
quartile relative to the last 12 months.

The flows tell us that JPY is still extremely vulnerable to risk sentiment. If we get a “risk off” event from European political risk
or US growth scares, the leveraged community will have to reduce positions by buying Yen and strengthen the Yen. Since very
little underlying flows are supporting the weaker Yen, the moves will be rapid and volatile. We think Yen vols will remain high
relative to its G10 colleagues (Chart 60).

Chart 1: This time outflow is only short term speculation                          Chart 2: Japanese are sending money home led by banks
  8         Japan BOP 12 month rollin sum as % of GDP                               4       Portfolio flow , JPY trn                          Flow s to Japan, JPY +
                                                                                                                             Total
  6                                                                                 3                                        Public
                                                                                                                             Banks
  4                                                                                 2
                                                                                                                             Life Insurance
  2                                                                                 1                                        Inv Trusts/Retail
  0                                                                                 0
  -2                                                                                -1
  -4                                                                                -2
  -6                                                                                -3                                                          Flow s out of Japan, JPY -
  -8                Current Account        FDI                   Equity Inv         -4
                    Debt Inv               Other Inv
                                                                                                                                       Nov-12
                                                                                         Jan-12




                                                                                                           May-12


                                                                                                                    Jul-12




                                                                                                                                                  Jan-13


                                                                                                                                                           Mar-13


                                                                                                                                                                    May-13
                                                                                                  Mar-12




                                                                                                                              Sep-12




 -10
       04      05        06     07    08         09    10   11    12          13

Source: Bloomberg, CEIC, SEB


2) What is Mrs. Watanabe doing?

An aggressive Japanese monetary policy was supposed to start the hunt for yield by Mrs. Watanabe (retail) and domestic
institutions. We were looking for similar flow pattern to 2005 and 2006 circled in red in Chart 1 where debt investment
outflows would match the speculative flows but this isn’t happening. Chart 2 shows the flow breakdown by investor groups
and the purple line, representing investment trusts and retail are sending money abroad and looking for yield and higher risk.
However, life insurance companies, also yield hunters have hardly allocated money abroad and most importantly, banks have
been selling large amounts of foreign bonds, which is translating to capital inflows and preventing Yen weakness. One more
thing to notice is that the public pension fund’s allocation (e.g. Government Pension Investment Fund, GPIF) gets lots of
attention in the press but as you can see from the red line in Chart 2, it has very little influence. We recommend ignoring the
developments by public institutions. The conclusion is that Mrs. Watanabe is shopping abroad but she has a smaller wallet
compared to the banks and preventing Yen weakness.

3) Where are the Japanese shopping?

As you saw from Chart 2, there are some outflows happening and we can see which assets in which economies are the winners
and losers from Japan’s monetary easing. Table 1 below shows the net purchases of securities between Japan and the rest of
the world as of May 2013. A negative number is a net outflow from Japan and a positive number is net inflow in billion of Yen.
There are three main findings from the below table.

First, global equities are losers. Japanese and the rest of the world are attracted to the rising Nikkei equity market and creating
large inflows into Japan, which strengthen Yen.
                                                                                                                                                                             2
         Asia Strategy Focus




Second, bond performance varies by location. For example, Asian and high yielding emerging market bonds are winners. The
hunt for yield is happening. European bonds are also winners as Japanese investors find the pressures in the European crisis
easing. The losers are Australia and US. Selling Australian bonds is going against historical behavior. We are hearing that the
domestics a) do not like the falling yield and the risk of it going lower b) the weakening Australian dollar and c) the positioning
where foreigners own 70% of the total Australian government bonds. The other big loser is US bonds. Japan has been selling
US Treasuries and mortgage backed securities in fear of the Fed exiting Quantitative Easing. When looking strictly at US
Treasuries holdings on Chart 4, Japan has sold only about US$30bn since the peak in September 2012. If we assume that US
10 year yield rises towards 3% reached in July of 2011, Japan still has to sell another US$200bn worth of US Treasuries.

Lastly, the biggest inflow Japan is currently receiving is into the money market from UK. The flows are channeled through
London’s financial center. Our best guess is that these are from international money market funds where problems in
European banks have left no choice but to invest in Japanese money markets. In a world of low yield on short term money
market instruments, safety is the only concern.

Table 1: Japan’s net purchases of securities (negative figure means net outflow from Japan)
(bn JPY)              Total                       Equity             Bonds & Notes          Money Markets
               Last 6m Last 3m              Last 6m Last 3m         Last 6m Last 3m        Last 6m Last 3m
Total          20,482 12,759                14,911 8,598               284   3,667            936    494
Asia            -1,679     -421              2,684     1,596          -451   -801           -3,913 -1,217
   China          -22        37               118        84           -100   -642             -39    599
   HongKong      1,088      911              2,111     1,412          -173    -97            -851   -404
   Taiwan           5       -14                 4        -8              7     -2              -6     -4
   Korea          -20        60                47        10            -45     69             -21    -19
   Singapore    -1,609     -734               437       211            139     36           -2,185  -982
   Thailand      -726      -399                 8       -48           -134    -59            -600   -293
   Indonesia     -245      -153                 1       -19            -52    -37            -195    -97
   Malaysia      -110      -101               -33       -33            -76    -64              0      0
   Philippines    -14        -7               -16       -14             -7      0               9      7
   India           14         4                19        10             -4     -5               0      0
   Vietnam        -21       -19                -8        -8             -4     -2               0      0
USA            14,139 9,130                  6,432     3,652          8,502  5,384           -795    94
Mexico           -187       -82                -7        19           -181   -102              0      0
Brazil            225       169                 9         4            215    165               1     0
Caymans         -2,630 -1,132                -130      -150          -1,397  -365           -1,103  -618
Australia        1,184      612               247       108           1,400   405            -463    99
New Zealand      -491      -325                 1        -3            -38    -44            -453   -278
Norway            259       284                -2       -10            801    606            -540   -312
EU             18,217 8,278                  5,072     3,040         -4,055 -1,846          17,200 7,083
   UK          41,167 21,583                 4,501     3,013          -470   -215           37,136 18,785
   Germany        148        8                213       105           -320   -195             255     98
   France       -6,904 -3,265                 330         6          -1,359  -444           -5,875 -2,827
   Netherlands -1,307      -254                41         6          -1,455  -287             107    27
   Italy          311       231                46        32            119    139             -77    -18
   Belgium      -1,356     -852                25        13            -78   -117           -1,302  -748
   Luxembourg -13,994 -9,217                 -291      -226          -1,040 -1,051         -12,663 -7,940
   Sweden         558       272                72        46            405    193              81    33
   Spain         -211       -91                54        33            -32      1            -235   -126
   Ireland       -121        11                21       -16            -95     54             -47    -28
   Austria         90      -100                 0         0            -87   -145             172     43
Russia           -253      -135               N/A       N/A            N/A    N/A             N/A    N/A
South Africa      -33         6               N/A       N/A            N/A    N/A             N/A    N/A
Source: CEIC, SEB




                                                                                                                   3
                Asia Strategy Focus



Chart 3: Japan is selling some US Treasuries                                                                                                 Chart 4: Abe’s Approval rating remains high
 22%     Holding of US Treasury Securities                                                                                            1.15    80   Abe Cabinet Approval rating %, Nikkei
                                                                                                                                      1.10
                                                                                                                                                                                           76.0
 21%                                                                                                                                          75
                                                                                                                                      1.05
                                                                                                                                                                      70.0
                                                                                                                                      1.00    70
 20%                                                                                                                                                                            69.0                  68.0
                                                                                                                                      0.95                   68.0                                                   66.0
                                                                                                                                              65
                                                                 % of Total (LHS)                                                     0.90
 19%                                                                                                                                               62.0
                                                                 Japan (RHS, trn USD)
                                                                                                                                      0.85    60
                                                                                                                                                                                                             59.0
 18%                                                                                                                                  0.80
                          Jul-11


                                            Nov-11




                                                                                Jul-12


                                                                                                  Nov-12
       Mar-11




                                                     Jan-12
                                                              Mar-12




                                                                                                           Jan-13
                                                                                                                    Mar-13
                                                                                                                             May-13
                 May-11




                                                                       May-12

                                                                                                                                              55
                                   Sep-11




                                                                                         Sep-12
                                                                                                                                               Dec-12     Jan-13    Feb-13   Mar-13    Apr-13     May-13     Jun-13

Source: CEIC, Nikkei, SEB


4) What should we look for in the upcoming Upper House election on July 21?

First, here is the election math. 121 seats or half of the 242 total seats in the Upper House are up for election on July 21. Prime
Minister Abe’s ruling coalition already has 58 seats and needs 63 seats to gain the majority. Abe’s LDP party has 49 seats and
a win of 72 seats would give his party the majority without relying on coalition partners. LDP already controls the lower house
and winning the upper house is crucial to take control of both houses and pass reforms.

Abe’s coalition party should have no problems winning the election on the 21st. He’s cabinet’s approval rating remains high at
59% even though it has fallen from the peak of 76% in April (Chart 4). To put things into perspective, the former DPJ
government lost the last election when its approval rating fell to 27% so Abe has a large cushion. In addition, in this election,
the opposition party’s inability to organize and poor rating make this election a sure win for Abe. Abe will have control of the
united government for 3 years.

The policy environment appears positive going forward but two main risks remain. One, Abe may shift his focus away from
economics to politics. Abe is known to have urges to adjust Japan’s view on historical issues and international relations.
Second, Abe has pushed back the timing of the consumption tax hike, which is a short term relief for the economy. Any
premature tightening of fiscal policy via tax hikes can quickly reverse the momentum in economic recovery and Bank of
Japan’s intentions of exiting deflation. The further the tax hike is pushed back, the better it is for the Yen weakening trade.

5) Is the short Yen trade over? What needs to happen to make Yen weaker from here?

The longer term view on a weaker Yen is straightforward. Fundamentally, growth in the US should recover faster than Japan and
makes USD more attractive than Yen. However, this longer term view is difficult to trade for shorter term players. We are looking for
the following to push Yen weaker from here.

First, continued stabilization in Europe will help Yen weakness. As mentioned above, one of the big inflows to Japan is in the money
market. A healthier European banking sector would slow these flows to Japan.

Second, we need to see clearer direction from the Fed. Typically, rise in US yields is negative Yen but this relationship is not holding
because Japan is already long US bonds and higher yields lead to selling USD and buying Yen. In addition, the rise in US yield is
hurting emerging markets and delays domestic institutions and retail from investing heavily abroad. Lastly, short term, end to US QE
would lead to deleveraging and speculators would need to cut their short Yen positions. Therefore, we don’t have a short Yen
position in our portfolio now and look for a flush out in positions before accumulating. USDJPY around 95 looks attractive to us.




                                                                                                                                                                                                                4
             Asia Strategy Focus




Asia FX View Summary
China (CNY, CNH)
Macro: The economy is slowing and we expect flat growth of 7.5% in 2013 and 2014. We see 3 drivers to the Chinese economy a)
external demand through exports b) domestic demand measured through construction and c) monetary policy. They are all
turning lower. First, exports have and will decelerate since they were elevated from likely over billing to take advantage of
RMB appreciation. Authorities have clamped this down and exports will decelerate. Also, PMIs remain weak where the Markit
flash PMI has been hovering around 50 for three straight months. Second, the biggest change we’ll likely see is in domestic
demand where our SEB China Construction Indicator has turned down (Chart 10), signalling a slowdown to come. Floor space
completed and sold are slowing, which means that inventory is beginning to rise and activity to slow. Lastly, we’ll likely get a
monetary contraction from rise in short term interest rates where the growth rate in bank credit and total social financing will
slow (Chart 11). The authorities are scrutinizing corporate bond issuances and limiting certain wealth management products
and this in midst of rising yields will slowdown growth (please see our China Tracker publication for more details).
FX: USDCNY fixing, set by the policymakers have finally started shifting higher with USD strength and Asian currency weakness. Hot
money inflows have slowed and will likely remain benign as the monetary tightening slowdown the rise in RMB denominated assets
like property. However, as noted above, China’s real rates have risen with US real rates and CNY should outperform in Asia. The
authorities are still keen on strengthening and reforming the domestic banking and financial sector and will keep the currency stable
when domestic situation becomes volatile. We think NDF will outperform CNH in a period of USD strength and global deleveraging
from higher US Treasury yields. CNH underlying performance such as bonds is weakening and with an open capital account for CNH
products, it will sell-off more than the fixing sensitive NDF market.

Chart 10: Construction rolling over                                Chart 11: Monetary tightening
  50        % yoy 3mma                                              2.0   RMB trn 3mma       New Total Financing
                               SEB China construction indicator
                                                                                             New Bank Lending
  40
                                                                    1.5
  30

  20                                                                1.0

  10
                                                                    0.5
   0

 -10                                                                0.0
                                                                          Jan-07
                                                                          May-07

                                                                          Jan-08
                                                                          May-08

                                                                          Jan-09
                                                                          May-09

                                                                          Jan-10
                                                                          May-10

                                                                          Jan-11
                                                                          May-11

                                                                          Jan-12
                                                                          May-12

                                                                          Jan-13
                                                                          May-13
                                                                          Sep-07



                                                                          Sep-08



                                                                          Sep-09



                                                                          Sep-10



                                                                          Sep-11



                                                                          Sep-12
 -20
       07        08      09        10     11        12        13

Source: Bloomberg, CEIC, SEB


Hong Kong (HKD)
We don’t like HKD and look to use it as a hedge for long Asian currency exposure. USDHKD is trading at the very bottom of the peg
at 7.75 and cannot get any stronger from a more positive macro environment. Hong Kong inherits US interest rate policy from the
peg to the USD and low rates have pushed up asset prices in Hong Kong. Rebound in China’s growth and return of CNY appreciation
has also helped Hong Kong.
However, there are risks that HKD can weaken. One, as the US economy recovers, expectations of increase in Fed’s balance sheet
can be curtailed and longer term yields may start to rise. The rise in rates through the peg will pressure Hong Kong rates to rise and
lower Hong Kong priced assets. Both of these will make HKD weaker. Furthermore, long USDHKD can act as hedge if China or
general global risk re-emerges. Long USDHKD is also a small positive carry hedge.




                                                                                                                      5
            Asia Strategy Focus



India (INR)
Macro: India is and has been about the current account deficit and inflation. Despite a slowdown in the domestic economy, imports
have not slowed enough and the current account deficit remains. Imports and the trade deficit remain high from populist policies
such as subsidize fuel prices that have prevent price responses on demand. In a world of volatile capital flows from troubles in
Europe and uncertainty in US monetary policy, current account deficit economies like India become vulnerable. That is the bad
news. The good news is that inflation has been coming down and with a steady monsoon season, WPI will remain in check.
FX: RBI has followed Brazil and Turkey and hiked the discount rate by 200bps to protect against capital outflow and constant
pressure on INR. This will remove liquidity and prevent speculative shorts on INR and make intervention by RBI more effective.
INR depreciation will take a breather. It also helps that US yields have stopped rising. However, going forward, the measures
don’t address India’s core issue of weak exports relative to its strong demand for oil and imports. Over the longer 12 month
timeframe, we think INR will have problems appreciating and see the current move as temporary.
Chart 12: No reprieve in trade deficit                                      Chart 13: India’s inflation easing
  10                                                                         12                                                                                   12
   8        bn USD                                                                      3mma y oy %
   6                                                                         10                                                                                   10
   4                                                                          8                                                                                   8
   2
   0                                                                          6                                                                                   6
  -2
  -4                                                                          4                                                                                   4
  -6                                                                          2                                                                                   2
  -8
 -10                                                                          0                                                                                   0
 -12                                                                          -2                                                                                  -2
 -14
 -16                                                                          -4                  US PPI                WPI India                                 -4
 -18                  Trade Balance
 -20                                                                          -6                                                                                  -6
                      ex oil
 -22                                                                               00   01   02   03   04   05   06   07   08   09   10     11     12    13
       05        06        07    08    09        10        11    12    13

Source: Bloomberg, CEIC, SEB


Indonesia (IDR)
Macro: The cyclical growth has likely peaked. Indonesia benefited from a clean balance sheet allowing for credit growth that
generated domestic demand (Chart 14). However, credit growth will slow as the central bank is forced to hike interest rates to
prevent capital outflow and rise in inflation from fuel price hikes by 44%. This combination of tighter policy and higher fuel prices is
positive long term but short term will crimp economic activity. Indonesia is likely taking the cue from India where combination of
subsidized fuel and current account deficit can lead to a sudden capital outflow and destabilize the economy. The second slowdown
will come in form of exports since China is going through monetary tightening. As a commodity exporter, the fall in prices and
quantity demanded will slow exports and the domestic investments that went into infrastructure associated with mining.

FX: The spot market, which was stable from central bank intervention but now it is slowly moving upwards with the NDF market.
NDF IDR weakened due to risk aversion and investors hedging their FX exposure of their bond holdings. The NDF now provides
attractive yields to go long IDR but we remain sidelined because of Chart 15. EM local currency bond index shows that year to date
as turned negative and almost erasing the gains from 2012. Redemption pressures are on the rise and investors may have sell the
underlying bonds than just hedge their FX exposure, which can hurt the spot market and lead to further sell-off in the NDF market.

Chart 14: Strong loan growth                                                Chart 15: EM bond redemption pressures on the rise
 45                                                                          125
                                      Loan growth % yoy
                                                                                                       Citi Rafi local currency bond index
 40
                                                                             120
 35
 30
                                                                             115
 25
 20                                                                          110
 15
 10                                                                          105

  5
                                                                             100
  0
                                                                               Jan-12        Apr-12     Jul-12    Oct-12    Jan-13        Apr-13        Jul-13
                                                            11

                                                                 12
                      05
      03




                                                                      13
                                 07
            04




                            06




                                      08

                                            09

                                                      10




Source: Bloomberg, CEIC, SEB




                                                                                                                                                              6
          Asia Strategy Focus



Korea (KRW)
Macro: If Mr. Bernanke is right and the US economy recovers, this should help Korea and exports. However, the domestic recovery
will be slower because of Korea’s high private debt. As Chart 16 shows, Korea has one of the highest private debt levels in the world.
The high debt is the result of relying on credit to sustain a high growth level. With everyone leveraged up, trend domestic growth will
likely fall since Korea has limited room to borrow and grow. In addition, Korea will likely have lower inflation. With less investment,
demand for funding will decrease and creates “excess” savings, which will drive interest rates lower. By identity, this should also
keep the current account surplus stable.
FX: KRW will face headwinds from relative rise in US yields. First, the bond inflows will slow since US yields are catching up to Korean
bonds. Second, Korea is also the most impacted by JPY weakness (from USD strength) since it competes head on in autos,
construction and ship building with the Japanese. Also, Bank of Korea won’t mind having a weaker currency since the
competitiveness with JPY won’t erode. The central bank as usual will be intervening in the markets to prevent rapid weakness in
KRW but it will not stop the general direction.
Chart 16: High private debt level                                                                                       Chart 17: Yield differential will weaken KRW
   200                                   debt % of GDP                                                                   3.0         US Korea 5 year yield spread 100bps

                                                                                Corp Debt                                2.5
   150
                                                                                Household Debt                           2.0
   100
                                                                                                                         1.5

    50                                                                                                                   1.0

                                                                                                                         0.5
     0
                                                                                                                         0.0
                                                                                      India



                                                                                                            Indonesia
                                         US
         Korea

                 Japan




                                              China



                                                                  Thailand

                                                                             Brazil
                                                      Singapore




                                                                                              Philippines
                         EU

                              Malaysia




                                                                                                                         -0.5
                                                                                                                                05       06     07     08     09     10    11   12   13

Source: CEIC, SEB

Malaysia (MYR)
Malaysia’s economy will go through a mild slowdown from fiscal contraction. PM Najib gave cash handouts to influence the latest
election and now those impacts will weigh on growth. We would also watch for him to pass unfavourable but positive long term
economic measures such as increase fuel prices, which are also negative short term. Over the medium term, we expect Najib to
continue with his liberalization plans and especially help the equity market. Malaysia’s equity market is often expensive since
domestic funds and public institutions buy and hold Malaysian stocks, which make foreigners reluctant to buy as it is over-priced and
discourages Malaysian companies from aggressively increase profitability. With domestic institutions divesting, that will force more
foreign inflows and should lead to more efficient Malaysian companies.
MYR will weaken with USD strength. Usually, MYR sell-off is limited because of its strong current account surplus but that is
changing as the trade surplus is rapidly diminishing from a strong domestic economy (imports) relative to exports. MYR can weaken
more than usual. Lastly, we are a bit worried if things like fuel price hikes are not passed since that can lead to a sell-off in the bond
market and foreign bond positioning in Malaysia is relatively high and can lead to foreigners selling.

Philippines (PHP)
Philippines had grabbed the attention of many investors from strong performance in the equity, bond and currency market. Low
inflation, abundant global liquidity and credit growth was helping domestic demand. Philippines has also recently received a rating
upgrade to investment grade by S&P and Fitch and becomes another support for PHP. We are worried short term about PHP since
interest rates are very low and unlike Indonesia, the central bank is not turning hawkish to prevent capital outflow.


Singapore (SGD)
Singapore looks to be turning better. Exports and growth have finally turned where 2Q GDP accelerated to 3.7%yoy from 0.2%.
Inflation has eased from over 5% in the middle of 2012 to below 2%. Inflation is mostly housing and autos (autos are inflated by
increased auction price to own a car) and for housing, more cooling measures have been introduced such as increasing stamp duty
on home purchases by 5-7 percentage points. Singapore’s inflation was outpacing its trading partners but it has converged (Chart
20). We think Singapore will join China and choose to sacrifice high growth for a stronger currency. Growth is recovering but will not
reach the previous levels of close to 10% and settle around 4-5%. Inflation has eased but will likely pick up since strict immigration
policies will keep underlying inflation in tact. SGD NEER has corrected and it is trading 80bp above mid. Once it starts to dip to mid,
we think there is value to enter into long SGD. Currently, it is still too early.




                                                                                                                                                                                      7
               Asia Strategy Focus




Chart 20: Singapore’s high inflation easing towards Asia avg                  Chart 21: SGD NEER has corrected but still strong
  8        CPI % yoy                                                            123                                                     SGD NEER
                                        Singapore              Asia Average     122
                                                                                121
  6
                                                                                120
                                                                                119
  4                                                                             118
                                                                                117
                                                                                116
  2                                                                             115
                                                                                114
  0                                                                             113
                                                                                112




                                                                                                   Feb-12
                                                                                          Jan-12

                                                                                                   Mar-12

                                                                                                            May-12




                                                                                                                                        Oct-12




                                                                                                                                                          Feb-13
                                                                                                                     Jun-12
                                                                                                                      Jul-12




                                                                                                                                        Nov-12
                                                                                                                                                 Dec-12
                                                                                                                                                          Jan-13

                                                                                                                                                          Mar-13


                                                                                                                                                                             May-13
                                                                                                                                                                             Jun-13
                                                                                                                                                                                      Jul-13
                                                                                                                               Sep-12
                                                                                                            Apr-12




                                                                                                                               Aug-12




                                                                                                                                                                    Apr-13
 -2
      08           09         10           11             12         13

Source: CEIC, Bloomberg, SEB

Taiwan (TWD)
Taiwan should benefit from an export recovery in the US heading into year end and the tech heavy equity market should receive
foreign inflow and the economy should continue to recover. Unlike Seoul, Korea, Taipei property prices are still growing around
8%yoy and credit growth is at 9.3%yoy. The domestic economy is strong considering exports are growing less than 1%yoy.

TWD has a two step appreciation process in a cycle. Appreciation at the beginning of the cycle is slow while inflation is low and
accelerates towards the end of the cycle once interest rate hikes are well underway. We think the approach will be similar this time
around. Inflation is currently running low (Chart 22) as the effects of a one time boost in energy prices in early 2012 wear off and
reduce the need for currency appreciation. In this environment of USD strength and capital outflow, TWD will weaken but relative to
other currencies such as KRW, we think TWD can outperform.

Thailand (THB)
Similar to Philippines, Thailand has caught investor interest from a stellar equity performance in 2013. This made sense since
Thailand was experiencing a) a V shaped recovery early in the year post the floods b) fiscal boost from a minimum wage hike and
reduction in the corporate tax rate to 23% from 30% and c) light foreign positioning since Thailand only started receiving flows post
the election of Prime Minister Yingluck Shinawatra in July 2011 that that removed the political uncertainty. However, the currency
has lagged the equity performance since the floods required increase in imports for reconstruction and hurt the trade balance and
periodically put Thailand in a current account deficit (Chart 23). Going forward, we think THB will be the more vulnerable currency in
the region since it has very little support from the current account and deleveraging can lead to capital outflow. We would change
our minds if the central bank started to sound more hawkish but that has yet to happen.

Chart 22: Taiwan: lower inflation = less TWD appreciation                     Chart 23: Thailand: trade balance will improve
  30                Credit% yoy 3mma                Taipei Property prices      70        % y oy 3mma                                                                bn USD              7
                                                                                60                                                                        Trade Balance (RHS)            6
  25
                                                                                50                                                                        Ex ports (LHS)                 5
  20                                                                            40                                                                        Imports (LHS)                  4
                                                                                30                                                                                                       3
  15
                                                                                20                                                                                                       2
  10                                                                            10                                                                                                       1
                                                                                 0                                                                                                       0
      5
                                                                               -10                                                                                                       -1
      0                                                                        -20                                                                                                       -2
  -5                                                                           -30                                                                                                       -3
                                                                               -40                                                                                                       -4
 -10
                                                                                     07                08            09          10          11               12             13
          06      07     08        09      10        11        12     13

Source: Bloomberg, CEIC, SEB




                                                                                                                                                                                  8
           Asia Strategy Focus




Asia FX Portfolio 2013
We have had a tough month in June and are down -1.4% for the year. All of our losses came in the JPY short correction where we
lost 2.4% in the portfolio (see Asia Strategy Comment: Japan: The Silent Treatment; June 13, 2013). On other Asian currencies, we
made gains being long USDMYR (+3.7%) and gained carry in being short USDCNH (+6bp).

We are looking to short JPY around 95 and look to put on relative value trades such as long CNY vs THB, long SGD vs MYR or PHP.
PHP is seasonally weak in August and become a candidate for short since it also has very little carry cost.

                                         Date of       Weight        Spot at        Fwd at                       Current Price at                 Date of             Weighted
Open Trades                               Entry        in PF          Entry          Entry       Target    Stop Spot Price Exit                    Exit     Profit*    Profit**

Closed Trades
Long MYR vs USD 1M NDF                 11-Jan-13 17%                 3.0165          3.021                                           3.06     28-Jan-13     -1.29%      -0.2%
Long KRW vs USD 1M NDF                 28-Jan-13 33%                 1087.5          1089                                          1103.2     14-Mar-13     -1.30%      -0.4%
Short JPYKRW                           14-Mar-13 33%                 11.532                                                         12.11      4-Apr-13     -5.01%      -1.7%
Long USDJPY                             4-Apr-13 33%                  92.91                                                         98.58     26-Apr-13      6.10%       2.0%
Short AUDUSD                           27-Mar-13 17%                 1.0484                                                        0.9985     13-May-13      4.76%       0.8%
Short USDINR 1M NDF                    13-May-13 33%                  54.94          55.20                                          56.17     23-May-13     -1.77%      -0.6%
Short USDINR 1M NDF                    16-Apr-13 33%                  54.44          54.67                                          56.20     23-May-13     -2.79%      -0.9%
Long USDMYR 1M NDF                     8-May-13 50%                   2.976          2.98                                           3.091      6-Jun-13      3.70%       1.9%
Long USDJPY                            21-May-13 33%                 102.45                                                           95      13-Jun-13     -7.27%      -2.4%
Short USDCNH 1M fwd                    21-May-13 166%                6.1268          6.138                                         6.1348     19-Jun-13     0.06%        0.1%
Year to Date Return 2013                                                                                                                                               -1.45%
*Profit is calculated as spot at entry to current spot plus carry. We are assuming that carry is earned evenly, every day for simplicity.
** Weighted Profit is the profit of the trade multiplied by the weight in the portfolio.


Monthly performance
Performance (%)
                   Jan          Feb           Mar           Apr           May              Jun       Jul       Aug           Sep            Oct       Nov      Dec       YTD
      2013       -0.19          0.17         -0.99          1.29         -0.87         -0.86                                                                           -1.45%




                                                                                                                                                                9
                Asia Strategy Focus




FX Tracker


Performance

What stands out? 1) The cyclical Korea and Taiwan are starting to outperform. They lagged the region over the last 12 months and
were likely the least crowded 2) Indonesia hiked interest rates and yields are rising much faster than the rest. We think it still has
further to rise. 3) Despite more stable yields, the 2s5s part of the yield curve is steepening. Short term rates can fall and rise from
Fed comments and US data but we think the longer yields will remain anchored since the Fed has pushed up term premium by
making QE exit a higher probability. Also, higher oil prices despite fall in other commodities may be keeping long end yields in check.

Chart 30: Currencies                                                                                            Chart 31: Equity markets
           (% v s USD)                                             1M change from 17/06 to 16/07                         (%)                                                                       1M return from 17/06 to 16/07
 3.5                                                                                                             14
 2.5                                                                                                             12
                                                                                                                 10
 1.5
                                                                                                                  8
 0.5                                                                                                              6
 (0.5)                                                                                                            4
 (1.5)                                                                                                            2
                                                                                                                  0
 (2.5)
                                                                                                                 (2)
 (3.5)
                                                                                                                 (4)
 (4.5)




                                                                                                                                                                                             HSI




                                                                                                                                                                                                                                        HSCEI
                                                                                                                                                                                                                                                SHCOMP
                                                                                                                                             TWSE




                                                                                                                                                                     STI

                                                                                                                                                                           KLCI




                                                                                                                                                                                                                                 JCI
                                                                                                                                     PCOMP


                                                                                                                                                    SENSEX
                                                                                                                                                              SPX




                                                                                                                                                                                                                  Kospi
                                                                                                                          Nikkei




                                                                                                                                                                                                                          SET
                                                                                                                                                                                   MSCIAxJ


                                                                                                                                                                                                    Euro Stoxx
 (5.5)
           DXY




                                              ADXY
                                CNH
                         TWD




                                                                               IDR
                                                            PHP
                                                                  THB
                  KRW




                                                      SGD




                                                                                            INR
                                                                                                    AUD
                                       CNY




                                                                                                          JPY
                                                                        MYR


                                                                                      EUR




Chart 32: 5 year rates                                                                                          Chart 33: 2 year rates
           (bp)                                                    1M change from 17/06 to 16/07                              (bp)                                                             1M change from 17/06 to 16/07
 180                                                                                                             140
 160                                                                                                             120
 140
                                                                                                                 100
 120
 100                                                                                                              80
  80                                                                                                              60
  60                                                                                                              40
  40                                                                                                              20
  20
                                                                                                                   0
   0
 (20)                                                                                                            (20)
                                                                                                                              IDR



                                                                                                                                                PHP
                                                                                                                                        INR




                                                                                                                                                                                                          KRW




                                                                                                                                                                                                                                       AUD
                                                                                                                                                                                                                      JPY
                                                                                                                                                                           MYR



                                                                                                                                                                                              UST




                                                                                                                                                                                                                                                Bunds
                                                                                                                                                                                    TWD
                                                                                                                                                                    THB
           IDR




                                                                                                                                                                                                                                SGD
                          PHP




                                                                                                                                                             CNY
                                                                                        KRW
                   INR




                                                                  AUD




                                                                                                          JPY
                                                     MYR




                                                                                                  Bunds
                                  UST




                                                                                 TWD
                                                                         THB
                                                            SGD
                                             CNY




Chart 34: 2 year 5 year slope                                                                                   Chart 35: Commodities
         (bp)                                                      1M change from 17/06 to 16/07                        (%)                                                                    1M change from 17/06 to 16/07
 40                                                                                                                6
                                                                                                                                      3.5
 35                                                                                                                4
 30                                                                                                                2
 25
                                                                                                                   0
 20
                                                                                                                  (2)
 15
                                                                                                                  (4)                                         -2.2
 10
                                                                                                                  (6)
  5                                                                                                                                                                                -5.2                           -5.2
                                                                                                                  (8)
  0                                                                                                                                                                                                                                     -7.6
 (5)                                                                                                             (10)
          IDR




                                                                                                                                   Oil brent                 Copper               Nat gas                        Palm oil              Gold
                  PHP




                                         AUD



                                                            INR




                                                                                        KRW



                                                                                                          JPY
                         UST




                                                     MYR




                                                                                                  Bunds
                                                                         TWD

                                                                                THB
                                 SGD




                                                                  CNY




Source: Bloomberg, SEB




                                                                                                                                                                                                                                             10
         Asia Strategy Focus




Forwards
Chart 41: 3 month implied carry annualized vs. 1 month ago vs USD                                                                         What stands out? Carry has settled
         (%)                                                                                                               (ppts)
                                                                                                                                          lower as USD strength fears subside with
 24                                                                                                                                 12    the exception of IDR.
 22                          7/16/2013                 6/17/2013      change ov er the last 1mth, (rhs)                             11
 20                                                                                                                                 10
 18                                                                                                                                 9     CNH carry has fallen in the short end as
 16                                                                                                                                 8     the liquidity crunch subsides but NDF
 14                                                                                                                                 7     yields remain high and hence we like NDF
 12                                                                                                                                 6
 10                                                                                                                                 5
                                                                                                                                          better than CNH currently.
  8                                                                                                                                 4
  6                                                                                                                                 3     INR’s 1M carry has collapsed with the
  4                                                                                                                                 2     interest rate hikes and looks too rich.
  2                                                                                                                                 1
  0                                                                                                                                 0
 (2)                                                                                                                                (1)   PHP’s negative carry makes it an attractive
                                                                                                                                          target for shorts.
        IDR




                                                                                                  HKD




                                                                                                                           TWD
                                                        THB




                                                                                                                PHP
                INR




                                      AUD

                                                 CNH




                                                                      KRW




                                                                                          SGD
                           CNY




                                                                                                         JPY
                                                                MYR




                                                                              EUR
Chart 42-1: CNH Outright                                               Chart 42-2: CNH forward fwd curve                                  Chart 42-3: CNH forward fwd curve ann.
 6.32                                                                   2.50        (%)                                                    3.5   (%)
                  Current (16-Jul )                                                             Current (16-Jul )
                  1-mth ago (17-Jun )                                   2.00                    1-mth ago (17-Jun )                        3.0
 6.27
                                                                                                                                           2.5
                                                                        1.50
 6.22                                                                                                                                      2.0
                                                                        1.00
                                                                                                                                           1.5           Current (16-Jul )
 6.17                                                                                                                                                    1-mth ago (17-Jun )
                                                                        0.50                                                               1.0
 6.12                                                                   0.00                                                               0.5
         Spot     1M         3M             6M         9M     12M                      1M          3M      6M         9M         12M                1M    3M      6M       9M      12M

Chart 43-1: CNY NDF Outright                                           Chart 43-2: CNY NDF fwd curve                                      Chart 43-3: CNY NDF fwd curve ann.
 6.30                                                                   2.0           ( %)                                                 4.0   ( %)
                                                                                                Current (16-Jul )                                                  Current (16-Jul )
                                                                                                                                           3.5
 6.25                                                                                           1-mth ago (17-Jun )                                                1-mth ago (17-Jun )
                                                                        1.5                                                                3.0
 6.20                                                                                                                                      2.5
                                                                        1.0                                                                2.0
 6.15                                                                                                                                      1.5
                                            Current (16-Jul )           0.5                                                                1.0
 6.10                                       1-mth ago (17-Jun )                                                                            0.5
 6.05                                                                   0.0                                                                0.0

         Spot     1M             3M         6M         9M      12M                    1M          3M       6M         9M         12M                1M    3M      6M       9M      12M

Chart 44-1: CNY Onshore Outright                                       Chart 44-2: CNY onshore fwd curve                                  Chart 44-3: CNY onshore fwd curve ann.

                                 Current (16-Jul )                      2.5    ( %)
                                                                                                 Current (16-Jul )                         5.0   (%)
 6.27
                                 1-mth ago (17-Jun )                                             1-mth ago (17-Jun )                                                Current (16-Jul )
                                                                        2.0                                                                4.0
 6.24                                                                                                                                                               1-mth ago (17-Jun )
                                                                        1.5                                                                3.0
 6.21

 6.18                                                                   1.0                                                                2.0

 6.15                                                                   0.5                                                                1.0

 6.12                                                                   0.0                                                                0.0

         Spot         1M         3M          6M         9M      12M                   1M          3M       6M         9M         12M                1M    3M       6M      9M      12M

Source: Bloomberg, SEB




                                                                                                                                                                     11
          Asia Strategy Focus




Chart 45-1: HKD Outright                                     Chart 45-2: HKD forward fwd curve                       Chart 45-3: HKD forward fwd curve ann.
 7.77                                                         0.00 ( %)                                                0.00      ( %)
                                       Current (16-Jul )
                                       1-mth ago (17-Jun )    -0.02
                                                              -0.04                                                   -0.05
 7.76
                                                              -0.06
                                                                                                                      -0.10
                                                              -0.08
 7.75
                                                              -0.10                                                   -0.15
                                                                                       Current (16-Jul )
                                                              -0.12                                                                                 Current (16-Jul )
                                                                                       1-mth ago (17-Jun )
 7.74                                                         -0.14                                                   -0.20                         1-mth ago (17-Jun )

          Spot         1M     3M        6M     9M     12M                    1M        3M      6M      9M     12M                       1M    3M    6M       9M         12M

Chart 46-1: IDR Outright                                     Chart 46-2: IDR forward fwd curve                       Chart 46-3: IDR forward fwd curve ann.
 11,500                                                       12.0 (%)               Current (16-Jul )                25.0 (%)
                                                                                     1-mth ago (17-Jun )                                            Current (16-Jul )
 11,000                                                       10.0                                                    20.0                          1-mth ago (17-Jun )
                                                               8.0
 10,500                                                                                                               15.0
                                                               6.0
 10,000                                                                                                               10.0
                                                               4.0
                                       Current (16-Jul )                                                               5.0
  9,500                                                        2.0
                                       1-mth ago (17-Jun )
  9,000                                                        0.0                                                     0.0
                Spot    1M        3M      6M    9M    12M                  1M         3M      6M       9M    12M                    1M        3M   6M       9M         12M

Chart 47-1: INR Outright                                     Chart 47-2: INR forward fwd curve                       Chart 47-3: INR forward fwd curve ann.
 65                    Current (16-Jul )                      7   (%)                                                 20     ( %)
                                                                                 Current (16-Jul )                                                 Current (16-Jul )
 63                    1-mth ago (17-Jun )                    6
                                                                                 1-mth ago (17-Jun )                  15                           1-mth ago (17-Jun )
 61                                                           5
                                                              4
 59                                                                                                                   10
                                                              3
 57
                                                              2                                                        5
 55
                                                              1
 53                                                           0                                                        0
         Spot      1M        3M        6M      9M    12M                1M          3M       6M        9M     12M                1M          3M    6M     9M       12M

Chart 48-1: KRW Outright                                     Chart 48-2: KRW forward fwd curve                       Chart 48-3: KRW forward fwd curve ann.
 1,145                                                        1.40        (%)                                         3.5    ( %)

 1,140                                                        1.20                                                    3.0                          Current (16-Jul )
 1,135                                                                                                                                             1-mth ago (17-Jun )
                                                              1.00                                                    2.5
 1,130
                                                              0.80                                                    2.0
 1,125
 1,120                                                        0.60                                                    1.5
 1,115                                 Current (16-Jul )      0.40                                                    1.0
                                                                                               Current (16-Jul )
 1,110                                 1-mth ago (17-Jun )    0.20                                                    0.5
                                                                                               1-mth ago (17-Jun )
 1,105                                                        0.00                                                    0.0
           Spot        1M     3M        6M     9M    12M                    1M        3M       6M      9M     12M                   1M       3M    6M      9M      12M


Source: Bloomberg, SEB




                                                                                                                                                    12
         Asia Strategy Focus



Chart 49-1: MYR Outright                                   Chart 49-2: MYR forward fwd curve                   Chart 49-3: MYR forward fwd curve ann.
 3.27             Current (16-Jul )                         2.5     (%)                                         4.0     ( %)
                  1-mth ago (17-Jun )                                            Current (16-Jul )              3.5                       Current (16-Jul )
 3.22                                                       2.0                  1-mth ago (17-Jun )                                      1-mth ago (17-Jun )
                                                                                                                3.0
 3.17                                                       1.5                                                 2.5
                                                                                                                2.0
 3.12                                                       1.0                                                 1.5
                                                            0.5                                                 1.0
 3.07
                                                                                                                0.5
 3.02                                                       0.0                                                 0.0
         Spot    1M      3M       6M      9M      12M                  1M        3M       6M       9M    12M               1M       3M    6M      9M      12M

Chart 50-1: PHP Outright                                   Chart 50-2: PHP forward fwd curve                   Chart 50-3: PHP forward fwd curve ann.
 43.6                                                       0.8     ( %)                                        1.0     (%)

                                                                                 Current (16-Jul )
 43.4                                                       0.6                                                 0.5
                                                                                 1-mth ago (17-Jun )
 43.2                                                                                                           0.0
                                                            0.4
 43.0                                                                                                           -0.5
                                                            0.2
 42.8                                                                                                           -1.0                      Current (16-Jul )
                              Current (16-Jul )
 42.6                                                       0.0                                                 -1.5                      1-mth ago (17-Jun )
                              1-mth ago (17-Jun )
 42.4                                                       -0.2                                                -2.0
         Spot    1M      3M      6M      9M       12M                      1M    3M       6M       9M    12M                   1M   3M    6M      9M      12M

Chart51-1: SGD Outright                                    Chart 51-2: SGD forward fwd curve                   Chart 51-3: SGD forward fwd curve ann.
 1.261                                                      0.00     ( %)
                                                                                                                 0.00    (%)



 1.259                                                      -0.02                                               -0.02                      Current (16-Jul )
                                                                                                                                           1-mth ago (17-Jun )
 1.256                                                      -0.04                                               -0.04

 1.253                                                      -0.06                                               -0.06

 1.251                                                      -0.08                  Current (16-Jul )            -0.08
                      Current (16-Jul )
                      1-mth ago (17-Jun )                                          1-mth ago (17-Jun )
 1.248                                                      -0.10                                               -0.10

          Spot    1M      3M        6M     9M        12M                    1M    3M      6M       9M    12M                   1M    3M    6M      9M         12M

Chart 52-1: THB Outright                                   Chart 52-2: THB forward fwd curve                   Chart 52-3: THB forward fwd curve ann.
 32.0                                                       2.0     ( %)          Current (16-Jul )             4.0     ( %)

                                                                                  1-mth ago (17-Jun )
                                                            1.5                                                 3.5                       Current (16-Jul )
 31.5
                                                                                                                3.0                       1-mth ago (17-Jun )
 31.0                                                       1.0
                                                                                                                2.5
 30.5                            Current (16-Jul )          0.5
                                                                                                                2.0
                                 1-mth ago (17-Jun )
 30.0                                                       0.0
                                                                                                                1.5
         Spot    1M      3M        6M      9M        12M               1M        3M      6M       9M     12M
                                                                                                                           1M       3M    6M      9M      12M


Source: Bloomberg, SEB




                                                                                                                                          13
         Asia Strategy Focus




Chart 53-1: TWD Outright                                 Chart 53-2: TWD forward fwd curve                       Chart 53-3: TWD forward fwd curve ann.
 30.0                                                     0.00    ( %)
                                                                                                                  0.0      (%)


                                                          -0.20
                                                                                                                  -0.5
 29.5
                                                          -0.40
                                                                                                                  -1.0
                                                          -0.60
 29.0
                                Current (16-Jul )                              Current (16-Jul )                  -1.5                        Current (16-Jul )
                                                          -0.80
                                1-mth ago (17-Jun )                            1-mth ago (17-Jun )                                            1-mth ago (17-Jun )
 28.5                                                     -1.00                                                   -2.0
         Spot    1M      3M       6M        9M    12M                    1M      3M      6M         9M    12M                    1M   3M      6M          9M   12M

Chart 54-1: EUR Outright                                 Chart 54-2: EUR forward fwd curve                       Chart 54-3: EUR forward fwd curve ann.
 1.340                                                    1.40      (%)                                           -0.10      (%)

                                                          1.20                                                    -0.12                       Current (16-Jul )
 1.330
                                                          1.00                                                    -0.14                       1-mth ago (17-Jun )
 1.320                                                    0.80                                                    -0.16
 1.310                                                    0.60                                                    -0.18
                                                          0.40                                                    -0.20
 1.300                          Current (16-Jul )                                        Current (16-Jul )
                                                          0.20                                                    -0.22
                                1-mth ago (17-Jun )                                      1-mth ago (17-Jun )
 1.290                                                    0.00                                                    -0.24
          Spot    1M      3M      6M        9M     12M                   1M     3M       6M         9M    12M                    1M   3M      6M          9M   12M

Chart 55-1: JPY Outright                                 Chart 55-2: JPY forward fwd curve                       Chart 55-3: JPY forward fwd curve ann.
 102.0                         Current (16-Jul )          0.0     ( %)
                                                                                                                  -0.1    ( %)

                               1-mth ago (17-Jun )                                                                -0.2
 100.0                                                    -0.1
                                                                                                                  -0.2
  98.0                                                    -0.2
                                                                                                                  -0.3
  96.0                                                    -0.3                                                    -0.3
                                                                                                                  -0.4
  94.0                                                    -0.4                Current (16-Jul )                                       Current (16-Jul )
                                                                                                                  -0.4
                                                          -0.5                1-mth ago (17-Jun )                                     1-mth ago (17-Jun )
  92.0                                                                                                            -0.5
          Spot   1M      3M     6M     9M    12M                         1M     3M      6M          9M    12M                    1M   3M      6M          9M   12M

Chart 55-1: AUD Outright                                 Chart 55-2: AUD forward fwd curve                       Chart 56-3: AUD forward fwd curve ann.
 0.96                                                     3.0     ( %)                                            3.0     ( %)
                                                                                Current (16-Jul )
 0.94                                                     2.5                                                     2.8
                                                                                1-mth ago (17-Jun )
                                                          2.0
 0.92                                                                                                             2.6
                                                          1.5
 0.90                                                                                                             2.4
                                                          1.0
                                                                                                                                              Current (16-Jul )
 0.88            Current (16-Jul )                                                                                2.2
                                                          0.5                                                                                 1-mth ago (17-Jun )
                 1-mth ago (17-Jun )
                                                          0.0                                                     2.0
 0.86
                                                                     1M         3M       6M          9M    12M               1M       3M     6M           9M   12M
         Spot    1M      3M     6M     9M        12M


Source: Bloomberg, SEB




                                                                                                                                             14
            Asia Strategy Focus




Volatility
Chart 60: 3 month annualized implied volatility                                                                                 What stands out? Vol is declining from
        (%)                                                                                                 (ppts)
                                                                                                                                more stable US yields but still rising in INR,
                                                                              7/16/2013
 16
                                                                              6/17/2013
                                                                                                                          8     AUD and EUR while JPY vol has fallen. JPY
 14                                                                           change ov er the last 1mth, (rhs)           7     vol will likely remain high from the large
 12                                                                                                                       6     speculative positions.
 10                                                                                                                       5
  8                                                                                                                       4
  6                                                                                                                       3
  4                                                                                                                       2
  2                                                                                                                       1
  0                                                                                                                       0
 (2)                                                                                                                      (1)
 (4)                                                                                                                      (2)




                                                                                                      CNH
                                    IDR




                                                                                               TWD
                                                                     PHP

                                                                               THB
                                             KRW
                    INR

                              AUD




                                                                                      SGD
           JPY




                                                                                                               CNY
                                                       EUR


                                                             MYR




Chart 61: CNH                                                      Chart 62: CNY NDF                                            Chart 63: HKD
 3.0                                                                2.5                   Implied            Realized            1.0                 Implied             Realized
 2.5                                                                2.0                                                          0.8
 2.0
                                                                    1.5                                                          0.6
 1.5
                                                                    1.0                                                          0.4
 1.0
 0.5                  Implied                 Realized              0.5                                                          0.2

 0.0                                                                0.0                                                          0.0
   Jul-12        Oct-12   Jan-13     Apr-13        Jul-13             Jul-12     Oct-12     Jan-13 Apr-13       Jul-13             Jul-12   Oct-12   Jan-13 Apr-13        Jul-13

Chart 64: IDR                                                      Chart 65: INR                                                Chart 66: KRW
 20                       Implied             Realized              14                                                           16            Implied               Realized
                                                                    12
 15                                                                 10                                                           12
                                                                     8
 10                                                                                                                               8
                                                                     6
                                                                     4
  5                                                                                                                               4
                                                                     2                Implied               Realized
                                                                     0                                                            0
  0
                                                                     Jul-12     Oct-12      Jan-13   Apr-13      Jul-13           Jul-12    Oct-12   Jan-13 Apr-13       Jul-13
  Jul-12         Oct-12   Jan-13    Apr-13         Jul-13

Chart 67: MYR                                                      Chart 68: PHP                                                Chart 69: SGD
 12                                                                 10               Implied                Realized             10
                    Implied               Realized                                                                                              Implied              Realized
                                                                     8                                                            8
  9
                                                                     6                                                            6
  6
                                                                     4                                                            4
  3                                                                  2                                                            2

  0                                                                  0                                                            0
  Jul-12         Oct-12   Jan-13 Apr-13         Jul-13               Jul-12     Oct-12      Jan-13   Apr-13     Jul-13            Jul-12    Oct-12   Jan-13     Apr-13    Jul-13

Source: Bloomberg, SEB




                                                                                                                                                           15
           Asia Strategy Focus



Chart 70: THB                                    Chart 71: TWD                                        Chart 72: EUR
 10              Implied            Realized      8              Implied                  Realized     12

  8
                                                  6                                                     9
  6
                                                  4                                                     6
  4

  2                                               2                                                     3           Implied              Realized

  0                                               0                                                     0
  Jul-12     Oct-12   Jan-13   Apr-13   Jul-13    Jul-12    Oct-12   Jan-13      Apr-13      Jul-13     Jul-12   Oct-12   Jan-13    Apr-13   Jul-13

Chart 73: JPY                                    Chart 74: AUD
 20                                               15

                                                  12
 15
                                                   9
 10
                                                   6
  5                                                3
               Implied             Realized                   Implied                 Realized
  0                                                0

  Jul-12     Oct-12   Jan-13   Apr-13   Jul-13     Jul-12   Oct-12      Jan-13   Apr-13      Jul-13


Source: Bloomberg, SEB




                                                                                                                                   16
         Asia Strategy Focus




Forecasts
FX                          Spot         3M      6M       9M      12M
USD/CNY                     6.13        6.11    6.10     6.08     6.07
USD/CNH                     6.14        6.11    6.10     6.08     6.07
USD/HKD                     7.76        7.80    7.80     7.80     7.80
USD/IDR                     9953       10150   10200    10200    10200
USD/INR                     60.2        60.0    61.5     61.5     61.0
USD/KRW                     1151       1175    1200     1200     1200
USD/MYR                     3.21        3.28    3.30     3.30     3.30
USD/PHP                     43.6        44.5    45.3     45.3     45.3
USD/SGD                     1.28        1.29    1.30     1.30     1.30
USD/THB                     31.4        32.0    32.5     32.5     32.5
USD/TWD                     30.1        30.4    30.8     30.8     30.8
EUR/USD                     1.28        1.26    1.24     1.22     1.20
USD/JPY                      101        105     108      112      115
EUR/SEK                     8.76        8.43    8.35     8.27     8.20
EUR/NOK                     8.02        7.70    7.65     7.57     7.50
USD/SEK                     6.83        6.68    6.73     6.78     6.83
USD/NOK                     6.26        6.10    6.17     6.20     6.25
AUD/USD                     0.91        0.92    0.91     0.89     0.88


Policy Rates               Current      3M      6M       9M      12M
CH lending                  6.00       6.00    6.00     6.25     6.25
CH deposit                  3.00       3.00    3.00     3.25     3.25
KR                          2.50       2.50    2.50     2.50     2.50
IN                          7.25       7.50    7.75     7.75     7.75
ID                          6.50       7.00    7.25     7.25     7.25
MA                          3.00       3.00    3.00     3.25     3.25
PH                          3.50       3.50    3.75     3.75     3.75
TH                          2.50       2.75    2.75     3.00     3.00
TW                          1.88       1.88    1.88     1.88     2.00

US                              0.25   0.25    0.25     0.25     0.25
EU                              0.50   0.25    0.25     0.25     0.25
SW                              1.00   1.00    1.00     1.00     1.00
NO                              1.50   1.50    1.50     1.50     1.75
AU                              2.75   2.75    2.75     2.75     2.75

Real GDP % yoy                  2011    2012    2013      2014
China                            9.3     7.8     7.5       7.5
India                            7.5     5.4     5.7       6.0
Indonesia                        6.5     6.2     6.0       6.0
Korea                            3.6     2.0     2.8       3.6
Singapore                        5.3     1.3     2.6       4.1

US                               1.8     2.2      2.0     3.2
Euro zone                        1.6    -0.6     -0.7     0.7
Sweden                           3.7     0.8      1.3     2.5
Norway                           1.2     3.1      1.7     2.4

CPI % yoy                       2011    2012    2013      2014
China                            3.3     3.5     3.3       3.5
India WPI                        9.5     6.5     5.9       6.5
Indonesia                        5.1     4.3     6.0       5.5
Korea                            2.9     2.2     2.6       2.6
Singapore                        2.8     4.5     3.3       3.5

US                               3.1     2.1      1.6     1.6
Euro zone                        2.7     2.5      1.4     0.9
Sweden                           3.0     0.9     -0.1     0.8
Norway                           1.2     0.8      1.5     1.7

Source: Bloomberg, CEIC, SEB.

                                                                         17
        Asia Strategy Focus




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