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Morgan Stanley -ASEAN Economics Powered By Docstoc
					September 2013

ASEAN ECONOMICS CHARTBOOK


ASEAN Economics                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                       ASIA/PACIFIC

What Do Cross-Currents of DM Recovery, Rising Real                                                                     Morgan Stanley Asia (Singapore) Pte.

Rates and China Slowdown Mean for ASEAN?                                                                               Deyi Tan
                                                                                                                       Deyi.Tan@morganstanley.com
                                                                                                                       +65 (6 ) 6834 6703




Indonesia: Still in Disequilibrium; Too Early to             Singapore: Lower Trend Growth, Somewhat
Turn Constructive                                            Higher Trend Inflation and a Less Easy Fed Policy
We believe real exchange rate needs to be 10%-15%            The economy continues to transition to a new normal
weaker from current levels and real interest rate need       of lower trend growth and somewhat higher trend
to rise to 2%. Such adjustments would help Indonesia         inflation, though the worst of the “stagflation-type”
to macro-rebalance to a more sustainable near-term           environment is likely behind it. A less easy Fed policy
equilibrium of lower cyclical growth, narrower CAD and       would likely take some wind out of the leverage cycle.
a less overvalued currency.

Malaysia: Not Quite in the Same Boat as Indonesia            Thailand: Next at Risk After Indonesia to Rising
                                                             Real Rate Trend
Malaysia does not face the same short-term funding
                                                             Weak current account balance, previously strong
squeeze as Indonesia does, in our view. The bigger
                                                             credit growth cycle and elevated LDR increase its
similarity is in terms of what lower commodity prices
                                                             vulnerability to the exogenous tightening from a less
would mean for their medium-term growth prospects.
                                                             easy Fed policy, which could constrain how
                                                             aggressive the fiscal policy stance in Thailand can be.




For important disclosures, refer to the Disclosures Section, located at the end of this report.
                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                                 ASEAN Chartbook
                                                                                                                                                    September 2013




Contents

Overview……………………………………………………………………………………………………………………………………………………………………………………..3
Indonesia.……………………………………………………………………………………………………………………………..……………………………………………………..9
Malaysia…………………………………………………………….….…………………………………………………………………………………………………………………...19
Singapore………………………………………………………………………………………….…….................................................................................................................27
Thailand……………………………………………………………………………………………………………………………………………………..………………………………36
Macroeconomic indicators…………………………………………………………………………………………………………………………………………………..…………..45




                                                                                                                                                                     2
                                                                                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                       ASEAN Chartbook
                                                                                                                                                                                                                                             September 2013




More Disparate Cross-Currents of Global Macro Forces: (1) “Twilight to Daylight” in DM
                         Global GDP Growth: EM vs DM                                                                 DM Economies: From “Twilight to Daylight”
    6.5

    5.5                                                                                 MS estimates     5

    4.5
                                                                                                         3
    3.5

    2.5                                                                                                  1

    1.5
                                                                                                        -1
    0.5
                                                                                                                                     US Real GDP growth (%YoY)
    -0.5
                                                                                                        -3                           Euro Area Real GDP growth (%YoY)
                  EM %-pt contribution to global GDP growth
    -1.5                                                                                                                             Global GDP growth (%YoY)
                  DM %-pt contribution to global GDP growth
    -2.5                                                                                                -5
                                                                                                2014E
           1990


                  1992


                         1994


                                1996


                                       1998


                                              2000


                                                     2002


                                                            2004


                                                                   2006


                                                                          2008


                                                                                 2010


                                                                                         2012




                                                                                                             19 96
                                                                                                                     19 97
                                                                                                                             19 98
                                                                                                                                     19 99
                                                                                                                                             20 00
                                                                                                                                                     20 01
                                                                                                                                                             20 02
                                                                                                                                                                     20 03
                                                                                                                                                                             20 04
                                                                                                                                                                                     20 05
                                                                                                                                                                                             20 06
                                                                                                                                                                                                     20 07
                                                                                                                                                                                                             20 08
                                                                                                                                                                                                                     20 09
                                                                                                                                                                                                                             20 10
                                                                                                                                                                                                                                     20 11
                                                                                                                                                                                                                                             20 12
                                                                                                                                                                                                                                                     20 13 E
                                                                                                                                                                                                                                                               20 14 E
                                                                                                                                                                                                                                                                         20 15 E
    Source: CEIC & Morgan Stanley Research; E=MS estimates                                              Source: CEIC & Morgan Stanley Research; E=MS estimates

    A more clouded outlook: Apart from idiosyncratic local factors, we think ASEAN economies face a more disparate cross-current of
     global macro forces, namely: (a) DM recovery; (b) rising real rates in US from expectations of less easy Fed policy and; (c) further
     China slowdown which would have implications not only on end-demand but also on commodity prices. (See ASEAN Economics:
     What Does A Cross-Current of DM Recovery, Rising Real Rates & China Slowdown Mean For ASEAN? Sep 3rd)
    “Twilight to daylight” in DM should buoy exports: DM growth looks set to accelerate, with US and Euro area registering
     1.6%/2.7%/2.6% and -0.5%/0.9%/1.2% for 2013/2014/2015 respectively, and the “twilight-to-daylight” call for DM economies stay
     according to script. ASEAN economies are some of the biggest export-oriented economies in AXJ and ASEAN export growth has
     been on a downtrend since 2010 peak. A rising DM tide should help lift the ASEAN exporters’ boat and lend some beta to the export
     growth cycle as we head into 2014.
                                                                                                                                                                                                                                                                                   3
                                                                                                                                                                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                         September 2013




(1) “Twilight to Daylight” in DM
                                         AXJ: Export Orientation                                                                                                                                                               Export Momentum
                                                                                                                                                               60%
    200   As at 2012                                             Exports (% of GDP) (LS)                                                                25                     %YoY, 3MMA (US$ terms)

    180                                                                                                                                                        50%
                                                                 Current account balance (% of GDP) (RS)                                                20
    160                                                                                                                                                        40%

    140                                                                                                                                                 15
                                                                                                                                                               30%
    120                                                                                                                                                 10     20%
    100
     80                                                                                                                                                 5      10%

     60                                                                                                                                                 0       0%

     40                                                                                                                                                        -10%
                                                                                                                                                        -5                                       Indonesia exports
     20                                                                                                                                                                                          Malaysia exports
                                                                                                                                                               -20%
      0                                                                                                                                                 -10                                      Singapore exports
                                                                                                                                                                                                 Singapore non-oil domestic exports
                                    M a la y s ia




                                                                                                                          P h ilip p in e s
                  S in g a p o re




                                                    T a iw a n




                                                                                  K o re a
          H ong




                                                                                             C h in a

                                                                                                        In d o n e s ia




                                                                                                                                              In d ia
                                                                  T h a ila n d
          Kong




                                                                                                                                                               -30%
                                                                                                                                                                                                 Thailand exports
                                                                                                                                                               -40%




                                                                                                                                                                      Jan-03
                                                                                                                                                                               Jul-03
                                                                                                                                                                                        Jan-04
                                                                                                                                                                                                  Jul-04
                                                                                                                                                                                                           Jan-05
                                                                                                                                                                                                                    Jul-05
                                                                                                                                                                                                                             Jan-06
                                                                                                                                                                                                                                      Jul-06
                                                                                                                                                                                                                                               Jan-07
                                                                                                                                                                                                                                                        Jul-07
                                                                                                                                                                                                                                                                 Jan-08
                                                                                                                                                                                                                                                                          Jul-08
                                                                                                                                                                                                                                                                                   Jan-09
                                                                                                                                                                                                                                                                                            Jul-09
                                                                                                                                                                                                                                                                                                     Jan-10
                                                                                                                                                                                                                                                                                                              Jul-10
                                                                                                                                                                                                                                                                                                                       Jan-11
                                                                                                                                                                                                                                                                                                                                Jul-11
                                                                                                                                                                                                                                                                                                                                         Jan-12
                                                                                                                                                                                                                                                                                                                                                  Jul-12
                                                                                                                                                                                                                                                                                                                                                           Jan-13
                                                                                                                                                                                                                                                                                                                                                                    Jul-13
    Source: CEIC & Morgan Stanley Research                                                                                                                    Source: CEIC & Morgan Stanley Research

    However, whilst trajectory is up, export recovery is likely to be more subdued than previous ones: This is due to two factors:
     (a) global growth is likely to be lower than before as Europe navigates a still frustratingly slow and fragile recovery and EM
     economies such as China, sees dimmer growth prospects. MS estimates global GDP growth at 2.9%/3.5%/3.7% respectively (vs 5%
     CAGR in 2004-2007); (b) our US economics team points out that the uptick in US is primarily driven by a significant pickup in
     business investment and residential investment, quite unlike the consumption boom which had driven ASEAN export cycle before.
     One could argue that ASEAN export segments e.g. electronics - PC & PC parts, office equipment & telcom products could still very
     well cater to the investment pickup to meet office demand. However, the same could not be said for segments such as electrical
     appliances, consumer electronics and autos. Moreover, Malaysia and Indonesia, the two largest net commodity exporter (as % of
     GDP) in AXJ, would also suffer from slower commodity exports amid the collateral impact from China slowdown as we would discuss
     in subsequent slides.
                                                                                                                                                                                                                                                                                                                                                                             4
                                                                                                                                                                                                                                                                  MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                   ASEAN Chartbook
                                                                                                                                                                                                                                                                                     September 2013




(2) Exogenous Tightening from Less Easy Fed Policy
                                                                                      Real rates                                                                                                                                      Leverage Cycle: 1998 vs Now

 8                                                                                                          Short-term real interest rates                                                                     200%       Increase in bank credit: 1992-1997
                                                                                                                                                                                                                                                                        % of GDP
                                                                                                                                                                                                                          Increase in bank credit: 2007-2012
                                                                                                                                 Indonesia                                      Malaysia                       180%                                                                       174%
 6                                                                                                                                                                                                                        Bank credit penetration: 1997
                                                                                                                                 Singapore                                      Thailand                                  Bank credit penetration: 2012                     161%
                                                                                                                                 US                                                                            160%
 4                                                                                                                                                                                                                                                  139%
                                                                                                                                                                                                               140%                                                                              135%
                                                                                                                                                                                                                                                           118%        123%
 2
                                                                                                                                                                                                               120%

 0                                                                                                                                                                                                             100%

                                                                                                                                                                                                               80%
                                                                                                                                                                                                                                                                                   76%
 -2
                                                                                                                                                                                                                              60%
                                                                                                                                                                                                               60%
 -4                                                                                                                                                                                                                                         41%                       33%                39%
                                                                                                                                                                                                               40%                    33%                          29%
 -6                                                                                                                                                                                                                   13%                         21%
                                                                                                                                                                                                               20%       8%
      M ar-94
                M ar-95
                          M ar-96
                                    M ar-97
                                              M ar-98
                                                        M ar-99
                                                                  M ar-00
                                                                            M ar-01
                                                                                      M ar-02
                                                                                                M ar-03
                                                                                                          M ar-04
                                                                                                                    M ar-05
                                                                                                                              M ar-06
                                                                                                                                        M ar-07
                                                                                                                                                  M ar-08
                                                                                                                                                            M ar-09
                                                                                                                                                                      M ar-10
                                                                                                                                                                                 M ar-11
                                                                                                                                                                                           M ar-12
                                                                                                                                                                                                     M ar-13    0%
                                                                                                                                                                                                                          Indonesia             Malaysia             Singapore        Thailand

 Source: CEIC & Morgan Stanley Research; real rates are calculated using CPI and                                                                                                                               Source: CEIC & Morgan Stanley Research; Note that bank credit penetration number for
 nominal 3M T-bill rate for ASEAN and policy rate for US.                                                                                                                                                      Singapore includes Housing development board loans

       Implications from rising US real rates: Expectations of less easy Fed policy and rising real rates in US have imposed exogenous
        tightening effects on ASEAN and this is likely to have implications on domestic demand to varying degrees.
       To be sure, we do not think this is a repeat of 1998: This is because, the credit cycle this time is smaller compared to the last
        which had taken place amid lax banking sector regulation and investment excesses. External debt (see next slide) was higher
        before the 1998 AFC amid pegged currency regimes which incentivise corporates to take unhedged foreign currency loans. Current
        account deficits (see next slide) and LDR ratios are mostly less stretched now and the foreign reserve cushion is more comfortable
        in most cases today, than in the last cycle. (See ASEAN Economics: Asia Insight: How Is This Leverage Cycle Different From The
        Last, Sep 12th)

                                                                                                                                                                                                                                                                                                        5
                                                                                                                                                                                                                                                                                                     MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                         ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                               September 2013




(2) Exogenous Tightening from Less Easy Fed Policy
                                         Current Account Balance Trends                                                                                                                                                                                           External Debt Ratios
    20%              Current account balance (4Q trailing sum, % of GDP)                                                                                                                                           30%   70%                                                                                External debt, % of GDP
                                                                                                                                                                                                                         65%
    15%
                                                                                                                                                                                                                   25%
                                                                                                                                                                                                                         60%
    10%                                                                                                                                                                                                                                                                                                                                 Indonesia
                                                                                                                                                                                                                   20%   55%
                                                                                                                                                                                                                                                                                                                                        Malaysia
     5%                                                                                                                                                                                                                  50%                                                                                                            Thailand
                                                                                                                                                                                                                   15%
                                                                                                                                                                                                                         45%
     0%
                                                                                                                                                                                                                         40%
                                                                                                                                                                                                                   10%
     -5%                                                                                                                                                                                                                 35%
                                                                                       Indonesia                                             Malaysia                                                              5%
    -10%                                                                                                                                                                                                                 30%
                                                                                       Thailand                                              Singapore (RS)
                                                                                                                                                                                                                         25%
    -15%                                                                                                                                                                                                           0%
                                                                                                                                                                                                                         20%
           M ar-94
                     M ar-95
                               M ar-96
                                         M ar-97
                                                   M ar-98
                                                             M ar-99
                                                                       M ar-00
                                                                                 M ar-01
                                                                                           M ar-02
                                                                                                     M ar-03
                                                                                                               M ar-04
                                                                                                                         M ar-05
                                                                                                                                   M ar-06
                                                                                                                                             M ar-07
                                                                                                                                                       M ar-08
                                                                                                                                                                 M ar-09
                                                                                                                                                                           M ar-10
                                                                                                                                                                                     M ar-11
                                                                                                                                                                                               M ar-12
                                                                                                                                                                                                         M ar-13




                                                                                                                                                                                                                               1994
                                                                                                                                                                                                                                      1995
                                                                                                                                                                                                                                             1996
                                                                                                                                                                                                                                                    1997
                                                                                                                                                                                                                                                           1998
                                                                                                                                                                                                                                                                  1999
                                                                                                                                                                                                                                                                         2000
                                                                                                                                                                                                                                                                                2001
                                                                                                                                                                                                                                                                                       2002
                                                                                                                                                                                                                                                                                              2003
                                                                                                                                                                                                                                                                                                     2004
                                                                                                                                                                                                                                                                                                            2005
                                                                                                                                                                                                                                                                                                                   2006
                                                                                                                                                                                                                                                                                                                          2007
                                                                                                                                                                                                                                                                                                                                 2008
                                                                                                                                                                                                                                                                                                                                        2009
                                                                                                                                                                                                                                                                                                                                               2010
                                                                                                                                                                                                                                                                                                                                                      2011
                                                                                                                                                                                                                                                                                                                                                             2012
                                                                                                                                                                                                                                                                                                                                                                    2013
    Source: CEIC & Morgan Stanley Research                                                                                                                                                                               Source: CEIC & Morgan Stanley Research
   Nonetheless, ASEAN will not be immune to this rise in real rates and reversal in carry trade: Bigger tightening pressures and
    growth impact would be felt in economies which have weak current account balances and which has seen strong credit growth and
    rising LDR amid depressed low real interest rates before. Indeed, we believe to the extent to which current account deficit economies
    do not have excess savings to fund their own domestic demand, the rise in real rates in US mean that real rates in these CAD
    economies not only need to rise in tandem but in fact, need to rise faster in order to attract liquidity and bring external imbalances to
    more sustainable levels.
    Indeed, such global developments are already causing “cash-flow” problems in Indonesia, leading to currency depreciation and policy
    rate hikes. We think Thailand looks next most at risk within ASEAN. Additionally in Singapore, although Fed is unlikely to start hiking
    policy rates until mid-2015, an end to the zero-interest rate policy which is now closer than it was before is already causing Singapore
    banks to start re-pricing longer tenure loans such as mortgages. Meanwhile, such exogenous tightening effects could also pose
    constraints for fiscal policies in Malaysia and Thailand as well.                                                                        6
                                                                                                                                                  MORGAN STANLEY RESEARCH
                                                                                                                                                                           ASEAN Chartbook
                                                                                                                                                                                 September 2013




(3) Further China Slowdown and Its Collateral Impact on Commodity Prices
          Who Has Bigger Trade Linkages with China?                                                China: % Share of World Commodity Demand

 18%                                                                    2012         10%   80          China's % Share of World Commodity Demand (2012)                                76

 16%                                   Exports to China (% of GDP)
                                                                                           70     64
                                                                                     8%
 14%                                   Trade balance with China (% of GDP) (RS)            60                                                                          53
                                                                                     6%                                                                50
 12%                                                                                       50                    46            45
                                                                                                                                           40
 10%                                                                                 4%    40                     35                         36
                                                                                                                                29                          30
     8%                                                                              2%    30       25
                                                                                                                                                                              21
     6%                                                                                    20                         12
                                                                                                                                    15        15                            15
                                                                                     0%                                               11                         12   11             12 11
                                                                                                         9                 9                       9         8
     4%                                                                                    10
                                                                                                             2                                                                               2
                                                                                     -2%
     2%                                                                                      0
     0%                                                                              -4%         Iron Ore Steel Aluminum Copper Coal                                       Oil         CPO
          Taiwan   Singapore   Korea   Malaysia     Thailand Philippines Indonesia                   China        ROW          Europe                                             US

 Source: CEIC & Morgan Stanley Research                                                    Source: World Bureau of Metals statistics, International Copper Study Group, BP Stats,
                                                                                           Wood Mackenzie Brook Hunt, Morgan Stanley Research

     Direct and indirect impact from China slowdown: Our China economist expects China GDP growth to slow further from 7.6%
      in 2013 to 7.1%/6.9% in 2014/2015. North Asian economies tend to have the largest trade linkages and the largest trade surplus
      with China and would be most directly impacted from a China slowdown. However, for ASEAN, there is also the indirect impact to
      consider i.e. the collateral impact that a China slowdown would have on commodity prices.
     China slowdown & collateral impact on commodity prices: China is either the world’s largest or a key consumer for several
      commodities such as iron ore, steel, aluminium, copper, oil, coal and CPO.



                                                                                                                                                                                                  7
                                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                                                                           ASEAN Chartbook
                                                                                                                                                                                                                September 2013




(3) Further China Slowdown and Its Collateral Impact on Commodity Prices
           China: % Share of Increase in Global Demand                                        AXJ: Who’s the Largest Net Commodity Exporter?
                                                                                            15%
     120       China's % Contribution to World Demand Increase              111                     2012 Trade Balance (% of GDP)
                               106                                                          10%
                                         98
     100                                                                                     5%
                                                                                             0%
     80
                                                                                            -5%
                      64
                                                    59                                     -10%
     60                                                          53
                                                                                           -15%

     40                                                                                    -20%




                                                                                                                                                                                                                                    M a la y s ia
                                                                                                                                                                            P h ilip p in e s
                                                                                                    K o re a


                                                                                                               T a iw a n




                                                                                                                                                     In d ia


                                                                                                                                                                 C h in a




                                                                                                                                                                                                                  In d o n e s ia
                                                                                                                            Hong


                                                                                                                                   S in g a p o re




                                                                                                                                                                                                T h a ila n d
                                                                                                                            Kong
     20


      0
                                                                                                    Food and live animals                                                   Beverages and tobacco
                                             2012
                                                                                                    Crude materials                                                         Mineral fuels and lubricants
           Copper     Iron Ore       Aluminium           Steel        Oil         Coal
                                                                                                    Animal and vegetable oils and fats                                      All Commodities

 Source: World Bureau of Metals statistics, International Copper Study Group, BP Stats,   Source: CEIC & Morgan Stanley Research
 Wood Mackenzie Brook Hunt, Morgan Stanley Research

      ASEAN net commodity exporters would be impacted: China also accounts for more than 50% of the increase for many of
       these commodities. To that point, we note that Malaysia and Indonesia are the two largest net commodity exporters (% of GDP) in
       AXJ. The reversal in commodity supercycle has already led Indonesia to see its most persistent stretch of current account deficit
       since 1998 and Malaysia’s current account surplus to fall from double-digit territory in 2011 to 1.1% of GDP (quarterly annualised)
       in 2Q13. Continually soft or falling commodity prices would mean poor or poorer terms-of-trade for the commodity exporters.
      In a nutshell: Amid this global context, we think the Indonesia economy is still in disequilibrium and it’s too early to turn
       constructive. Thailand is next at risk after Indonesia to the rising real rate trend. We do not think Malaysia is not quite in the same
       boat as Indonesia. Meanwhile, in Singapore, the transition to a new normal of lower growth and somewhat higher inflation
       continues. Overall, we believe growth risks are still skewed to the downside.
                                                                                                                                                                                                                                                    8
                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                          ASEAN Chartbook
                                                                                                                                            September 2013




Indonesia: Still in Disequilibrium; Too Early to Turn Constructive
Topics        Our Comments
MS vs.           We forecast GDP growth at 5.6%/ 5.1%/5.5% for 2013/2014/2015. Consensus (for September) stands at 5.7%/ 5.9% for 2013/2014.
consensus
What’s the     Policy response triggered; but macro rebalancing process not over
story?        We have been highlighting that the uncomfortable current account deficit (CAD) and strong domestic demand in Indonesia do not go
              hand-in-hand with a stable IDR – we called this the “Impossible Trio”. Amid expectations of less easy Fed policy, the “Impossible Trio” is
              coming undone and forcing policymakers’ hand in undertaking policy rate hikes. Despite the policy response so far, we think the economy
              is still in a state of disequilibrium. It’s too early to turn constructive and more policy adjustment is required to take Indonesia to a more
              sustainable near-term equilibrium of lower cyclical growth, narrower CAD & less overvalued IDR.

               More currency & interest rate adjustment needed
              There needs to be two rounds of currency adjustment. Despite the IDR/USD depreciation seen so far, the real exchange rate has
              adjusted lesser & needs to depreciate by another ~10%-15% to get it out of overvalued territory. Thereafter, we believe policymakers
              need to keep real exchange rate stable in order not to erode competitiveness in non-commodity segments. To the extent that Indonesia’s
              inflation is higher than its trading partners, policymakers would need to engineer a steady nominal depreciation rate each year.

              Meanwhile, as US real rates rise, real interest rate in economies with CAD, not only need to keep in tandem but in fact need to rise faster
              to attract liquidity and to manage external imbalances. We think Indonesia policymakers should, for starters, bring short-term real rates
              up to 2%, i.e. 8.5% nominal short-term interest rate on a normalised inflation of 6.5%. However, in predicting what BI “would” do (as
              opposed to what they “should” do), we are expecting policymakers to take policy rates up to 7.75% by 2013 year-end. In our view, if BI
              lags on policy rate hikes, policy rate would become increasingly irrelevant. This is because the process of FX intervention would cause
              domestic liquidity conditions to tighten and lead market oriented interest rate to edge higher anyway. As it is, market-oriented interest rate
              have increased to a bigger extent compared to policy rate. Overall, as these policy adjustments unfold, it is inevitable that there would
              macro pain in the form of a growth slowdown into 2014. We think growth risks are still skewed to the downside.

               Increased urgency for structural reform 2.0; Next election more important than the last
              External dampeners such as China slowdown and its collateral impact on commodity prices means that structural growth story in
              Indonesia can no longer be seen in the same light. We believe there is an increased urgency to undertake structural reform 2.0 to offset
              the growth negatives inflicted by these exogenous factors. Otherwise, Indonesia would face lower growth and macro stability risks.
Key risks &    The following factors would have implications for the extent of adjustment needed on policy rate and currency: (a) The extent of
where we      improvement in US economy and its implications for US real interest rate; (b) China growth story and the collateral impact on commodity
could go      prices. Idiosyncratic risks would stem from domestic policy response/policy mistakes.
wrong?
                                                                                                                                                             9
                                                                                                                                                                                                                                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                                                                                     ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                                                                              September 2013




Indonesia: “Impossible Trio” of 6% Growth, 2.5% CAD and Stable IDR Coming Undone
                              The “Impossible Trio” of High Growth,
                                     Uncomfortable CAD….                                                                                                                                                                                                                                        ….And A Stable IDR
    8%                                                                                                                                                                                                                                                AXJ/USD (Indexed 1 Sep 2011=100)
                                                                                                                                                                                                                                    145
                                                                                                                                                                                                                                                                                                  Korea                                        Indonesia
    6%                                                                                                                                                                                                                                                                                            Singapore                                    Taiwan




                                                                                                                                                                                                                     Depreciation
                                                                                                                                                                                                                                                                                                  India                                        Thailand
                                                                                                                                                                                                                                    135                                                           Malaysia                                     Philippines
    4%                                                                                                                                                                                                                                                                                            China


    2%
                                                                                                                                                                                                                                    125


    0%
                                                                                                                                                                                                                                    115
    -2%




                                                                                                                                                                                                                     Appreciation
    -4%                                                                                                                                                                                                                             105
                                                                       Current account balance (Quarterly annualised, % of GDP)

    -6%                                                                Current account balance (4Q trailing sum, % of GDP)
                                                                                                                                                                                                                                    95
          D ec-93
                    D ec-94
                               D ec-95
                                         D ec-96
                                                   D ec-97
                                                             D ec-98
                                                                        D ec-99
                                                                                  D ec-00
                                                                                            D ec-01
                                                                                                      D ec-02
                                                                                                                D ec-03
                                                                                                                          D ec-04
                                                                                                                                    D ec-05
                                                                                                                                              D ec-06
                                                                                                                                                        D ec-07
                                                                                                                                                                  D ec-08
                                                                                                                                                                            D ec-09
                                                                                                                                                                                      D ec-10
                                                                                                                                                                                                D ec-11
                                                                                                                                                                                                          D ec-12




                                                                                                                                                                                                                                                                                                                  May-12




                                                                                                                                                                                                                                                                                                                                                                                                                              May-13
                                                                                                                                                                                                                                                            Nov-11




                                                                                                                                                                                                                                                                                                                                                                        Nov-12
                                                                                                                                                                                                                                                   Oct-11


                                                                                                                                                                                                                                                                     Dec-11
                                                                                                                                                                                                                                                                              Jan-12
                                                                                                                                                                                                                                                                                       Feb-12
                                                                                                                                                                                                                                                                                                Mar-12




                                                                                                                                                                                                                                                                                                                                                               Oct-12


                                                                                                                                                                                                                                                                                                                                                                                 Dec-12
                                                                                                                                                                                                                                                                                                                                                                                          Jan-13
                                                                                                                                                                                                                                                                                                                                                                                                   Feb-13
                                                                                                                                                                                                                                                                                                                                                                                                            Mar-13



                                                                                                                                                                                                                                                                                                                                                                                                                                       Jun-13
                                                                                                                                                                                                                                          Sep-11




                                                                                                                                                                                                                                                                                                         Apr-12


                                                                                                                                                                                                                                                                                                                           Jun-12
                                                                                                                                                                                                                                                                                                                                    Jul-12
                                                                                                                                                                                                                                                                                                                                             Aug-12
                                                                                                                                                                                                                                                                                                                                                      Sep-12




                                                                                                                                                                                                                                                                                                                                                                                                                     Apr-13



                                                                                                                                                                                                                                                                                                                                                                                                                                                Jul-13
                                                                                                                                                                                                                                                                                                                                                                                                                                                         Aug-13
                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Sep-13
    Source: CEIC & Morgan Stanley Research                                                                                                                                                                          Source: Bloomberg & Morgan Stanley Research

    “Impossible Trio” comes undone as…: We have highlighted for a while that Indonesia’s uncomfortable current account deficit and
     still healthy domestic demand do not go hand-in-hand with a stable IDR – we called this the “Impossible Trio”. Macro stability is not in
     the hands of policymakers given the uncomfortable external imbalances & dependence on external funding and further policy
     tightening and currency depreciation are required to bring Indonesia to a more sustainable near-term equilibrium of lower cyclical
     growth, narrower CAD and a less overvalued currency.
    …Global developments exposed macro vulnerability: Indeed, expectations of QE taper and rising real rates in US since late May
     have exposed this macro vulnerability and forced policymakers’ hand in undertaking retail fuel price hike and a cumulative policy rate
     hike of 150bps since June. The reversal in carry trade has also led IDR/USD to depreciate by 16% ytd, even after policymakers spent
     US$20bn in foreign reserves, of which US$12bn happened since May-13.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                           10
                                                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                                                                             ASEAN Chartbook
                                                                                                                                                                               September 2013




Indonesia: Policy Adjustment Triggered, but Macro Rebalancing Process Is Not Over
      China Slowdown & Implications on Commodity
                Price Important to Watch                                                      Govt Securities: Foreign ownership & Long Yields
                                                                       Impact from      37%                          Foreign ownership of SBN (% of total outstanding), LS                   4.7
                                                                        10% chg in                                   Indonesia 10-yr bond yield (in reverse scale), RS
                                                                         respective
                                                                                                36.0%
                                                                        commodity       36%                                                                                          30.5%   5.2
                                                                          prices, all
                      4Q12    1Q13    2Q13     4Q12    1Q13    2Q13      else equal
                                                                                        35%
 Commodity                                                                                                                                                                                   5.7
 related trade       quarterly annualised, %    US$bn, quarterly
 balance                     of GDP                annualised            % of GDP       34%
 Crude rubber,         0.5%     0.4%    0.2%     4.6    3.6      1.6        0.02%                                                                                                            6.2
 metalliferous
 ores/metal                                                                             33%
 scraps, iron &                                                                                                                                                                              6.7
 steel & non-
 ferrous metals                                                                         32%                               28.3%
                                                                                                                                                                                             7.2
 Mineral fuels &       3.0%    2.9%    2.9%    26.4    25.6    25.5          0.29%      31%
 lubricants - Coal
                                                                                                                                                                                             7.7
                                                                                        30%
 Mineral fuels &      -3.1%   -3.2%   -2.8%    -27.0   -28.3   -24.7        -0.28%
 lubricants -                                                                                                                                                                                8.2
 Petroleum &                                                                            29%
 petroleum pdts

                                                                                        28%                                                                                                  8.7
 Mineral fuels &       1.6%    1.7%    1.7%    14.0    15.1    15.2          0.17%
 lubricants -
 Natural gas
                                                                                        27%                                                                                                  9.2




                                                                                              M ay-12




                                                                                              M ay-13
                                                                                              N ov-11




                                                                                              N ov-12
                                                                                              A ug-11
                                                                                              S ep-11
                                                                                              O ct-11



                                                                                              Jan-12
                                                                                              Feb-12
                                                                                              M ar-12



                                                                                              Jun-12
                                                                                               Jul-12
                                                                                              A ug-12
                                                                                              S ep-12
                                                                                              O ct-12




                                                                                              Feb-13
                                                                                              M ar-13




                                                                                              A ug-13
                                                                                              S ep-13
                                                                                              D ec-11




                                                                                              A pr-12




                                                                                              D ec-12
                                                                                              Jan-13



                                                                                              A pr-13

                                                                                              Jun-13
                                                                                               Jul-13
 Animal/               2.4%    2.2%    2.2%    21.4    19.8    19.5          0.22%
 Vegetable oils &
 fats (CPO)


 Total                 4.5%    4.0%   4.2%     39.4    35.7    37.1          0.42%

 Source: CEIC & Morgan Stanley Research                                                 Source: DMO, Bloomberg & Morgan Stanley Research


    Macro adjustment process not over: Although the policy response has been triggered, we believe the macro rebalancing
     process is not over yet and it is still too early to turn constructive on the economy. The confluence of: (a) the longest stretch of
     CAD since 1998, courtesy of the commodity supercycle reversal; (b) uncertainty with regards to China’s growth story and the
     collateral impact that may have on commodity prices and; (c) market adjustments to a less easy Fed policy, are risk factors to
     watch, with regards to the extent of interest rate tightening and currency depreciation required to take the economy to a more
     sustainable equilibrium by driving a growth deceleration in domestic demand and forcing current account deficit to a narrower
     level. Downside risks on these fronts would introduce risks of a sharper policy adjustment within a compressed time-span.
     Overall, growth risks are still skewed to the downside in our view.


                                                                                                                                                                                               11
                                                                                                                                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                           ASEAN Chartbook
                                                                                                                                                                                                                                                                                September 2013




Indonesia: More Needed on Currency Adjustment
                   Real Exchange Rate Has Adjusted To Lesser Extent                                                                                                                               “Fragile Five” Currencies
                   140                                                                                                                                                     Real effective exchange rate (Indexed 2000=100)
                                                               IDR NEER
                                                               IDR REER                                                                                     160
                   130
                                                               IDR/USD                                                                                                                 Brazil                              Indonesia
Appreciation




                   120                                                                                                                                                                 South Africa                        Turkey
                                                                                                                                                            140
                                                                                                                                                                                       India
                   110

                   100                                                                                                                                      120


                   90
                                                                                                                                                            100
Depreciation




                   80

                   70                                                                                                                                        80

                   60
                                  Indexed Jan-2000=100
                                                                                                                                                             60
                   50




                                                                                                                                                                  Jan-00

                                                                                                                                                                              Jan-01

                                                                                                                                                                                       Jan-02

                                                                                                                                                                                                Jan-03

                                                                                                                                                                                                         Jan-04

                                                                                                                                                                                                                  Jan-05

                                                                                                                                                                                                                              Jan-06

                                                                                                                                                                                                                                       Jan-07

                                                                                                                                                                                                                                                Jan-08

                                                                                                                                                                                                                                                         Jan-09

                                                                                                                                                                                                                                                                  Jan-10

                                                                                                                                                                                                                                                                            Jan-11

                                                                                                                                                                                                                                                                                     Jan-12

                                                                                                                                                                                                                                                                                              Jan-13
                         Jan-00

                                    Jan-01

                                             Jan-02

                                                      Jan-03

                                                                 Jan-04

                                                                          Jan-05

                                                                                   Jan-06

                                                                                            Jan-07

                                                                                                     Jan-08

                                                                                                              Jan-09

                                                                                                                       Jan-10

                                                                                                                                Jan-11

                                                                                                                                         Jan-12

                                                                                                                                                  Jan-13




          Source: CEIC & Morgan Stanley Research                                                                                                           Source: CEIC & Morgan Stanley Research


                   Currency adjustment far from over: The still incomplete currency adjustment process is a reason why we believe it is still too
                    early to turn constructive on Indonesia. Although the IDR/USD has depreciated by 6% between Dec-12 & Jul-13 and by 18%
                    from the strength in Aug-11 vs July-13, the real effective exchange rate (REER), the more relevant indicator to watch, has
                    appreciated by 6% between Dec-12 and Jul-13. Meanwhile, it has only marginally depreciated by -0.5% between Aug-11 and Jul-
                    13. This is because Indonesia’s inflation tends to be higher compared to its trading partners and other nominal currency pairs
                    have depreciated to a lesser extent.




                                                                                                                                                                                                                                                                                                       12
                                                                                                                                                                                                                                                                           MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                 ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                          September 2013




Indonesia: More Needed on Currency Adjustment
                                                                                                                                                                          Non-commodity CAB had deteriorated amid REER
                   IDR Had Behaved Like a Commodity Currency                                                                                                                             Appreciation
                                                                                                                                                                  -2%                                                                                                                                                                                       40
    600                                                                                                                                     105

    550                                                                                                                                     100                                                                                                                                                                                                             50
                                                                                                                                                                  -3%




                                                                                                                                                 Appreciation




                                                                                                                                                                                                                                                                                                                                                                  Depreciation
    500
                                                                                                                                            95                                                                                                                                                                                                              60
                                                                                                                                                                  -4%
    450
                                                                                                                                            90
                                                                                                                                                                                                                                                                                                                                                            70
    400
                                                                                                                                                                  -5%
                                                                                                                                            85
    350                                                                                                                                                                                                                                                                                                                                                     80




                                                                                                                                                 Depreciation
                                                                                                                                            80
                                                                                                                                                                  -6%
    300
                                                                                                                                                                                                                                                                                                                                                            90




                                                                                                                                                                                                                                                                                                                                                                  Appreciation
                                                                                                                                            75
    250                                                                   CRB Commodity Index (LS)
                                                                                                                                                                  -7%
                                                                          Indonesia REER (2010=100) (RS)                                    70                                                                                                                                                                                                              100
    200                                                                                                                                                                                                                                   CAB less commodities trade balance
                                                                                                                                                                                                                                          (4Q trailing sum, % of GDP)
    150                                                                                                                                     65                    -8%
                                                                                                                                                                                                                                          REER (2010=100)                                                                                                   110

    100                                                                                                                                     60
                                                                                                                                                                  -9%                                                                                                                                                                                       120
          Jan-00

                    Jan-01

                             Jan-02

                                      Jan-03

                                               Jan-04

                                                        Jan-05

                                                                 Jan-06

                                                                             Jan-07

                                                                                      Jan-08

                                                                                               Jan-09

                                                                                                        Jan-10

                                                                                                                 Jan-11

                                                                                                                          Jan-12

                                                                                                                                   Jan-13




                                                                                                                                                                        Dec-93

                                                                                                                                                                                 Dec-94

                                                                                                                                                                                          Dec-95

                                                                                                                                                                                                   Dec-96

                                                                                                                                                                                                            Dec-97

                                                                                                                                                                                                                     Dec-98

                                                                                                                                                                                                                              Dec-99

                                                                                                                                                                                                                                       Dec-00

                                                                                                                                                                                                                                                Dec-01

                                                                                                                                                                                                                                                         Dec-02

                                                                                                                                                                                                                                                                  Dec-03

                                                                                                                                                                                                                                                                           Dec-04

                                                                                                                                                                                                                                                                                    Dec-05

                                                                                                                                                                                                                                                                                             Dec-06

                                                                                                                                                                                                                                                                                                      Dec-07

                                                                                                                                                                                                                                                                                                               Dec-08

                                                                                                                                                                                                                                                                                                                        Dec-09

                                                                                                                                                                                                                                                                                                                                 Dec-10

                                                                                                                                                                                                                                                                                                                                          Dec-11

                                                                                                                                                                                                                                                                                                                                                   Dec-12
    Source: CEIC & Morgan Stanley Research                                                                                                                      Source: CEIC & Morgan Stanley Research

    There needs to be two rounds of currency adjustment, in our view: The first phase of currency adjustment is to correct for what
     looks like an overvalued currency amid the persistent CAD & the lower new normal in commodity prices. Indeed, the IDR had
     behaved like a commodity currency. The REER had appreciated amid the commodity supercycle in past years and the non-
     commodity current account balance had deteriorated as a result. Hence, to account for the lower new normal in commodity prices, to
     restore competitiveness in the non-commodity segments and get CAD to a more comfortable level, we believe REER still needs to
     depreciate by ~10%-15% from current levels.
    Once this overvaluation is corrected, we believe the second phase of currency adjustment would involve keeping real
     exchange rate stable so as not to again weaken competitiveness in non-commodity segments. This can be achieved either by
     raising productivity and hence lowering inflation or by engineering a steady rate of nominal FX depreciation to account for Indonesia’s
     inflation differentials.
                                                                                                                                                                                                                                                                                                                                                                                 13
                                                                                                                                                                                                                                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                                                              ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                                                    September 2013




Indonesia: Less FX Ammunition to Defend the Currency
                                                                                  Foreign Reserves                                                                                                                                               Foreign reserve: Number of Months of Import cover
                                                                                                                                                                                                                                                 14
 140
                                                                                                                                                                                                                                                 13

 120                                                                                                                                                                                                                                             12
                                                          Foreign reserves (US$bn)
                                                                                                                                                                                                                                                 11

 100                                                                                                                                                                                                                                             10
                                                          Foreign reserves less predetermined short-                                                                                                                                              9
     80                                                   tern net drains (US$bn)
                                                                                                                                                                                                                                                  8

                                                                                                                                                                                                                                                  7                                                                                                                                                                                5.8
     60
                                                                                                                                                                                                                                                  6

                                                                                                                                                                                                                                                  5
     40                                                                                                                                                                                                                                                                                                                                                                                                                            4.9
                                                                                                                                                                                                                                                  4

     20                                                                                                                                                                                                                                           3




                                                                                                                                                                                                                                                      Jan-95

                                                                                                                                                                                                                                                               Jan-96

                                                                                                                                                                                                                                                                         Jan-97

                                                                                                                                                                                                                                                                                  Jan-98

                                                                                                                                                                                                                                                                                           Jan-99

                                                                                                                                                                                                                                                                                                    Jan-00

                                                                                                                                                                                                                                                                                                             Jan-01

                                                                                                                                                                                                                                                                                                                      Jan-02

                                                                                                                                                                                                                                                                                                                               Jan-03

                                                                                                                                                                                                                                                                                                                                        Jan-04

                                                                                                                                                                                                                                                                                                                                                 Jan-05

                                                                                                                                                                                                                                                                                                                                                          Jan-06

                                                                                                                                                                                                                                                                                                                                                                   Jan-07

                                                                                                                                                                                                                                                                                                                                                                            Jan-08

                                                                                                                                                                                                                                                                                                                                                                                     Jan-09

                                                                                                                                                                                                                                                                                                                                                                                               Jan-10

                                                                                                                                                                                                                                                                                                                                                                                                        Jan-11

                                                                                                                                                                                                                                                                                                                                                                                                                 Jan-12

                                                                                                                                                                                                                                                                                                                                                                                                                          Jan-13
     0
                                                                                                                                                                                                                                                                        Foreign reserves: Number of months of import cover
          Ja n -9 5
                      Ja n -9 6
                                  Ja n -9 7
                                              Ja n -9 8
                                                          Ja n -9 9
                                                                      Ja n -0 0
                                                                                  Ja n -0 1
                                                                                              Ja n -0 2
                                                                                                          Ja n -0 3
                                                                                                                      Ja n -0 4
                                                                                                                                  Ja n -0 5
                                                                                                                                              Ja n -0 6
                                                                                                                                                          Ja n -0 7
                                                                                                                                                                      Ja n -0 8
                                                                                                                                                                                  Ja n -0 9
                                                                                                                                                                                              Ja n -1 0
                                                                                                                                                                                                          Ja n -1 1
                                                                                                                                                                                                                      Ja n -1 2
                                                                                                                                                                                                                                  Ja n -1 3
                                                                                                                                                                                                                                                                        Foreign reserves less predetermined short-term net drains on foreign
                                                                                                                                                                                                                                                                        reserve assets: Number of months of import cover

 Source: CEIC & Morgan Stanley Research                                                                                                                                                                                                       Source: CEIC & Morgan Stanley Research


     Foreign reserve warchest has dwindled: Policymakers’ ammunition to defend the currency has been getting lower. Bilateral
      currency swap agreements have recently been arranged (e.g. US$12bn with BOJ) and more seems to be in the pipeline. In our
      view, such swap arrangements may offer temporary comfort to market sentiment but is not a permanent fix and at best only helps
      to buy time for policymakers to get down to the right policy mix. Policymakers may have concerns regarding the potential
      destabilising effects of a weaker currency given memories of 1998. However, we believe a weaker currency will not have the
      same destabilising effect this time, to the extent that the currency depreciation would be significantly lower than during 1998
      when NEER and REER depreciated by between 60-80% between mid-97 and mid-98. Moreover, external debt (% of GDP) has
      come down from 48% of GDP in 1996 to 29% in 2Q13.


                                                                                                                                                                                                                                                                                                                                                                                                                                     14
                                                                                                                                                                                                                                                                                           MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                               ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                        September 2013




Indonesia: Rate Tightening Cycle Is Not Yet Completed
              Indonesia Real Interest Rate Need To Rise at A
                           Faster Pace vs US                                                                                                                                                                                JIBOR has moved up faster than policy rates
                                                                                                                                                                                                              16                                                                                                                                                     16
                                                                                                                                                                                                        5%
                                                                                                                                                                                                                                                                            BI Policy Rate                                Deposit Facility Rate
       6                                                                                                                                                                                                4%    14                                                            Lending Facility Rate                         1M JIBOR                                   14
                                                                                                                                                                                                        3%                                                                  3M JIBOR
       4
                                                                                                                                                                                                        2%    12                                                                                                                                                     12
       2                                                                                                                                                                                                1%
                                                                                                                                                                                                              10                                                                                                                                                     10
                                                                                                                                                                                                        0%
       0
                                                                                                                                                                                                        -1%    8                                                                                                                                                     8
      -2                                                                                                                                                                                                -2%

                                                                                                                                                                                                        -3%    6                                                                                                                                                     6
      -4
                                                                                                                                                                                                        -4%
                                                                                                                                                                                                               4                                                                                                                                                     4
      -6                                                                                                                                                                                                -5%
           Jul-03

                    Jan-04

                             Jul-04

                                      Jan-05

                                               Jul-05

                                                        Jan-06

                                                                 Jul-06

                                                                          Jan-07

                                                                                   Jul-07

                                                                                            Jan-08

                                                                                                     Jul-08

                                                                                                              Jan-09

                                                                                                                       Jul-09

                                                                                                                                Jan-10

                                                                                                                                         Jul-10

                                                                                                                                                  Jan-11

                                                                                                                                                           Jul-11

                                                                                                                                                                    Jan-12

                                                                                                                                                                             Jul-12

                                                                                                                                                                                      Jan-13

                                                                                                                                                                                               Jul-13
                                                                                                                                                                                                               2                                                                                                                                                     2




                                                                                                                                                                                                                   Jan-06

                                                                                                                                                                                                                            Jul-06

                                                                                                                                                                                                                                     Jan-07

                                                                                                                                                                                                                                              Jul-07

                                                                                                                                                                                                                                                       Jan-08

                                                                                                                                                                                                                                                                Jul-08

                                                                                                                                                                                                                                                                         Jan-09

                                                                                                                                                                                                                                                                                  Jul-09

                                                                                                                                                                                                                                                                                           Jan-10

                                                                                                                                                                                                                                                                                                    Jul-10

                                                                                                                                                                                                                                                                                                             Jan-11

                                                                                                                                                                                                                                                                                                                      Jul-11

                                                                                                                                                                                                                                                                                                                               Jan-12

                                                                                                                                                                                                                                                                                                                                          Jul-12

                                                                                                                                                                                                                                                                                                                                                   Jan-13

                                                                                                                                                                                                                                                                                                                                                            Jul-13
                                               Indo 10Y real rates less US 10Y real rates (3MMA)
                                               Indo - CAB (Quarterly annualised, % of GDP) (RS)


    Source: Bloomberg, CEIC & Morgan Stanley Research                                                                                                                                                         Source: Bloomberg & Morgan Stanley Research
   The rise in real rates in US, the lack of excess domestic savings in Indonesia as seen in its CAD, its rising LDR and the need to anchor
    inflation expectations amid currency depreciation all point to this - Indonesia’s real interest rate not only has to keep in tandem,
    but in fact rise faster than global trend in order to maintain macro stability & to keep a rein on external imbalances.
   In our view, Indonesia’s inflation is likely to normalize at 6.5%YoY in 2015 after the impact from the retail fuel price hike wears out. We
    think policymakers need to bring short-term real rates up to 2%, i,e. 8.5% based on a normalized inflation rate of 6.5%. To be
    sure, we expect BI only to raise policy rate by another 50bps to 7.75% as they tend to have a dovish bias. However regardless of
    policy action, we think market conditions will force short-term real interest rates up to where it needs to be. This is because as currency
    continues to depreciate, the process of FX intervention (selling USD and buying IDR) would withdraw liquidity from the system, leading
    market-oriented interest rate to move up. To this point, we note that although benchmark policy rate has been hiked by 150bps from
    May levels, 1M and 3M JIBOR has already moved up by 190-200bps. The rate tightening cycle would mean macro pain in the form of
    a growth slowdown.                                                                                                                          15
                                                                                                                                                                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                          ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                             September 2013




Indonesia: Increased Urgency for Structural Reform 2.0
                                                         Terms-of-Trade Reverses                                                                                                                                  Structural Decline In Capital Cost Is Largely Behind Us
10%
                  3M trailing sum, annualised (% of GDP)                                                                                                                                                                               % pa
                                                                                                                                                                                                                39
    8%
                                                                                                                                                                                                                                                                  Time Deposit Rate: 1Mth - Commercial Banks
    6%
                                                                                                                                                                                                                34
                                                                                                                                                                                                                                                                  Average Lending Rate: Working Capital - Commercial Banks
    4%                                                                                                                                                                                                          29                                                Policy Rate

    2%
                                                                                                                                                                                                                24

    0%
                                                                                                                                                                                                                19
 -2%
                                                                                                                                                                                                                14
 -4%

                                                                 Commodities Trade balance                                                                                                                       9
 -6%
                                                                 Non-commodities Trade balance
                                                                 Total trade balance
 -8%                                                                                                                                                                                                             4




                                                                                                                                                                                                                     Jan-98

                                                                                                                                                                                                                              Jan-99

                                                                                                                                                                                                                                       Jan-00

                                                                                                                                                                                                                                                Jan-01

                                                                                                                                                                                                                                                         Jan-02

                                                                                                                                                                                                                                                                  Jan-03

                                                                                                                                                                                                                                                                           Jan-04

                                                                                                                                                                                                                                                                                    Jan-05

                                                                                                                                                                                                                                                                                             Jan-06

                                                                                                                                                                                                                                                                                                      Jan-07

                                                                                                                                                                                                                                                                                                               Jan-08

                                                                                                                                                                                                                                                                                                                        Jan-09

                                                                                                                                                                                                                                                                                                                                 Jan-10

                                                                                                                                                                                                                                                                                                                                           Jan-11

                                                                                                                                                                                                                                                                                                                                                    Jan-12

                                                                                                                                                                                                                                                                                                                                                             Jan-13
                                                                                                                                                         Mar-12




                                                                                                                                                                                             Mar-13
                                                                                 Mar-10




                                                                                                                     Mar-11
         Mar-08




                                             Mar-09




                                                                                                                                                                                                      Jun-13
                                                                                                                              Jun-11
                                                                                                                                       Sep-11




                                                                                                                                                                  Jun-12
                                                                                                                                                                           Sep-12
                                                                                                                                                                                    Dec-12
                  Jun-08
                           Sep-08




                                                      Jun-09
                                                               Sep-09




                                                                                          Jun-10
                                                                                                   Sep-10
                                                                                                            Dec-10




                                                                                                                                                Dec-11
                                    Dec-08




                                                                        Dec-09




    Source: CEIC & Morgan Stanley Research                                                                                                                                                                     Source: CEIC & Morgan Stanley Research

    Indonesia still has one of the more attractive structural stories in ASEAN: However, external dampeners from the China
     slowdown & collateral impact on commodity prices now mean Indonesia’s structural growth story cannot be seen in the same light.
     If the same structural growth drivers could deliver 6.5% or higher GDP growth before, the changed global environment now means
     that there is an increased urgency to undertake structural reform 2.0 to offset the growth negatives inflicted by exogenous factors.
     Otherwise, Indonesia could face lower growth and macro stability risks.
    How do external dampeners pose headwinds? The reversal in terms-of-trade would hamper the direct growth lift & multiplier
     effect accorded by the commodity sector before. Meanwhile, the continued CAD & inability to generate excess savings and hence
     deposits mean that the structural decline in capital cost, which had been an important growth driver, could be largely behind us.
     Meanwhile, risks of China slowdown and its collateral impact on commodity prices also mean Indonesia’s CAD may not be stable.
     That would perpetuate pressures for policy response beyond what has been undertaken & would come with growth implications.
                                                                                                                                                                                                                                                                                                                                                                      16
                                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                                                                  ASEAN Chartbook
                                                                                                                                                                                        September 2013




Indonesia: Increased Urgency for Structural Reform 2.0
            When GDP growth got a structural uplift….                                                                 …Market Had Re-rated
 8                                                                           18

                                                                             16
 7
                                                                             14
 6
                                                                             12

 5                                                                           10

                                                                              8
 4
                                                                              6
 3
                                GDP growth (%YoY)                             4
 2                              GDP growth (%YoY, 8Q trailing average)                                                          MSCI Indonesia: 12M Fwd PE
                                                                              2

 1                                                                            0




                                                                                  Jan-01

                                                                                           Jan-02

                                                                                                    Jan-03

                                                                                                             Jan-04

                                                                                                                       Jan-05

                                                                                                                                  Jan-06

                                                                                                                                           Jan-07

                                                                                                                                                    Jan-08

                                                                                                                                                             Jan-09

                                                                                                                                                                      Jan-10

                                                                                                                                                                               Jan-11

                                                                                                                                                                                         Jan-12

                                                                                                                                                                                                  Jan-13
     M a r-0 1
     S e p -0 1
     M a r-0 2
     S e p -0 2
     M a r-0 3
     S e p -0 3
     M a r-0 4
     S e p -0 4
     M a r-0 5
     S e p -0 5
     M a r-0 6
     S e p -0 6
     M a r-0 7
     S e p -0 7
     M a r-0 8
     S e p -0 8
     M a r-0 9
     S e p -0 9
     M a r-1 0
     S e p -1 0
     M a r-1 1
     S e p -1 1
     M a r-1 2
     S e p -1 2
     M a r-1 3



 Source: CEIC & Morgan Stanley Research                                     Source: MSCI, Datastream & Morgan Stanley Research


        What does structural reform 2.0 need to entail? Hence, apart from cyclical policy response to deal with immediate macro
         issues, structural policy response are also required to deal with the global headwinds: We believe the following is required: (a)
         Productivity and competitiveness in non-commodity sectors would need to be boosted to diversify growth drivers as commodity
         supercycle unwind; (b) One way to achieve the former is to ensure that resources are spent on productive areas such as
         infrastructure and education where Indonesia still lags; (c) Ensuring that the real exchange is stable would help to prevent the
         currency from becoming overvalued and crowding out the non-commodity sectors. (See Asia Insight: Why The Next Election Is
         More Important Than the Last, July 30th)


                                                                                                                                                                                                           17
                                                                                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                            ASEAN Chartbook
                                                                                                                                                                                                                                                                        September 2013




Indonesia: 2014 Elections More Important than the Last
A need to ensure wage growth is in line with productivity                                  Bigger FDI share would mitigate funding volatility
 50                                                                                      3.0%               4Q trailing sum , % of GDP
 45
                                                                                         2.5%
 40

 35                                                                                      2.0%

 30
                                                                                         1.5%
 25

 20                                                                                      1.0%

 15
                                                                                         0.5%
 10
                                                                                         0.0%
     5

     0                                                                                                                                       Financial & capital account: FDI
                                                                                        -0.5%
         1992


                1994


                       1996


                               1998


                                      2000


                                             2002


                                                    2004


                                                           2006


                                                                  2008


                                                                         2010


                                                                                2012
                                                                                                                                             Financial & capital account: Portfolio investment
                                                                                        -1.0%
                              Monthly minimum wage: National (% (YoY)




                                                                                                             M ar-05



                                                                                                                                   M ar-06



                                                                                                                                                          M ar-07



                                                                                                                                                                                M ar-08



                                                                                                                                                                                                      M ar-09



                                                                                                                                                                                                                            M ar-10



                                                                                                                                                                                                                                                  M ar-11



                                                                                                                                                                                                                                                                         M ar-12



                                                                                                                                                                                                                                                                                               M ar-13
                                                                                                S e p-0 4



                                                                                                                       S e p-0 5



                                                                                                                                              S e p-0 6



                                                                                                                                                                    S e p-0 7



                                                                                                                                                                                          S e p-0 8



                                                                                                                                                                                                                S e p-0 9



                                                                                                                                                                                                                                      S e p-1 0



                                                                                                                                                                                                                                                            S e p-1 1



                                                                                                                                                                                                                                                                                   S e p-1 2
                              Monthly minimum wage: Jakarta (%YoY)
                              Monthly average wage (%YoY)

 Source: CEIC & Morgan Stanley Research                                                Source: CEIC & Morgan Stanley Research

        What does structural reform 2.0 need to entail? (d) Labour market regulations/policies would be another avenue to ensure
         competitiveness of non-commodity sectors. Ensuring wage growth is consistent with productivity increases would help corporates
         keep their bottom-line in check and ensure that cost competitiveness, particularly in the non-commodity sectors, does not get
         eroded; (e) Improving the investment landscape to attract more FDI inflows (which are more stable than portfolio flows) would
         also help to mitigate funding volatility.
        In this context, the next election is more important than the last: The 2009 elections were important because of what they
         meant for political stability and longevity of the institution building process. Without them, Indonesia’s structural story would have
         fallen by the wayside. However, the 2014 elections now matter even more, not least because these foundation blocks remain
         important, but also because there is an increased urgency to undertaken structural reform 2.0 to offset global growth negatives.
                                                                                                                                                                                                                                                                                                         18
                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                             ASEAN Chartbook
                                                                                                                                               September 2013




Malaysia: Not Quite in the Same Boat as Indonesia
Topics             Our comments
How are we            We forecast 2013/2014/2015 GDP growth at 4.1%/4.3%/4.8%. Consensus (as of Sep) stands at 4.4%/5.1% for 2013/2014.
different from
consensus?
What’s the          How would the three-legged growth model fare?
story?             Domestic demand had previously decoupled from exports amid the pre-election boost. However, going into 2014, we think
                   domestic demand could be somewhat hampered amid fiscal consolidation efforts and as pre-election stimulus fades. Commodity
                   exports would still likely see subdued trends but non-commodity exports are likely to get a cyclical lift from DM recovery.

                    Malaysia does not face the same funding squeeze as Indonesia
                   Similarities has been drawn between Indonesia & Malaysia given their net commodity exporter status and high foreign ownership of
                   government bonds. However, we believe Malaysia does not face the same short-term funding squeeze as Indonesia despite
                   expectations of less easy Fed policy. This is because although its current account surplus has been weakening, it is still likely to
                   see a mild surplus (vs the deficit in Indonesia). Credit growth has less strong in Malaysia (vs Indonesia). LDR ratio is more
                   comfortable, suggesting an internal buffer of liquidity to fall back on. Moreover, real policy rates are higher to begin with in Malaysia.

                    The similarity with Indonesia lies more in terms of what lower commodity prices would mean for medium-term growth
                   We highlighted for a while that Malaysia’s structural story is not compelling as it suffers from a “Dutch disease of sorts” &
                   policymakers have neglected what’s needed for competitiveness/productivity. As a result, FDI has been on a secular downtrend. Its
                   global share of manufactured exports have fallen and non-commodity trade balance has gone into deficit territory. Skills mismatch
                   in the labour market is also a concern. A sustained reversal in commodity terms-of-trade, without a corresponding improvement in
                   productivity in other non-commodity economic segments, would constrain GDP growth prospects in the medium-term.

                    Global developments have prompted tentative steps towards macro rebalancing
                   The silver lining is that recent global developments appear to have prompted tentative steps towards macro rebalancing.
                   Policymakers are making efforts towards fiscal consolidation & fuel subsidy rollback measures have been announced. These steps
                   would have the longer-term effect of helping the economy to deal with a new global environment of lower commodity prices. Apart
                   from these measures, we reiterate our view that engineering a sustainable structural inflexion point in Malaysia’s growth story would
                   require policymakers to address issues pertaining to the quality of human capital.
Risks and where  Upside/downside risks stem from: (a) pace of DM recovery; (b) movement in US real rates and the collateral impact it would have
we could go     on EM growth and hence, commodity prices; (c) China’s growth story and implications for commodity prices and; (d) upcoming
wrong?          UMNO party elections and implications on leadership stability.

                                                                                                                                                                19
                                                                                                                                                                                                                                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                                                                                       ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                                                                                 September 2013




Malaysia: How Would the Three-Legged Growth Model Fare?

      Domestic demand had decoupled from exports but…                                                                                                                                                                                                   …Is the pre-election boost now fading?
     20                                                                                                                                                                                                                    30
                                       Domestic demand (%YoY)
                                                                                                                                                                                                                                                                              Domestic demand (%YoY)
                                       Exports (%YoY)                                                                                                                                                                      25
     15                                                                                                                                                                                                                                                                       Gross Fixed Capex (%YoY)
                                                                                                                                                                                                                           20
     10
                                                                                                                                                                                                                           15
      5
                                                                                                                                                                                                                           10

      0                                                                                                                                                                                                                     5

                                                                                                                                                                                                                            0
      -5
                                                                                                                                                                                                                            -5
     -10
                                                                                                                                                                                                                           -10
     -15
                                                                                                                                                                                                                           -15
           M ar-06




                                       M ar-07




                                                                   M ar-08




                                                                                               M ar-09




                                                                                                                           M ar-10




                                                                                                                                                       M ar-11




                                                                                                                                                                                   M ar-12




                                                                                                                                                                                                               M ar-13
                              Nov-06




                                                          Nov-07




                                                                                      Nov-08




                                                                                                                  Nov-09




                                                                                                                                              Nov-10




                                                                                                                                                                          Nov-11




                                                                                                                                                                                                      Nov-12
                     Jul-06




                                                 Jul-07




                                                                             Jul-08




                                                                                                         Jul-09




                                                                                                                                     Jul-10




                                                                                                                                                                 Jul-11




                                                                                                                                                                                             Jul-12




                                                                                                                                                                                                                                 M ar-0 6




                                                                                                                                                                                                                                                                 M ar-0 7




                                                                                                                                                                                                                                                                                                 M ar-0 8




                                                                                                                                                                                                                                                                                                                                 M ar-0 9




                                                                                                                                                                                                                                                                                                                                                                 M ar-1 0




                                                                                                                                                                                                                                                                                                                                                                                                 M ar-1 1




                                                                                                                                                                                                                                                                                                                                                                                                                                 M ar-1 2




                                                                                                                                                                                                                                                                                                                                                                                                                                                                 M ar-1 3
                                                                                                                                                                                                                                            Ju l-06
                                                                                                                                                                                                                                                      N ov -06


                                                                                                                                                                                                                                                                            Ju l-07
                                                                                                                                                                                                                                                                                      N ov -07


                                                                                                                                                                                                                                                                                                            Ju l-08
                                                                                                                                                                                                                                                                                                                      N ov -08


                                                                                                                                                                                                                                                                                                                                            Ju l-09
                                                                                                                                                                                                                                                                                                                                                      N ov -09


                                                                                                                                                                                                                                                                                                                                                                            Ju l-10
                                                                                                                                                                                                                                                                                                                                                                                      N ov -10


                                                                                                                                                                                                                                                                                                                                                                                                            Ju l-11
                                                                                                                                                                                                                                                                                                                                                                                                                      N ov -11


                                                                                                                                                                                                                                                                                                                                                                                                                                            Ju l-12
                                                                                                                                                                                                                                                                                                                                                                                                                                                      N ov -12
Source: CEIC and Morgan Stanley Research                                                                                                                                                                                 Source: CEIC and Morgan Stanley Research


     Growth outlook premised on a cross-current of macro factors: Domestic demand had decoupled from exports in the past few
      quarters amid the pre-election boost and the global soft patch. However, going into 2014, we think domestic demand could be
      somewhat hampered by the following: Fitch’s recent downgrade to Malaysia’s outlook and recent rhetoric by policymakers
      suggest that fiscal consolidation is underway. Meanwhile, with elections done and dusted, effects from pre-election boost would
      likely fade. As it is, capex momentum had decelerated significantly from a peak of +29.3%YoY in 3Q12 to +8.9%YoY in 2Q13.
      Markets had previously been sanguine regarding the continued capex strength on the back of ETP (Economic Transformation
      Program) but we have been sceptical. Outside of the strategic push to ETP in the run-up to elections, a sustained inflexion point
      for investment depends critically on an improvement to the competitiveness of the workforce, which is still not evident yet in our
      view.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                            20
                                                                                                                                                                                                                                         MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                  ASEAN Chartbook
                                                                                                                                                                                                                                                                                              September 2013




Malaysia: How Would the Three-Legged Growth Model Fare?

                        Export Momentum Had Been Lacklustre                                                                                                            Commodity Trade Balance Breakdown
 60                                                                                                                                   10%
                                                                                                                                                                                             Trade balance: Edible oils
 50
                                                                                                                                                                                             Trade balance: Petroleum
 40                                                                                                                                    8%                                                    Trade balance: Natural gas

 30
                                                                                                                                       6%
 20

 10
                                                                                                                                       4%
  0

-10                                                                                                                                    2%

-20
                        Non-commodity exports, %YoY, 3MMA                                                                              0%
-30
                        Commodity-Related Exports, %YoY, 3MMA
-40                                                                                                                                                           3M trailing sum, annualised (% of GDP)
                                                                                                                                       -2%
      Jan-00

               Jan-01

                         Jan-02

                                  Jan-03

                                           Jan-04

                                                    Jan-05

                                                             Jan-06

                                                                      Jan-07

                                                                               Jan-08

                                                                                        Jan-09

                                                                                                 Jan-10

                                                                                                          Jan-11

                                                                                                                   Jan-12

                                                                                                                            Jan-13




                                                                                                                                             S e p -9 9

                                                                                                                                                          S e p -0 0

                                                                                                                                                                        S e p -0 1

                                                                                                                                                                                     S e p -0 2

                                                                                                                                                                                                  S e p -0 3

                                                                                                                                                                                                               S e p -0 4

                                                                                                                                                                                                                            S e p -0 5

                                                                                                                                                                                                                                          S e p -0 6

                                                                                                                                                                                                                                                       S e p -0 7

                                                                                                                                                                                                                                                                    S e p -0 8

                                                                                                                                                                                                                                                                                 S e p -0 9

                                                                                                                                                                                                                                                                                                S e p -1 0

                                                                                                                                                                                                                                                                                                             S e p -1 1

                                                                                                                                                                                                                                                                                                                          S e p -1 2
Source: CEIC and Morgan Stanley Research                                                                                             Source: CEIC and Morgan Stanley Research


      Non-commodity exports to get a lift from DM recovery: Momentum in Malaysia’s exports have been lacklustre for a while as
       they suffered from a double whammy of global soft patch and commodity supercycle unwinding. We believe commodity exports
       are still likely to see subdued trends. Indeed, oil trade balance has recently fallen into deficit territory for Malaysia. However,
       manufactured exports is likely to get cyclical support from the DM recovery.




                                                                                                                                                                                                                                                                                                                              21
                                                                                                                                                                                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                                        ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                               September 2013




Malaysia Does Not Face the Same Short-term Funding Squeeze as Indonesia

                                  Current account surplus dwindling                                                                                                                            Who Has High Foreign Ownership of Government Securities?
    25%                                                                                                                                                                                           40%
                                                                                                                                                                                                           Foreign Ownership of Domestic Government debt securities (% of total)
    20%                                                                                                                                                                                                                                                                                                                                                                                                30.6%
                                                                                                                                                                                                  35%                              Indonesia                            Malaysia                            Thailand
    15%
                                                                                                                                                                                                  30%
    10%
                                                                                                                                                                                                                                                                                                                                                                                                       28.3%
                                                                                                                                                                                                  25%
     5%
                                                                                                                                                                                                  20%
     0%

    -5%                                                                                                                                                                                           15%
                                                                                                                                                                                                                                                                                                                                                                                                       16.7%

    -10%                                                                                                                                                                                          10%
                                               Current account balance (4Q trailing sum, % of GDP)
    -15%                                                                                                                                                                                           5%
                                               Current account balance (Quarterly annualised, % of GDP)
    -20%
                                                                                                                                                                                                   0%
           Mar-94
                    Mar-95
                             Mar-96
                                      Mar-97
                                               Mar-98
                                                        Mar-99
                                                                 Mar-00
                                                                          Mar-01
                                                                                   Mar-02
                                                                                            Mar-03
                                                                                                     Mar-04
                                                                                                              Mar-05
                                                                                                                       Mar-06
                                                                                                                                Mar-07
                                                                                                                                         Mar-08
                                                                                                                                                  Mar-09
                                                                                                                                                           Mar-10
                                                                                                                                                                    Mar-11
                                                                                                                                                                             Mar-12
                                                                                                                                                                                      Mar-13




                                                                                                                                                                                                        Dec-02

                                                                                                                                                                                                                 Jun-03

                                                                                                                                                                                                                          Dec-03

                                                                                                                                                                                                                                    Jun-04

                                                                                                                                                                                                                                             Dec-04

                                                                                                                                                                                                                                                      Jun-05

                                                                                                                                                                                                                                                               Dec-05

                                                                                                                                                                                                                                                                        Jun-06

                                                                                                                                                                                                                                                                                 Dec-06

                                                                                                                                                                                                                                                                                          Jun-07

                                                                                                                                                                                                                                                                                                   Dec-07

                                                                                                                                                                                                                                                                                                             Jun-08

                                                                                                                                                                                                                                                                                                                      Dec-08

                                                                                                                                                                                                                                                                                                                               Jun-09

                                                                                                                                                                                                                                                                                                                                        Dec-09

                                                                                                                                                                                                                                                                                                                                                 Jun-10

                                                                                                                                                                                                                                                                                                                                                          Dec-10

                                                                                                                                                                                                                                                                                                                                                                   Jun-11

                                                                                                                                                                                                                                                                                                                                                                            Dec-11

                                                                                                                                                                                                                                                                                                                                                                                     Jun-12

                                                                                                                                                                                                                                                                                                                                                                                              Dec-12

                                                                                                                                                                                                                                                                                                                                                                                                       Jun-13
Source: CEIC and Morgan Stanley Research                                                                                                                                                        Source: CEIC, DMO & Morgan Stanley Research

    Not quite in the same boat as Indonesia: Markets have tried to decipher which economy could be next in terms of bearing the
     brunt of the contagion effect in ASEAN. Some have highlighted similarities between Malaysia & Indonesia. Both are large net
     commodity exporters & have seen reversal in terms-of-trade significantly weakening current account balance. Foreign ownership of
     government bonds for both economies are high. Foreign ownership of Malaysia government securities stand at 42.7% of
     outstanding in Jul-13. Including treasury bills & investment issues, foreign ownership is 28.3%, very similar to the 30.6% in
     Indonesia in Aug-13. However, we believe Malaysia does not face the same short-term funding squeeze as Indonesia. First,
     although Malaysia’s current account surplus has weakened significantly from 10.8% of GDP in 4Q11 (quarterly annualised) to 1.1%
     in 2Q13 and we would not be surprised to see it running a persistent CAD in the medium-term if no reforms are taken up, we still
     think it is likely to run a mild surplus of 2.8%/2.5%/1.1% of GDP for our forecast horizon of 2013/2014/2015.
                                                                                                                                                                                                                                                                                                                                                                                                                22
                                                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                   ASEAN Chartbook
                                                                                                                                                                                                                                             September 2013




Malaysia Does Not Face the Same Short-term Funding Squeeze as Indonesia

                  Comparing Credit Growth Cycles                                                    Who Has A More Comfortable LDR Buffer?

     45                                                                       120%
                                                                                                                                                 Malaysia                                     Singapore
                                                                              110%                                                               Thailand                                     Indonesia
     40
                                                                                                                                                 Philippines
     35                                    Malaysia loan growth (%YoY)        100%                                                                                                                                                                                100%
                                                                                                                                                                                                                                                                  95%
                                           Indonesia loan growth (%YoY)                                                                                                                                                                                            91%
     30                                                                        90%
                                                                                                                                                                                                                                                                  89%
     25                                                                        80%                                                                                                                                                                                 79%

     20                                                                        70%

     15                                                                        60%                                                                                                                                                                                66%

     10                                                                        50%

     5                                                                         40%
                                                                                                                                                                                                             Loan to Deposit Ratio (%)
     0                                                                         30%
          J a n -0 7
          A p r-0 7
           J u l-0 7
          O c t-0 7
          J a n -0 8
          A p r-0 8
           J u l-0 8
          O c t-0 8
          J a n -0 9
          A p r-0 9
           J u l-0 9
          O c t-0 9
          J a n -1 0
          A p r-1 0
           J u l-1 0
          O c t-1 0
          J a n -1 1
          A p r-1 1
           J u l-1 1
          O c t-1 1
          J a n -1 2
          A p r-1 2
           J u l-1 2
          O c t-1 2
          J a n -1 3
          A p r-1 3
           J u l-1 3




                                                                                     N ov-96
                                                                                               N ov-97
                                                                                                         N ov-98
                                                                                                                   N ov-99
                                                                                                                             N ov-00
                                                                                                                                       N ov-01
                                                                                                                                                 N ov-02
                                                                                                                                                           N ov-03
                                                                                                                                                                     N ov-04
                                                                                                                                                                               N ov-05
                                                                                                                                                                                         N ov-06
                                                                                                                                                                                                   N ov-07
                                                                                                                                                                                                               N ov-08
                                                                                                                                                                                                                         N ov-09
                                                                                                                                                                                                                                   N ov-10
                                                                                                                                                                                                                                              N ov-11
                                                                                                                                                                                                                                                        N ov-12
Source: CEIC and Morgan Stanley Research                                      Source: CEIC & Morgan Stanley Research


     Credit growth was not as strong and LDR ratios are more comfortable: Second, Malaysia did not have as strong a credit
      growth cycle as Indonesia. Credit growth (12M trailing average) stood at 10.8% for Malaysia in Jul-13 vs Indonesia’s 22.7% in
      Jun-13. Meanwhile, LDR ratios are more comfortable in Malaysia at 79% vs Indonesia’s 91%, suggesting that previous excess
      savings are still providing an internal buffer of liquidity to fall back on in the event of capital flight. Third, real interest rates in
      Malaysia are highest in ASEAN at 1.0% vs Indonesia’s -1.6%. To the extent to which real rates are higher to begin with, it would
      be less vulnerable as the yield carry trade unwinds.


                                                                                                                                                                                                                                                                         23
                                                                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                                                                                          ASEAN Chartbook
                                                                                                                                                                                                                 September 2013

Malaysia: Similarity with Indonesia Lies More in Terms of What Lower Commodity Prices
Would Mean for Medium-term Growth

              Commodity Cash Cow On The Reversal?                                           Who Makes Up An Increasing Share of the Unemployed?
 45                                                                                    10   35   % of unemployed, by education level                                                                                            72
                     Commodity-related Federal Govt Revenue (% of
                                                                                                                                  No formal education
                     revenue) (LS)
 40                                                                                    9                                          Primary education                                                                             70
                                                                                            30
                     Commodity-related Federal Govt Revenue (% of                                                                 Tertiary education
                     GDP) (RS)                                                                                                    Secondary education (RS)                                                                      68
                                                                                       8
 35                                                                                         25
                                                                                                                                                                                                                                66
                                                                                       7
 30                                                                                         20                                                                                                                                  64
                                                                                       6
 25                                                                                         15                                                                                                                                  62
                                                                                       5
                                                                                                                                                                                                                                60
 20                                                                                         10
                                                                                       4
                                                                                                                                                                                                                                58
 15                                                                                    3     5
                                                                                                                                                                                                                                56

 10                                                                                    2     0                                                                                                                                  54




                                                                                                 1995
                                                                                                        1996
                                                                                                               1997
                                                                                                                      1998
                                                                                                                             1999
                                                                                                                                    2000
                                                                                                                                           2001
                                                                                                                                                  2002
                                                                                                                                                         2003
                                                                                                                                                                2004
                                                                                                                                                                       2005
                                                                                                                                                                              2006
                                                                                                                                                                                     2007
                                                                                                                                                                                            2008
                                                                                                                                                                                                   2009
                                                                                                                                                                                                          2010
                                                                                                                                                                                                                  2011
                                                                                                                                                                                                                         2012
       1981

              1984

                        1987

                               1990

                                      1993

                                             1996

                                                    1999

                                                           2002

                                                                  2005

                                                                         2008

                                                                                2011




Source: CEIC and Morgan Stanley Research                                                    Source: CEIC & Morgan Stanley Research


     We believe the similarity between Malaysia & Indonesia lies more in that both would have to contend with what lower
      commodity prices would mean for GDP growth going forward. We have highlighted for a long time that Malaysia’s structural
      story is not compelling as other ASEAN economies because it suffers from a Dutch disease of sorts. Benign demographic trends
      have provided the labour inputs for growth. On the other hand, with commodity-related revenue making up 35% of government
      revenue, that has provided the capital inputs for growth via fiscal pump-priming. Together, these factors have created a
      comfortable growth buffer, leading policymakers to neglect for some time what’s needed on the competitiveness/ productivity front.


                                                                                                                                                                                                                                     24
                                                                                                                                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                             ASEAN Chartbook
                                                                                                                                                                                                                                                                  September 2013

Malaysia: Similarity with Indonesia Lies More in Terms of What Lower Commodity Prices
Would Mean for Medium-term Growth

                                                Secular Decline in FDI                                                                                  Non-commodity trade balance on the decline
                                                                                                                                     20%
 27                                                                                                                                                              Commodities trade balance (Mineral fuels, CPO, food & crude materials)
                                       Malaysia                                Singapore                                                                         Non-commodities trade balance

 22                                    Thailand                                Indonesia                                             15%
                                       Philippines
 17
                                                                                                                                     10%
 12

     7                                                                                                                                5%


     2
                                                                                                                                      0%
 -3
                                                                                                                                                     Trade balance (3M trailing sum, annualised, % of GDP)
                 Net FDI, US$bn
 -8                                                                                                                                   -5%




                                                                                                                                            Jan-99

                                                                                                                                                        Jan-00

                                                                                                                                                                  Jan-01

                                                                                                                                                                           Jan-02

                                                                                                                                                                                    Jan-03

                                                                                                                                                                                             Jan-04

                                                                                                                                                                                                      Jan-05

                                                                                                                                                                                                               Jan-06

                                                                                                                                                                                                                         Jan-07

                                                                                                                                                                                                                                  Jan-08

                                                                                                                                                                                                                                           Jan-09

                                                                                                                                                                                                                                                    Jan-10

                                                                                                                                                                                                                                                              Jan-11

                                                                                                                                                                                                                                                                       Jan-12

                                                                                                                                                                                                                                                                                Jan-13
          1980
                  1982
                         1984
                                1986
                                         1988
                                                 1990
                                                        1992
                                                               1994
                                                                      1996
                                                                             1998
                                                                                    2000
                                                                                           2002
                                                                                                  2004
                                                                                                         2006
                                                                                                                2008
                                                                                                                       2010
                                                                                                                              2012



Source: CEIC and Morgan Stanley Research                                                                                             Source: CEIC and Morgan Stanley Research


        Symptoms are showing: As a result, FDI has been on a secular downtrend. Malaysia’s global share of manufactured exports
         has fallen. Non-commodity trade balance has been on a secular decline and is in deficit territory. Additionally, the tertiary-
         educated makes up an increasing share of the unemployed group, pointing to a degree of skills mismatch in the labour market. In
         this context, a sustained reversal in the commodity terms-of-trade, without a corresponding improvement in productivity in other
         non-commodity economic segments would constrain growth prospects for Malaysia in the medium-term.




                                                                                                                                                                                                                                                                                         25
                                                                                                                                                                                                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                                  ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                         September 2013

Malaysia: Global Developments Have Prompted Tentative Steps towards Macro
Rebalancing

                                      Public Debt Pushing the 55% Ceiling                                                                                                                                                              A Need To Focus on Soft Infrastructure Again
    75%                                                                                                                                                                                                         -10%   45%     % of GDP                                                                                                                                                       3.5%

    70%                                                                                                                                                                                                         -8%    40%
                                                                                                                                                                                                                                                                                                                                                                                              3.0%
    65%                                                                                                                                                                                                         -6%    35%
    60%                                                                                                                                                                                                                                                                                                                                                                                       2.5%
                                                                                                                                                                                                                -4%    30%
    55%
                                                                                                                                                                                                                -2%    25%                                                                                                                                                                    2.0%
    50%
                                                                                                                                                                                                                0%
    45%                                                                                                                                                                                                                20%                                                                                                                                                                    1.5%
                                                                                                                                                                                                                2%
    40%                                                                                                                                                                                                                15%
                                                                                                                                                                                                                                                                                                                                                                                              1.0%
    35%                                                                                                                                                                                                         4%
                                                                                                                                                                                                                       10%

    30%                                                                                                                                                                                                         6%                                                                                                                                                                            0.5%
                                                                                                                                                                                                                       5%
    25%                                                                                                                                                                                                         8%
          Dec-91
                   Dec-92
                            Dec-93
                                     Dec-94
                                              Dec-95
                                                       Dec-96
                                                                Dec-97
                                                                         Dec-98
                                                                                  Dec-99
                                                                                           Dec-00
                                                                                                    Dec-01
                                                                                                             Dec-02
                                                                                                                      Dec-03
                                                                                                                               Dec-04
                                                                                                                                        Dec-05
                                                                                                                                                 Dec-06
                                                                                                                                                          Dec-07
                                                                                                                                                                   Dec-08
                                                                                                                                                                            Dec-09
                                                                                                                                                                                     Dec-10
                                                                                                                                                                                              Dec-11
                                                                                                                                                                                                       Dec-12          0%                                                                                                                                                                     0.0%




                                                                                                                                                                                                                             1990
                                                                                                                                                                                                                                    1991
                                                                                                                                                                                                                                           1992
                                                                                                                                                                                                                                                  1993
                                                                                                                                                                                                                                                         1994
                                                                                                                                                                                                                                                                1995
                                                                                                                                                                                                                                                                       1996
                                                                                                                                                                                                                                                                              1997
                                                                                                                                                                                                                                                                                     1998
                                                                                                                                                                                                                                                                                            1999
                                                                                                                                                                                                                                                                                                   2000
                                                                                                                                                                                                                                                                                                          2001
                                                                                                                                                                                                                                                                                                                 2002
                                                                                                                                                                                                                                                                                                                        2003
                                                                                                                                                                                                                                                                                                                               2004
                                                                                                                                                                                                                                                                                                                                      2005
                                                                                                                                                                                                                                                                                                                                             2006
                                                                                                                                                                                                                                                                                                                                                    2007
                                                                                                                                                                                                                                                                                                                                                           2008
                                                                                                                                                                                                                                                                                                                                                                  2009
                                                                                                                                                                                                                                                                                                                                                                         2010
                                                                                                                                                                                                                                                                                                                                                                                2011
                                                                                                                                                                                                                                                                                                                                                                                       2012
                                     Government debt (% of GDP) (LS)                                                                                                                                                                              GFCF: Private
                                     Fiscal balance (4Q trailing sum, % of GDP) (RS) (Values in reverse order)                                                                                                                                    GFCF: Public
                                                                                                                                                                                                                                                  Government Development Expenditure on Education (% of GDP) (RS)

Source: CEIC and Morgan Stanley Research                                                                                                                                                                               Source: CEIC and Morgan Stanley Research

   The silver lining is…. that recent developments seem to be prompting steps towards macro-rebalancing. With commodity revenue
    standing at 35% of government revenue and public debt pushing the 55% ceiling, policymakers have implemented steps to roll back
    on fuel subsidies and are indicating plans to: (a) reduce fiscal deficit to 4% of GDP in 2014 budget; (b) widen revenue base via a
    Goods & Services tax to reduce dependence on commodities revenue. These measures should have the longer-term impact of
    helping the economy deal with a new global environment of lower commodity prices.
   A need to focus on soft infrastructure: Apart from these measures, we reiterate our view that engineering a sustainable structural
    inflexion point in Malaysia’s growth story would require policymakers to address issues pertaining to the quality of human capital.
    Growth momentum in mega investment plans such as ETP and Iskandar Development Region can only have longevity if
    policymakers implement a critical mass of reforms to improve the “soft infrastructure” i.e. human capital.
                                                                                                                                                                                                                                                                                                                                                                                                     26
                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                          ASEAN Chartbook
                                                                                                                                            September 2013

Singapore: Lower Trend Growth, Somewhat Higher Trend Inflation and a Less Easy
Fed Policy
Topics           Our comments
How are we        We forecast GDP growth at 2.9%/3.6%/4.0% for 2013/2014/2015. Consensus expectations (as of Sept) stand at 2.8%/3.7% for
different from   2013/2014.
consensus?
What’s the        Shift to slower growth normal well underway
story?           The economy is transitioning from a “Goldilocks” period of high growth and extremely benign inflation seen in the run-up to 2007, to
                 one in which growth is likely to settle at a newer lower normal (3%-4% range vs 8.5% CAGR in 2004-2007) whilst inflation is likely to
                 trend somewhat higher compared to the old normal. This is due to both global and domestic factors. On the global front, global GDP
                 growth is likely to trend lower than the 5% CAGR seen since 2004-2007, posing a drag on the small and open economy. Meanwhile,
                 on the domestic front, an ageing population and a need to wean the economy from dependence on foreign labour would also
                 constrain growth as well as put a floor to wage cost until productivity finally catches up.

                  Inflation to trend somewhat above old normal; But worst of ‘stagflation-type” environment likely behind us
                 We expect inflation to hover in the mid 2% territory, somewhat higher than the 1.5%-2.0% range seen during the “Goldilocks” period
                 as tight labour market conditions coupled with a cut-back in foreign labour put a floor to labour costs even despite the subdued growth
                 environment in Singapore. Yet that said, the worst of the “stagflation-type” environment is likely behind us given macro-prudential
                 measures on autos and property exerting effect to varying degree. Additionally, MS property analysts also expects private residential
                 property prices to soften further in 2014 and this will filter into CPI with a lag.

                  Exogenous tightening is likely to take some wind out of the leverage cycle
                 The exogenous tightening effects from a less easy Fed policy would potentially create headwinds for selected segments of the
                 economy such as property and interest-rate sensitive spending. Singapore has seen a significant build-up in leverage in both
                 households and non-households in the past 5 years. Although the Fed has not begun to tighten policy rates yet, the end of the zero-
                 interest rate policy being sooner than it was before has already led long yields to rise in Singapore. Anecdotally, banks have already
                 started to reprice longer-tenure loans, such as SIBOR-plus mortgage loans.


Risks and         Upside/downside risks would stem from: (a) global growth; (b) movement in US long yields and; (c) longer-term structural reform
where we         measures to enhance growth drivers and productivity.
could go
wrong?



                                                                                                                                                           27
                                                                                                                                                                                                                MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                        ASEAN Chartbook
                                                                                                                                                                                                                                            September 2013




Singapore: Rising DM Tide Lifts the Exporters’ Boat
          US ISM New Orders – Leading Indicator for NODX                                                                                         Domestic Demand Strongly Correlated With Exports
  35           S$ Terms, YoY%, 3MMA                                                                                                     75      35            %YoY

                                                                                                                                        70
  25
                                                                                                                                                25
                                                                                                                                        65
  15                                                                                                                                    60
                                                                                                                                                15
                                                                                                                                        55
     5
                                                                                                                                        50       5
     -5
                                                                                                                                        45

                                                                                                                                        40      -5
  -15
                                                                                                                                        35
  -25                                                                                                                                          -15
                                                                                                                                                                                       Exports of Goods & Services
                                                                                                                                        30
                                     NODX (YoY%, 3MMA) (LS)                                                                                                                            Domestic Demand (ex inventories)
  -35                                US ISM New Orders Index (3MMA) (4M Lead) (RS)                                                      25
                                                                                                                                               -25
          Jan-00

                   Jan-01

                            Jan-02

                                     Jan-03

                                              Jan-04

                                                       Jan-05

                                                                Jan-06

                                                                         Jan-07

                                                                                  Jan-08

                                                                                           Jan-09

                                                                                                    Jan-10

                                                                                                             Jan-11

                                                                                                                      Jan-12

                                                                                                                               Jan-13




                                                                                                                                                     Mar-76



                                                                                                                                                                     Mar-80



                                                                                                                                                                              Mar-84



                                                                                                                                                                                             Mar-88



                                                                                                                                                                                                       Mar-92



                                                                                                                                                                                                                 Mar-96



                                                                                                                                                                                                                          Mar-00



                                                                                                                                                                                                                                   Mar-04



                                                                                                                                                                                                                                               Mar-08



                                                                                                                                                                                                                                                        Mar-12
Source: CEIC and Morgan Stanley Research                                                                                                     Source: CEIC and Morgan Stanley Research estimates



          A cyclical uplift for the small open economy: US ISM New Orders, a leading indicator for non-oil domestic exports have turned
           upward, heralding a likely improvement in export momentum for Singapore. To the extent to which domestic demand is strongly
           correlated with exports, we believe that GDP growth momentum for 2014 (+3.6%YoY) is likely to edge up from the momentum
           seen in 2013 (+2.9%YoY).




                                                                                                                                                                                                                                                                 28
                                                                                                                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                         ASEAN Chartbook
                                                                                                                                                                                                                                                                                September 2013




Singapore: From “Goldilocks” to a New Normal
                                                                                                                                                               A “Global Demand Shock” As Global Growth Goes
                              From “Goldilocks” To A New Normal                                                                                                                   Lower
     25                                                                                                                                                   6                                                            2004-2007 CAGR: 5%

     20                                            GDP growth (%YoY)                                                                                      5                                                                                                                        2013-2015
                                                                                                                                                                                                                                                                                   CAGR:3.4%
                                                   Inflation (%YoY)
     15                                                                                                                                                   4

     10                                                                                                                                                   3


     5                                                                                                                                                    2

                                                                                                                                                          1
     0
                                                                                                                                                          0
     -5
                                                                                                                                                          -1                        Global GDP growth (%YoY)
  -10
          M ar-00

                    M ar-01

                               M ar-02

                                         M ar-03

                                                    M ar-04

                                                              M ar-05

                                                                        M ar-06

                                                                                  M ar-07

                                                                                            M ar-08

                                                                                                      M ar-09

                                                                                                                M ar-10

                                                                                                                          M ar-11

                                                                                                                                    M ar-12

                                                                                                                                              M ar-13
                                                                                                                                                          -2




                                                                                                                                                               1996
                                                                                                                                                                      1997
                                                                                                                                                                             1998
                                                                                                                                                                                    1999
                                                                                                                                                                                           2000
                                                                                                                                                                                                  2001
                                                                                                                                                                                                         2002
                                                                                                                                                                                                                2003
                                                                                                                                                                                                                        2004
                                                                                                                                                                                                                               2005
                                                                                                                                                                                                                                      2006
                                                                                                                                                                                                                                             2007
                                                                                                                                                                                                                                                    2008
                                                                                                                                                                                                                                                           2009
                                                                                                                                                                                                                                                                  2010
                                                                                                                                                                                                                                                                         2011
                                                                                                                                                                                                                                                                                2012
                                                                                                                                                                                                                                                                                       2013E
                                                                                                                                                                                                                                                                                               2014E
                                                                                                                                                                                                                                                                                                       2015E
Source: CEIC and Morgan Stanley Research                                                                                                                Source: CEIC and Morgan Stanley Research; E=MS estimates



         Shift to Lower Growth Normal Underway: Cyclical uplift aside, we believe that the broader picture for Singapore remains one of
          an economy which is transitioning from a “Goldilocks” period of high growth and extremely benign inflation seen in the run up to
          2007, to one where growth is likely to settle at newer lower normal whilst inflation is likely to average somewhat higher than the
          1.5%-2.0% historical trend average. This is due to both global developments and idiosyncratic issues at home. On the growth
          front, GDP growth has trended down from the 8.5% CAGR seen in 2004-2007 to what looks likely to be a 3%-4% range going
          forward. Indeed, this is on the back of the fact that global macro rebalancing (first in DM, and now in EM) point to a global growth
          level which would be lower than the 5% CAGR seen during 2004-2007.



                                                                                                                                                                                                                                                                                                               29
                                                                                                                                                                                                                                                     MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                         ASEAN Chartbook
                                                                                                                                                                                                                                                                                              September 2013




Singapore: From “Goldilocks” to a New Normal
          “Labour Supply Shock” From Slower Immigration
                          Going Forward                                                                                                                                                      Tight Labour Market Puts Floor to Wage Costs
                                                                                 Non-resident labour (% of labour force) (LS)                                                 12                                                                                                                                    0
     40                                                                          Non-resident population (%YoY) (RS)                                                  25
          Policymakers want to maintain foreign                                                                                                                               10
          labour share at ard 1/3                                                                                                                                                                                                                                                                                   1
     35                                                                                                                                                               20       8

     30                                                                                                                                                                        6                                                                                                                                    2
                                                                                                                                                                      15
                                                                                                                                                                               4
     25                                                                                                                                                                                                                                                                                                             3
                                                                                                                                                                      10       2
     20                                                                                                                                                                        0                                                                                                                                    4
                                                                                                                                                                      5
     15                                                                                                                                                                        -2
                                                                                                                                                                                                                                                                                                                    5
                                                                                                                                                                      0        -4
     10
                                                                                                                                                                               -6                                                                                                                                   6




                                                                                                                                                                                    Mar-00

                                                                                                                                                                                               Mar-01

                                                                                                                                                                                                        Mar-02

                                                                                                                                                                                                                 Mar-03

                                                                                                                                                                                                                          Mar-04

                                                                                                                                                                                                                                   Mar-05

                                                                                                                                                                                                                                            Mar-06

                                                                                                                                                                                                                                                     Mar-07

                                                                                                                                                                                                                                                              Mar-08

                                                                                                                                                                                                                                                                       Mar-09

                                                                                                                                                                                                                                                                                Mar-10

                                                                                                                                                                                                                                                                                         Mar-11

                                                                                                                                                                                                                                                                                                  Mar-12

                                                                                                                                                                                                                                                                                                           Mar-13
     5                                                                                                                                                                -5


     0                                                                                                                                                                -10
                                                                                                                                                                                                                 Average monthly earnings (%YoY) (LS)
           1991
                  1992
                         1993
                                1994
                                       1995
                                              1996
                                                     1997
                                                            1998
                                                                   1999
                                                                          2000
                                                                                  2001
                                                                                         2002
                                                                                                2003
                                                                                                       2004
                                                                                                              2005
                                                                                                                     2006
                                                                                                                            2007
                                                                                                                                   2008
                                                                                                                                          2009
                                                                                                                                                 2010
                                                                                                                                                        2011
                                                                                                                                                               2012

                                                                                                                                                                                                                 Unemployment rate (sa) (RS) (Values in reverse order)

Source: CEIC and Morgan Stanley Research                                                                                                                                    Source: CEIC and Morgan Stanley Research

         The idiosyncratic domestic factor affects growth….: Additionally, what’s different in this cycle is that not only is Singapore
          contending with the secular “global demand shock”, it is also contending with domestic issues of its own - essentially “a labour
          supply shock”. An ageing population and a need to wean the economy from dependence on foreign labour given
          infrastructure/political constraints mean that policymakers have undertaken steps to slow down the growth of foreign labour. To
          the extent to which aggressive immigration policy had lifted labour inputs and driven growth before, a slowdown in working age
          population would also slow down potential GDP growth.

         …and inflation: A cutback in foreign labour, together with the still tight labour market would also affect inflation as it would likely
          put a floor to labor costs despite the subdued growth momentum. We expect inflation to hover in the mid 2% territory going
          forward, somewhat higher than the 1.5%-2.0% range seen during the Goldilocks period.
                                                                                                                                                                                                                                                                                                                    30
                                                                                                                                                                                                                                                                 MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                   ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                         September 2013




Singapore: … But the Worst of “Stagflation-Type” Environment Is Likely Behind Us
                                                             Inflation Trends                                                                                                                                                         Inflation trends
               %-pt contribution of segments to headline inflation
                                                                                                                                                                  7

  7                                                                                                                                                               6                              Tradables inflation (ex private transport) (%YoY)
                                                                                                                                                                                                 Non-tradables inflation (ex accomodation) (%YoY)
                                                                                                                                                                  5
                                                                                                                                                                                                 MAS core inflation (%YoY)
  5                                                                                                                                                               4
                                                                                                                                                                  3
  3
                                                                                                                                                                  2
                                                                                                                                                                  1
  1
                                                                                                                                                                  0
                                                                                                                                                                 -1
 -2
      Jan-06

                   Jul-06

                            Jan-07

                                       Jul-07

                                                Jan-08

                                                         Jul-08

                                                                  Jan-09

                                                                           Jul-09

                                                                                    Jan-10

                                                                                                Jul-10

                                                                                                         Jan-11

                                                                                                                  Jul-11

                                                                                                                           Jan-12

                                                                                                                                    Jul-12

                                                                                                                                             Jan-13

                                                                                                                                                      Jul-13
                                                                                                                                                                 -2
                                                                                                                                                                 -3




                                                                                                                                                                      Jan-94
                                                                                                                                                                               Jan-95
                                                                                                                                                                                        Jan-96
                                                                                                                                                                                                  Jan-97
                                                                                                                                                                                                           Jan-98
                                                                                                                                                                                                                    Jan-99
                                                                                                                                                                                                                             Jan-00
                                                                                                                                                                                                                                      Jan-01
                                                                                                                                                                                                                                               Jan-02
                                                                                                                                                                                                                                                        Jan-03
                                                                                                                                                                                                                                                                 Jan-04
                                                                                                                                                                                                                                                                          Jan-05
                                                                                                                                                                                                                                                                                   Jan-06
                                                                                                                                                                                                                                                                                            Jan-07
                                                                                                                                                                                                                                                                                                     Jan-08
                                                                                                                                                                                                                                                                                                              Jan-09
                                                                                                                                                                                                                                                                                                                       Jan-10
                                                                                                                                                                                                                                                                                                                                Jan-11
                                                                                                                                                                                                                                                                                                                                         Jan-12
                                                                                                                                                                                                                                                                                                                                                  Jan-13
                                     Food                                                    Clothing & Footwear
                                     Housing                                                 Transport & communications
                                     Education and Stationery                                Healthcare
                                     Recreation & Others                                     Inflation (YoY%)


Source: CEIC and Morgan Stanley Research                                                                                                                       Source: CEIC and Morgan Stanley Research



              Worst of “stagflation-type” environment likely behind us: Yet that said, the worst of the stagflation-type environment is likely
               behind us. Indeed, headline inflation has decelerated from an intra-year peak of 4.9%YoY in Feb-13 to 1.9%YoY in Jul-13.
               Courtesy of the loose monetary conditions imported from DM, housing and transport (car prices) has previously been the two key
               sources of inflation. However, macro-prudential measures in auto finance in terms of LTV caps and maximum tenures have led to
               softening car prices. A slower pace of property price rise from the multiple rounds of property cooling measures have also filtered
               into CPI with a lag. Additionally, the exogenous tightening inflicted from a less easy Fed policy also looks likely to soften property
               prices further. Our property analysts, Sean Gardiner & Wilson Ng, expects private residential prices to fall by 5% in 2014.



                                                                                                                                                                                                                                                                                                                                                           31
                                                                                                                                                                                                                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                              ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                September 2013




Singapore: Exogenous Tightening to Take Some Wind Out of the Leverage Cycle
                                    Short-term interest rate stays low but….                                                                                                                                                                                                 Long Yields have already moved up
     7                                                                                                                                                                                                                                               7.0
                                                                                                                                                                                                                                                                    %
                                                               3M S$SIBOR
                                                               FFTR                                                                                                                                                                                                                                                                              US 10Y
     6                                                         3M US$LIBOR                                                                                                                                                                           6.0                                                                                         SG 10Y


     5
                                                                                                                                                                                                                                                     5.0

     4
                                                                                                                                                                                                                                                     4.0

     3
                                                                                                                                                                                                                                                     3.0
     2

                                                                                                                                                                                                                                                     2.0
     1
                  %
     0                                                                                                                                                                                                                                               1.0




                                                                                                                                                                                                                                                           Jan-00

                                                                                                                                                                                                                                                                    Jan-01

                                                                                                                                                                                                                                                                             Jan-02

                                                                                                                                                                                                                                                                                      Jan-03

                                                                                                                                                                                                                                                                                               Jan-04

                                                                                                                                                                                                                                                                                                        Jan-05

                                                                                                                                                                                                                                                                                                                 Jan-06

                                                                                                                                                                                                                                                                                                                          Jan-07

                                                                                                                                                                                                                                                                                                                                   Jan-08

                                                                                                                                                                                                                                                                                                                                            Jan-09

                                                                                                                                                                                                                                                                                                                                                     Jan-10

                                                                                                                                                                                                                                                                                                                                                                Jan-11

                                                                                                                                                                                                                                                                                                                                                                         Jan-12

                                                                                                                                                                                                                                                                                                                                                                                  Jan-13
         Feb-01
                  Aug-01
                           Feb-02
                                    Aug-02
                                             Feb-03
                                                      Aug-03
                                                               Feb-04
                                                                        Aug-04
                                                                                 Feb-05
                                                                                          Aug-05
                                                                                                   Feb-06
                                                                                                            Aug-06
                                                                                                                     Feb-07
                                                                                                                              Aug-07
                                                                                                                                       Feb-08
                                                                                                                                                Aug-08
                                                                                                                                                         Feb-09
                                                                                                                                                                  Aug-09
                                                                                                                                                                           Feb-10
                                                                                                                                                                                    Aug-10
                                                                                                                                                                                             Feb-11
                                                                                                                                                                                                      Aug-11
                                                                                                                                                                                                               Feb-12
                                                                                                                                                                                                                        Aug-12
                                                                                                                                                                                                                                 Feb-13
                                                                                                                                                                                                                                          Aug-13


Source: CEIC and Morgan Stanley Research                                                                                                                                                                                                           Source: CEIC and Morgan Stanley Research



            Our US team expects the Fed to begin raising rates in mid-2015, taking it to 1.5% by 2015 year-end. On the back of that, we
             expect 3M SGD SIBOR to rise to 1% by 2015 year-end from ~0.4% currently. Singapore will not be immune to the exogenous
             tightening effects from a less easy Fed policy. Resident lending has increased by 50% of GDP in the period 2007-2Q13 to reach
             159% of GDP amid depressed SIBOR rates and this has buoyed asset prices. As it is, although the Fed has not begun to tighten
             rates yet, the end of the zero-interest rate policy being sooner than it has been before, has already led long yields to rise. Indeed,
             in Singapore 10Y bond yield has risen 120bps from May levels, similar to the 120bps increase in US 10Y bond yield for the same
             period.



                                                                                                                                                                                                                                                                                                                                                                                           32
                                                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                                                             ASEAN Chartbook
                                                                                                                                                                                September 2013




Singapore: Exogenous Tightening to Take Some Wind Out of the Leverage Cycle
                  Bank Leverage Has Picked up for…                                                                      …Both households & non-households
 180%
                                                                                                              180%
                      Bank credit: Domestic Banking units (% of GDP)
 160%                                                                                                         160%

                      Bank credit: Resident lending (Domestic banking                                         140%
 140%                 units + Asian currency units) (% of GDP)
                                                                                                              120%

 120%                                                                                                         100%

                                                                                                               80%
 100%
                                                                                                               60%

  80%                                                                                                          40%
                                                                                                                                     Total system resident lending (ACU + DBU) (% of GDP)
                                                                                                               20%                   Total system resident lending: Personal loans
  60%                                                                                                                                Total system resident lending: Non-personal loans


                                                                                             2013 latest
        1989

               1991

                       1993

                              1995

                                     1997

                                            1999

                                                   2001

                                                          2003

                                                                 2005

                                                                        2007

                                                                               2009

                                                                                      2011                      0%
                                                                                                                     2006    2007    2008     2009     2010     2011     2012     2013
                                                                                                                                                                                  latest

Source: CEIC and Morgan Stanley Research                                                                   Source: CEIC and Morgan Stanley Research



    Not Immune to a less easy Fed policy: Anecdotally, banks have already started to reprice SIBOR-plus mortgage loans. We
     believe the exogenous tightening effects from a less easy Fed policy would potentially create headwinds for selected segments of
     the economy, such as property and interest-rate sensitive spending.




                                                                                                                                                                                             33
                                                                                                                                            MORGAN STANLEY RESEARCH
                                                                                                                                                                  ASEAN Chartbook
                                                                                                                                                                     September 2013




Singapore: For the Medium Term, Macro Rebalancing Singapore-Style Is Needed

     Singapore Consumer Dwarfed by External Demand                                                             Urbanisation and “Silver Tsunami”
                                                                                            70                                 AXJ Urbanisation Rate (%) (LS)                    85
                          Private Consumption (% of GDP) (LS)
                                                                                      240
85                        Exports of Goods & Services (% of GDP) (RS)                                                          AXJ Age Dependency Ratio (%) (RS)
                                                                                                                                                                                 80
                                                                                            60
                                                                                      220                                                                                        75
75
                                                                                      200   50                                                                                   70

                                                                                                                                                                                 65
65                                                                                    180   40
                                                                                                                                                                                 60
                                                                                      160
55                                                                                          30                                                                                   55

                                                                                      140                                                                                        50
                                                                                            20
45                                                                                                                                                                               45
                                                                                      120
                                                                                            10                                                                                   40
35                                                                                    100




                                                                                                 1950


                                                                                                        1960

                                                                                                                1970


                                                                                                                       1980

                                                                                                                              1990


                                                                                                                                     2000


                                                                                                                                             2010

                                                                                                                                                    2020


                                                                                                                                                           2030

                                                                                                                                                                   2040


                                                                                                                                                                          2050
     1961


            1966


                   1971


                           1976


                                   1981


                                          1986


                                                  1991


                                                          1996


                                                                 2001


                                                                        2006

                                                                               2011




Source: CEIC, Morgan Stanley Research                                                       Source: CEIC, Morgan Stanley Research


    Rebalancing needed: Overall, for the medium-term, macro rebalancing to tap higher growth export segments/export destinations
     and improving productivity to offset the drag from ageing population is the only sustainable panacea to raise growth prospects and
     rein in inflation. On the former, an export-growth model will remain the growth strategy but policymakers will likely continue to focus
     on reshaping the export machine to cater to demand from secular trends of urbanisation, ageing and growing affluence (particularly
     in Asia) and capitalise on growth themes such as health urban solutions and wellness and lifestyle services & products.
     Policymakers will also likely implement measures to help companies expand their top-line via introduction of new products, a
     departure from previous strategy of helping companies to manage their bottomline via more cost-effective production.


                                                                                                                                                                                      34
                                                                                                                                                                              MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                        ASEAN Chartbook
                                                                                                                                                                                                                               September 2013




Singapore: Can Mr Productivity Fight the “Silver Tsunami”?
                   Working Age Population Growth Will Dip
                         Significantly in Singapore                                             Dependency Ratio Will Rise More Sharply for Singapore
    5    Working-age population (%YoY)
                                                                                                100
                                                                                                                                                                      China                                    Hong Kong
                                                                                                                                                                      India                                    Japan
    4                                                                                                                                                                 Korea                                    Singapore
                                                                                                 90
                                                                                                                                                                      Indonesia                                Thailand
                                                                                                                                                                      Malaysia                                 Philippines
    3
                                                                                                 80

    2                                                                                            70

    1
                                                                                                 60

    0                                                                                            50

-1                                                                                               40

-2                                                                                               30   Dependency ratio (Ratio of dependants to working
           2010



                        2015



                               2020



                                         2025



                                                  2030



                                                         2035



                                                                    2040



                                                                           2045



                                                                                         2050         age population) (%)

                  China               India              Korea                    Singapore      20




                                                                                                      1950
                                                                                                             1955
                                                                                                                    1960
                                                                                                                           1965
                                                                                                                                  1970
                                                                                                                                         1975
                                                                                                                                                1980
                                                                                                                                                       1985
                                                                                                                                                              1990
                                                                                                                                                                     1995
                                                                                                                                                                            2000
                                                                                                                                                                                   2005
                                                                                                                                                                                          2010
                                                                                                                                                                                                 2015
                                                                                                                                                                                                        2020
                                                                                                                                                                                                                 2025
                                                                                                                                                                                                                        2030
                                                                                                                                                                                                                                2035
                                                                                                                                                                                                                                       2040
                                                                                                                                                                                                                                              2045
                                                                                                                                                                                                                                                     2050
                  Malaysia            Indonesia          Thailand                 Philippines

Source: UN Population database and Morgan Stanley Research                                      Source: UN Population database and Morgan Stanley Research

       Amid the greying population and stricter immigration policies, raising productivity will also need to be a medium-term
        growth strategy to be undertaken. Indeed, working age population is likely to slow from 4.1% CAGR in 2005-2010 period to 1.1%
        CAGR in 2010-2015. Based on our calculations, it poses a drag on potential growth of ~1.3ppt, all else equal. Without measures to
        aggressively increase labour inputs, the panacea for sustaining potential growth would be to raise total factor productivity (TFP)
        gains. Yet, it may difficult to fully close this growth shortfall so quickly. Trend TFP has averaged ~1.4ppt in the past five years and
        would need to almost double to compensate for the greying population. In this regard, we think deterioriating demographics likely
        point to a structurally lower potential growth trend ahead until productivity catches up to close the gap.


                                                                                                                                                                                                                                                            35
                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                                          ASEAN Chartbook
                                                                                                                                             September 2013




Thailand: Next At Risk After Indonesia to Rising Real Rate Trend
Topics            Our Comments
How are we         We forecast 2013/2014/2015 GDP growth at 3.7%/4.4%/4.8%YoY respectively. Consensus (as of September) stands at
different from    3.6%YoY/4.5%YoY.
consensus?
What’s the         Export recovery to provide some growth beta but…..
story?            A US growth rebound and a less bad Europe happening according to script would help to provide some growth beta on the export
                  front. Indeed, despite the global soft patch seen earlier this year, Thailand has still managed to eke out an export growth better than
                  other ASEAN counterparts (in US$ terms). This is likely due to its lower dependence on commodity exports and also its increasing
                  competitiveness on the manufactured exports front.

                   …..Exogenous tightening from rising real rates likely to constrain domestic demand where excesses have built up
                  On the domestic demand front, the picture is less straightforward. This is because in our view, Thailand is next most vulnerable
                  after Indonesia (in ASEAN) to the exogenous tightening effects from expected QE taper and rising US real rates. Previously strong
                  capital flows have likely helped to keep real interest rate low despite weaker current account balances, strong credit growth and
                  rising LDR and this has helped to further sustain the credit growth cycle amid stimulus programs and bolstered GDP momentum.
                  To the extent to which capital flows are now unwinding, Thailand is expected to run current account deficits and LDR ratios are
                  already high, the economy looks vulnerable to this reversal of low real rates and this could constrain how quickly domestic demand
                  would pick up despite the export growth support. Indeed, as it is, we note that recent monetary policy easing has seen limited pass-
                  through to lending and deposit rates.

                   Growth alpha from fiscal policy also faces headwinds amid exogenous tightening from less easy Fed policy
                  Public infrastructure projects is likely to be delayed till 2014 and we expect it to lend a growth stimulus of ~0.6%-pt to 2014 GDP
                  growth, assuming a 50% implementation rate. Even on the fiscal front, we think expectations of a less easy Fed policy could put a
                  lid on how aggressive policymakers can be with fiscal stimulus as this could further weaken the current account which is already in
                  deficit territory. Consequently, an aggressive fiscal stance would mean that policymakers have to tap external funding which would
                  likely come with higher interest cost or face a further a tightening of domestic liquidity conditions and a crowding out of private
                  investment.


Risks and       Upside/downside risks would stem from: (a) pace of DM growth recovery; (b) movement in US real interest rates and; (c) political
where we could climate in the run-up to the 2015 elections, which would have implications on domestic demand.
go wrong?


                                                                                                                                                            36
                                                                                                                                                                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                   ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                           September 2013




Thailand: Technical Recession Amid Stimulus Payback
        GDP Pulls Back As Stimulus Programs Expire                                                                                                                                       Sequential Momentum Has Softened
                                                                                                                                                        140                               Private investment index (sa)                                                                                                                                                      125
                                                                                                                                                                                          Export value index (sa)
  106                                                                                                                                                   130                                                                                                                                                                                                                  120
                                                                                                                                                                                          Private consumption index (sa) (RS)

                                                                                                                                                                                                                                                                                                                                                                             115
                                                                                                                                                        120
  101
                                                                                                                                                                                                                                                                                                                                                                             110
                                                                                                                                                        110
                                                                                                                                                                                                                                                                                                                                                                             105
  96                                                                                                                                                    100
                                                                                                                                                                                                                                                                                                                                                                             100
                                                                                                                                                         90
                                                                                                                                                                                                                                                                                                                                                                             95
  91                                                                     Thailand real GDP sa (Indexed Sep11 = 100)                                      80
                                                                                                                                                                                                                                                                                                                                                                             90
                                                                                                                                                                                                                                                                                            Indexed Jan-08=100
                                                                                                                                                         70                                                                                                                                                                                                                  85
  86
                                                            M a y -1 2




                                                                                                                                          M a y -1 3
                      N o v -1 1




                                                                                                    N o v -1 2
         S e p -1 1




                                   J a n -1 2

                                                M a r-1 2




                                                                           J u l-1 2

                                                                                       S e p -1 2




                                                                                                                 J a n -1 3

                                                                                                                              M a r-1 3


                                                                                                                                                         60                                                                                                                                                                                                                  80




                                                                                                                                                              Jan-08


                                                                                                                                                                                Jul-08
                                                                                                                                                                                         Oct-08
                                                                                                                                                                                                  Jan-09


                                                                                                                                                                                                                    Jul-09
                                                                                                                                                                                                                             Oct-09
                                                                                                                                                                                                                                      Jan-10
                                                                                                                                                                       Apr-08




                                                                                                                                                                                                           Apr-09




                                                                                                                                                                                                                                               Apr-10
                                                                                                                                                                                                                                                        Jul-10
                                                                                                                                                                                                                                                                 Oct-10
                                                                                                                                                                                                                                                                          Jan-11
                                                                                                                                                                                                                                                                                   Apr-11
                                                                                                                                                                                                                                                                                            Jul-11
                                                                                                                                                                                                                                                                                                     Oct-11
                                                                                                                                                                                                                                                                                                              Jan-12


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




                                                                                                                                                                                                                                                                                                                                                           Apr-13
                                                                                                                                                                                                                                                                                                                                                                    Jul-13
 Source: CEIC & Morgan Stanley Research                                                                                                                Source: CEIC and Morgan Stanley Research


    What next after the technical recession? Post flood in 2012, domestic demand and export momentum had diverged as export
   production capacity got crimped whilst domestic demand got a boost from stimulus program. In 1H13, a technical recession
   ensued because domestic demand had pulled back more significantly than expected when stimulus programs expired. At the
   same time, goods export momentum had stayed patchy at subdued levels. Heading into 2014, we suspect both domestic demand
   (+4.1%YoY vs +3.7%YoY in 2013) and exports (+4.1%YoY vs +2.3%YoY in 2013) momentum are likely to converge. Both are
   likely to show a cyclical uptick. However, the pace of acceleration will likely be more marked in exports as exogenous tightening
   inflicted by unwinding of overeasy monetary policy in US puts a rein on how quickly domestic demand would pick up.



                                                                                                                                                                                                                                                                                                                                                                                   37
                                                                                                                                                                                                                                                                                                                MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                                                                               ASEAN Chartbook
                                                                                                                                                                                                                                                                                                                                                                       September 2013




Thailand: DM Recovery to Provide Some Export Growth Beta, but …
                US ISM & Euro PMI: On An Improving Trend                                                                                                                                                             Which Export Destinations Have Been Weaker?
                                                                                                                                                                                                               30            %YoY, 3MMA
 75
                                                                                                                                                                                                               25
 70
                                                                                                                                                                                                               20
 65
                                                                                                                                                                                                               15
 60                                                                                                                                                                                                            10

 55                                                                                                                                                                                                             5

 50                                                                                                                                                                                                             0

                                                                                                                                                                                                               -5
 45
                                                                                                                                                                                                              -10
 40
                                                                                                                                                                                                              -15
 35                          US ISM: New Orders Index (3MMA)                                                                                                                                                  -20
                             Euro PMI (3MMA)




                                                                                                                                                                                                                              May-07




                                                                                                                                                                                                                                                          May-08




                                                                                                                                                                                                                                                                                     May-09




                                                                                                                                                                                                                                                                                                                May-10




                                                                                                                                                                                                                                                                                                                                            May-11




                                                                                                                                                                                                                                                                                                                                                                       May-12




                                                                                                                                                                                                                                                                                                                                                                                                  May-13
                                                                                                                                                                                                                    Jan-07



                                                                                                                                                                                                                                       Sep-07

                                                                                                                                                                                                                                                Jan-08



                                                                                                                                                                                                                                                                   Sep-08

                                                                                                                                                                                                                                                                            Jan-09



                                                                                                                                                                                                                                                                                              Sep-09

                                                                                                                                                                                                                                                                                                       Jan-10



                                                                                                                                                                                                                                                                                                                         Sep-10

                                                                                                                                                                                                                                                                                                                                  Jan-11



                                                                                                                                                                                                                                                                                                                                                     Sep-11

                                                                                                                                                                                                                                                                                                                                                              Jan-12



                                                                                                                                                                                                                                                                                                                                                                                Sep-12

                                                                                                                                                                                                                                                                                                                                                                                         Jan-13
 30

 25
                                                                                                                                                                                                                                                         Total exports                                                                     Exports: China
       Jan-03
                Jul-03
                         Jan-04
                                  Jul-04
                                           Jan-05
                                                    Jul-05
                                                             Jan-06
                                                                      Jul-06
                                                                               Jan-07
                                                                                        Jul-07
                                                                                                 Jan-08
                                                                                                          Jul-08
                                                                                                                   Jan-09
                                                                                                                            Jul-09
                                                                                                                                     Jan-10
                                                                                                                                              Jul-10
                                                                                                                                                       Jan-11
                                                                                                                                                                Jul-11
                                                                                                                                                                         Jan-12
                                                                                                                                                                                  Jul-12
                                                                                                                                                                                           Jan-13
                                                                                                                                                                                                    Jul-13
                                                                                                                                                                                                                                                         Exports: AXJ-ex-China                                                             Exports: US
                                                                                                                                                                                                                                                         Exports: Japan                                                                    Exports: EU27


 Source: CEIC & Morgan Stanley Research                                                                                                                                                                      Source: CEIC and Morgan Stanley Research


   Exports to improve: Compared to other ASEAN economies, Thailand has a relatively more balanced dual-track economy of
   exports and domestic demand. A US growth rebound and a less bad Europe which is happening according to script would help to
   provide some growth beta on the export front.




                                                                                                                                                                                                                                                                                                                                                                                                           38
                                                                                                                                                              MORGAN STANLEY RESEARCH
                                                                                                                                                                                                ASEAN Chartbook
                                                                                                                                                                                                       September 2013




Thailand: DM Recovery to Provide Some Export Growth Beta, but …
    Manufactured Exporters Have Stayed Competitive                                                   Manufactured Global Export Share On Uptrend
% share of   Overall     Iron &      Chemicals Office &  Automotive Textile      Clothing
                                                                                              3.5%
global       manu-       steel                 telcom
                                                                                                                   Thailand Agriculture exports (% share of global agriculture exports)
exports in   factured                          equipment
respective   goods                                                                                                 Thailand Manufactured exports (% share of global manufactured exports)
                                                                                              3.0%
segments


                                                                                              2.5%
1990             0.61%       0.13%       0.16%     1.18%      0.03%      0.89%       2.61%

                                                                                              2.0%
1995             1.11%       0.31%       0.51%     1.93%      0.11%      1.27%       3.16%
                                                                                              1.5%
2000             1.10%       0.63%       0.70%     1.93%      0.42%      1.26%       1.90%
                                                                                              1.0%

2005             1.16%       0.52%       0.81%     1.88%      0.87%      1.36%       1.47%
                                                                                              0.5%

2012             1.42%       0.66%       1.18%     2.17%      1.87%      1.23%       1.01%    0.0%
% share




                                                                                                     1980
                                                                                                            1982
                                                                                                                   1984
                                                                                                                          1986
                                                                                                                                 1988
                                                                                                                                        1990
                                                                                                                                               1992
                                                                                                                                                      1994
                                                                                                                                                             1996
                                                                                                                                                                    1998
                                                                                                                                                                           2000
                                                                                                                                                                                  2002
                                                                                                                                                                                         2004
                                                                                                                                                                                                2006
                                                                                                                                                                                                        2008
                                                                                                                                                                                                               2010
                                                                                                                                                                                                                      2012
gain (2000
to 2012)      0.32%     0.04%     0.49%            0.24%      1.45%     -0.03%      -0.89%
  Source: WTO & Morgan Stanley Research                                                      Source: WTO & Morgan Stanley Research


     Thai exporters are competitive: Indeed, despite the global growth soft patch seen earlier this year, Thailand has still managed
    to eke out an export growth (in US$ terms) better than some other ASEAN counterparts due to its composition of the export
    basket (less commodity centric). Moreover, Thailand’s manufactured exporters have been competitive and their global market
    share has been increasing.




                                                                                                                                                                                                                             39
                                                                                                                                                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                       ASEAN Chartbook
                                                                                                                                                                                                                                                                                                              September 2013

Thailand: … Exogenous Tightening from Rising US Real Rates to Constrain Domestic
Demand Where Excesses Have Built Up
                                                     Drifting Into CAD                                                                                                                                             Bank Credit Penetration
 20%                                                                                                                                                                     160%
                                                                                                                                                                                              % of GDP
                                                                                                                                                                         150%                                                                           Financial institutions
 15%
                                                                                                                                                                                                                                                        (Commercial banks + SFIs)
                                                                                                                                                                         140%
 10%
                                                                                                                                                                         130%

 5%                                                                                                                                                                      120%

 0%                                                                                                                                                                      110%

                                                                                                                                                                         100%
 -5%
                                                                                                                                                                          90%
-10%
                                                                                                                                                                          80%
-15%                                                                                                                                                                      70%
       Jan-05



                         Jan-06



                                           Jan-07



                                                             Jan-08



                                                                               Jan-09



                                                                                                 Jan-10



                                                                                                                   Jan-11



                                                                                                                                     Jan-12



                                                                                                                                                       Jan-13
                Jul-05



                                  Jul-06



                                                    Jul-07



                                                                      Jul-08



                                                                                        Jul-09



                                                                                                          Jul-10



                                                                                                                            Jul-11



                                                                                                                                              Jul-12



                                                                                                                                                                Jul-13
                                                                                                                                                                          60%




                                                                                                                                                                                                                                                                                                                                   2013 latest
                                                                                                                                                                                1992
                                                                                                                                                                                       1993
                                                                                                                                                                                              1994
                                                                                                                                                                                                     1995
                                                                                                                                                                                                            1996
                                                                                                                                                                                                                   1997
                                                                                                                                                                                                                          1998
                                                                                                                                                                                                                                 1999
                                                                                                                                                                                                                                        2000
                                                                                                                                                                                                                                               2001
                                                                                                                                                                                                                                                      2002
                                                                                                                                                                                                                                                             2003
                                                                                                                                                                                                                                                                    2004
                                                                                                                                                                                                                                                                           2005
                                                                                                                                                                                                                                                                                  2006
                                                                                                                                                                                                                                                                                         2007
                                                                                                                                                                                                                                                                                                2008
                                                                                                                                                                                                                                                                                                       2009
                                                                                                                                                                                                                                                                                                              2010
                                                                                                                                                                                                                                                                                                                     2011
                                                                                                                                                                                                                                                                                                                            2012
                         Current acct balance (Monthly annualised, % of GDP)
                         Current acct balance (3M trailing sum, annualised % of GDP)

 Source: CEIC & Morgan Stanley Research                                                                                                                                  Source: CEIC & Morgan Stanley Research


    However, it is a less straightforward picture on the domestic demand front…. as Thailand is next most vulnerable after
   Indonesia to the exogenous tightening effects from expected QE taper & rising real rates (See Thailand Economics: After
   Indonesia & India, Who Next To Watch For Risks, July 19th). Strong capital inflows as evident in the rise in foreign ownership of
   government bonds have helped to keep real interest rate low despite its deteriorating current account balance, strong credit
   growth and rising LDR. This has likely helped to further sustain the credit growth cycle amid government stimulus programs and
   bolstered GDP momentum.




                                                                                                                                                                                                                                                                                                                                                 40
                                                                                                                                                                                                                                         MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                          ASEAN Chartbook
                                                                                                                                                                                                                                                                                               September 2013

Thailand: … Exogenous Tightening from Rising US Real Rates to Constrain Domestic
Demand Where Excesses Have Built Up
 Leverage Has Picked Up In Both Households & Non-
                   Households                                                                                                                                                     LDR ratios in elevated territory
 140%                                                                                                                                  140
          % of GDP                                              Bank credit: Households
                                                                Bank credit: Non-households                                            130
 120%
                                                                Total household debt
                                                                                                                                       120
 100%
                                                                                                                                       110

 80%                                                                                                                                   100

                                                                                                                                        90
 60%
                                                                                                                                        80
 40%
                                                                                                                                        70

 20%                                                                                                                                    60




                                                                                                                                             Jan-94

                                                                                                                                                      Jan-95

                                                                                                                                                                Jan-96

                                                                                                                                                                         Jan-97

                                                                                                                                                                                   Jan-98

                                                                                                                                                                                            Jan-99

                                                                                                                                                                                                     Jan-00

                                                                                                                                                                                                              Jan-01

                                                                                                                                                                                                                       Jan-02

                                                                                                                                                                                                                                Jan-03

                                                                                                                                                                                                                                         Jan-04

                                                                                                                                                                                                                                                  Jan-05

                                                                                                                                                                                                                                                           Jan-06

                                                                                                                                                                                                                                                                    Jan-07

                                                                                                                                                                                                                                                                             Jan-08

                                                                                                                                                                                                                                                                                      Jan-09

                                                                                                                                                                                                                                                                                               Jan-10

                                                                                                                                                                                                                                                                                                        Jan-11

                                                                                                                                                                                                                                                                                                                 Jan-12

                                                                                                                                                                                                                                                                                                                          Jan-13
  0%
                                                                                                                   2 0 1 3 la te s t                           Indonesia - Loan to deposit ratio
        1998

               1999

                      2000

                             2001

                                    2002

                                           2003

                                                  2004

                                                         2005

                                                                  2006

                                                                         2007

                                                                                2008

                                                                                       2009

                                                                                              2010

                                                                                                     2011

                                                                                                            2012

                                                                                                                                                               Malaysia - Loan to deposit ratio
                                                                                                                                                               Thailand - Loan to deposit + bills of exchange ratio
                                                                                                                                                               Thailand - Loans to deposit + bills of exchange ratio (excluding interbank)
                                                                                                                                                               Singapore - Loan to deposit ratio (DBU)

 Source: CEIC & Morgan Stanley Research                                                                                                Source: CEIC & Morgan Stanley Research


    Low real rates have supported strong credit growth & rising LDR: Indeed, leverage as evident in bank credit penetration (%
   of GDP) has been increasing at ~8% of GDP each year in the period 2007-2012, driven by both households and non-households
   segments. Indeed, bank leverage for both households and non-households in Thailand, adjusted for GDP per capita, are higher
   than the regional trend average and LDR ratios has been rising and are in elevated territory.




                                                                                                                                                                                                                                                                                                                                   41
                                                                                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                    ASEAN Chartbook
                                                                                                                                                                                                                          September 2013

Thailand: … Exogenous Tightening from Rising US Real Rates to Constrain Domestic
Demand Where Excesses Have Built Up
                     Capital Flows Unwinding                                 Recent Policy Easing Has Not Filtered Into Market Rates
                                                                             9                                                                                        Policy rate
  2.5                                                                  20%                %                                                                           Savings deposit rate
               Thailand monthly net foreign bond buying (US$bn) (LS)         8                                                                                        3M time deposit
  2.0                                                                  18%
                                                                                                                                                                      Minimum loan rate
               Thailand Foreign ownership of govt bonds (%) (RS)
  1.5                                                                  16%   7

                                                                       14%   6
  1.0
                                                                       12%
  0.5                                                                        5
                                                                       10%
  0.0                                                                        4
                                                                       8%
 -0.5                                                                        3
                                                                       6%
 -1.0                                                                  4%    2

 -1.5                                                                  2%    1

 -2.0                                                                  0%
                                                                             0
        M a r-0 3
        S e p -0 3
        M a r-0 4
        S e p -0 4
        M a r-0 5
        S e p -0 5
        M a r-0 6
        S e p -0 6
        M a r-0 7
        S e p -0 7
        M a r-0 8
        S e p -0 8
        M a r-0 9
        S e p -0 9
        M a r-1 0
        S e p -1 0
        M a r-1 1
        S e p -1 1
        M a r-1 2
        S e p -1 2
        M a r-1 3
        S e p -1 3




                                                                                 Jan-05

                                                                                              Jul-05

                                                                                                       Jan-06

                                                                                                                Jul-06

                                                                                                                         Jan-07

                                                                                                                                  Jul-07

                                                                                                                                           Jan-08

                                                                                                                                                    Jul-08

                                                                                                                                                             Jan-09

                                                                                                                                                                       Jul-09

                                                                                                                                                                                Jan-10

                                                                                                                                                                                         Jul-10

                                                                                                                                                                                                  Jan-11

                                                                                                                                                                                                           Jul-11

                                                                                                                                                                                                                     Jan-12

                                                                                                                                                                                                                              Jul-12

                                                                                                                                                                                                                                       Jan-13

                                                                                                                                                                                                                                                Jul-13
 Source: BoT & Morgan Stanley Research                                       Source: CEIC & Morgan Stanley Research


     Unwinding of overeasy Fed policy impose exogenous tightening effects: Now however, capital flows are unwinding.
   Foreign ownership of government bonds has fallen from 17.7% of outstanding in April-13 to 16.7% in July amid US$2.7bn of
   outflows. Given that Thailand is likely to see current account deficits for 2013/2014/2015 at -0.9%/-0.5%/-0.9% of GDP, reflecting
   a lack of excess savings in the system, we believe the economy looks vulnerable to the exogenous tightening inflicted by the rise
   in real rates in US and this is likely to constrain how quickly domestic demand could pick up despite the export growth support. As
   it is, elevated LDR ratios already means that the recent policy rate cuts have seen limited pass-through to lending and deposit
   rates.



                                                                                                                                                                                                                                                         42
                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                     ASEAN Chartbook
                                                                                                                                                       September 2013

Thailand: Growth Alpha from Fiscal Policy Also Faces Headwinds from Exogenous
Tightening
 Bht2trn Infrastructure Plan: Expected Disbursement                                                      Public Debt Ratios
                                  Expected disbursement                          65%
 450     Bht bn
 400                                381       386                                60%
                                                          356                          57% 56%
 350                                                                             55%              54%
                           308
 300
                                                                                 50%                    49%
                                                                                                              48%
 250                                                             228                                                46%
                                                                                 45%                                                           44%                44%
 200                                                                    187                                                                           42%
                                                                                                                          40%                               41%
                  154
 150                                                                             40%                                                  38%
                                                                                                                                37%

 100                                                                             35%

  50
                                                                                 30%

   0                                                                                   2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

       2013       2014    2015     2016      2017         2018   2019   2020                                    Public debt ratio (% of GDP)

 Source: CEIC & Morgan Stanley Research                                        Source: CEIC & Morgan Stanley Research

  Public infrastructure investment delayed till 2014: With the Bht2trn infrastructure funding bill still in Parliament and the water
 infrastructure projects still needing environmental and health impact assessment before they can proceed, implementation of public
 investment projects is further pushed back into 2014. This pick-up in non-budgetary expenditure would be offset to a certain extent by a
 smaller budget deficit of Rp250bn for FY2013/2014 (vs Rp300bn for FY2012/2013. Net-net, we are expecting public investment projects
 to lend a growth stimulus to the tune of ~0.6%-pt to 2014 GDP growth, assuming a 50% implementation rate of infrastructure projects.

 On the fiscal front, we believe the exogenous tightening from a less easy Fed policy could also put a lid on how aggressive policymakers
 can be with its fiscal stimulus as this could further weaken the current account which is already in deficit territory. This would mean that
 policymakers would have to tap external funding which would likely come at a higher interest cost or face a further tightening of domestic
 liquidity conditions and a crowding out of private investment.
                                                                                                                                                                        43
                                                                                                                     MORGAN STANLEY RESEARCH
                                                                                                                                             ASEAN Chartbook
                                                                                                                                                    September 2013

Thailand: Growth Alpha from Fiscal Policy Also Faces Headwinds from Exogenous
Tightening
       Rice Mortgage Scheme: Counting The Costs                                            Dependency Ratio To Deteriorate
  3.5%                                                                     100
                                                                   3.2%                                             China                   Singapore
                    Special Financial Institutions (SFIs)                                                           Indonesia               Thailand
  3.0%                                                                      90
                    guaranteed debt (% of GDP)                                                                      Malaysia                Philippines
                                                                            80
  2.5%
                             2.2%
                                                                            70
  2.0%
                                              1.7%                          60
             1.6%
  1.5%                                                      1.4%
                                                                            50

  1.0%
                                                                            40

  0.5%                                                                      30
                                                                                 Dependency ratio (Ratio of dependants to working age population) (%)
                                                                            20
  0.0%




                                                                                 1950


                                                                                        1960


                                                                                               1970


                                                                                                      1980


                                                                                                             1990


                                                                                                                    2000


                                                                                                                            2010


                                                                                                                                     2020


                                                                                                                                             2030


                                                                                                                                                        2040


                                                                                                                                                               2050
             2008            2009             2010          2011   2012


 Source: CEIC & Morgan Stanley Research                                   Source: UN Population database & Morgan Stanley Research


    A need to manage fiscal resources efficiently: We would also note that with elections due by July 2015, any policy
   preference to fall back on quick-and-easy consumption-type fiscal measures rather than investment-type of spending in 2014
   would also risk worsening fiscal burden and current account without any commensurate growth or productivity returns in future.
   Indeed, we believe that the following factors of: (a) ageing demography and likely higher social/healthcare expenditure going
   forward; (b) reduced tax revenue base given recent corporate/personal income tax cuts; (c) legacy of populist policy measures
   such as rice mortgage scheme and; (d) current account deficits reflecting a lack of excess savings in the system, point to an
   increasing need for policymakers to manage its fiscal mix more efficiently.



                                                                                                                                                                      44
                                                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                                                             ASEAN Chartbook
                                                                                                                                                               September 2013



Indonesia Macroeconomic Indicators
 Indonesia                                                                2004     2005    2006    2007     2008     2009    2010    2011    2012   2013E      2014E    2015E
 GDP at real 2000 prices            Rp trn                               1,657    1,751   1,847   1,964    2,082    2,179   2,314   2,465   2,618    2,766      2,908    3,068
 GDP at current market prices       Rp trn                               2,296    2,774   3,339   3,951    4,949    5,606   6,447   7,423   8,242    8,926      9,667   10,440
 GDP                                US$bn                                   257     286     364     432      511      539     709     846     878      881        867      926
 Growth rates (Note: Prices rebased to Yr 2000 from Yr1993 from 2000 onwards)
 GDP                                YoY%                                    5.0     5.7     5.5     6.3      6.0      4.6     6.2     6.5     6.2      5.6        5.1      5.5
 Private Consumption                YoY%                                    5.0     4.0     3.2     5.0      5.3      4.9     4.7     4.7     5.3      4.9        4.2      4.6
 Government Consumption             YoY%                                    4.0     6.6     9.6     3.9     10.4     15.7     0.3     3.2     1.2      2.9        4.0      4.0
 Gross capital formation            YoY%                                    6.9    12.4     1.3     1.9     12.4      2.4     8.8    10.5    16.9      3.3        2.2      7.5
 Gross fixed capex                  YoY%                                   14.7    10.9     2.6     9.3     11.9      3.3     8.5     8.8     9.8      4.5        3.4      6.3
 EXPGS                              YoY%                                   13.5    16.6     9.4     8.5      9.5     -9.7    15.3    13.6     2.0      4.8        6.3      6.5
 IMPGS                              YoY%                                   26.7    17.8     8.6     9.1     10.0    -15.0    17.3    13.3     6.6      0.7        2.8      6.5
 Domestic demand                    YoY%                                    5.4     6.3     3.2     4.1      7.6      5.2     5.4     6.1     8.2      4.2        3.6      5.4
 Domestic demand (ex inventories) YoY%                                      7.0     5.8     3.6     6.0      7.5      5.4     5.3     5.7     6.2      4.6        3.9      5.0
 Interest Rates
 30D SBI (Benchmark Rate)           % pe                                   7.43   12.75    9.75    8.00     9.25     6.50    6.50    6.00    5.75     7.75      7.75      7.75
 Prices
 Consumer Price Index               YoY%                                    6.1    10.5    13.1     6.4      9.8      4.8     5.1     5.4     4.3      7.3        7.6      6.5
 Wholesale Price Index              YoY%                                    7.4    15.2    14.1    13.8     25.7     -0.6     4.8     7.5     5.1      na          na       na
 Current Account
 Exports (Goods)                    US$bn                                    71      87    104     118      140      120     158     201     188      183        192      204
 Imports (Goods)                    US$bn                                    51      69     74      85      117       89     127     166     180      182        182      194
 Trade Balance                      US$bn                                    20      18     30      33       23       31      31      35        8        1          9       10
 Net services, income and transfers US$bn                                   -19     -17    -19     -22      -23      -20     -25     -33      -33      -34        -31      -33
 Current Account Balance            % of GDP                                0.6     0.1    3.0     2.4      0.0      2.0     0.7     0.2     -2.8     -3.7       -2.5     -2.5
 Financial Account
 Net FDI                            US$bn                                  -1.5     5.3     2.2     2.3      3.4      2.6    11.1    11.5    14.4      na         na       na
 Financial Account                  US$bn                                   1.9     0.0     2.7     3.0     -2.1      4.8    26.6    13.5    24.9      na         na       na
 Reserves
 International Reserves             US$bn                                  36.3    34.7    42.6    56.9     51.6     66.1    96.2   110.1   112.8      na         na       na
 International Reserves             Imports Months                          8.6     6.0     6.9     8.0      5.3      8.9     9.1     8.0     7.5      na         na       na
 Exchange rates
 Average Exchange rate              IDR/USD                              8,928    9,705   9,164   9,139    9,692   10,408   9,087   8,776   9,384   10,384     11900        --
 Year-End Exchange rate             IDR/USD                              9,223    9,857   9,087   9,334   11,325    9,457   9,023   9,088   9,646   11,400     12200        --
 External Debt
 External Debt                      % of GDP                               53.6    45.9    36.3    32.7     30.6     31.9    28.5    26.6    28.7      na         na       na
 Public Finance
 Fiscal Deficit: Central Govt       % of GDP                               -1.0    -0.5    -0.9    -1.3     -0.1     -1.6    -0.7    -1.1    -2.2     -2.2       -1.5     -1.5
 Govt Total Debt                    % of GDP                               56.6    47.3    39.0    35.2     33.1     28.4    26.0    24.4    24.2       na         na       na
Source: CEIC & Morgan Stanley Research E = Morgan Stanley Research estimates
                                                                                                                                                                                 45
                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                 ASEAN Chartbook
                                                                                                                                                   September 2013



Malaysia Macroeconomic Indicators
Malaysia                                                  2004       2005      2006    2007    2008    2009    2010    2011     2012    2013E     2014E    2015E
GDP at real 2005 prices               RM$bn                516        544       574     610     640     630     677     711      751      782        816      855
GDP at current market prices          RM$bn                487        544       597     665     770     713     795     881      938      957      1,010    1,081
GDP                                   US$bn                128        144       163     194     231     202     247     288      304      306        311      333
Growth rates
GDP                                   YoY%                 6.8         5.3      5.6     6.3     4.8     -1.5    7.4     5.1      5.6       4.1       4.3      4.8
Private Consumption                   YoY%                 9.8         9.1      6.6    10.4     8.7      0.6    6.9     6.8      7.7       6.8       6.8      7.5
Government Consumption                YoY%                 7.6         6.5      5.5     6.6     6.9      4.9    3.4    15.8      5.1       4.8       4.0      4.0
Gross capital formation               YoY%                 3.1         6.0      8.6     9.1     1.8     -9.4   25.3     2.3     22.3       7.3       1.1      2.8
Gross Fixed Capex                     YoY%                 3.6         5.0      6.3    10.4     2.4     -2.7   11.9     6.2     19.9       6.9       4.9      5.5
EXPGS                                 YoY%                16.1         8.3      6.7     3.8     1.6    -10.9   11.1     4.6     -0.1      -2.2       4.5      6.0
IMPGS                                 YoY%                19.6         8.9      8.2     5.9     2.3    -12.7   15.6     6.1      4.7      -0.1       5.0      7.0
Domestic demand                       YoY%                 7.5         7.8      7.0     9.5     6.4     -1.6   11.1     6.8     11.3       6.7       4.7      5.6
Domestic demand (ex inventories)      YoY%                 7.6         7.5      6.3     9.9     6.6      0.3    7.7     7.9     10.6       6.6       5.8      6.4
Interest Rates
Overnight policy rate                 % pe                2.70       3.00      3.50    3.50    3.25    2.00    2.75    3.00     3.00     3.00      3.00      3.00
Prices
Consumer Price Index                  YoY%                 1.4         3.1      3.6     2.0     5.4      0.7    1.7     3.2      1.7      1.9        2.4      2.4
Producer Price Index                  YoY%                 6.3         5.9      3.1     5.5    10.2     -7.3    5.6     9.0      0.0       na         na       na
Current Account
Exports (Goods)                       US$bn                 127        142       161    176      199    157      199     228      228      221       226     237
Imports (Goods)                       US$bn                  99        108       123    138      148    117      157     179      187      192       196      208
Trade Balance                         US$bn                  28         34        37     38       52     40       42      49       41       30        30       29
Net Services, Income and Transfers    US$bn               -12.5      -13.3     -11.3   -7.9    -12.1   -8.4    -14.5   -16.9    -21.1    -21.0     -22.4    -24.9
Current Account Balance               % of GDP             11.8       14.4      16.1   15.4     17.1   15.7     11.1    11.1      6.4      2.8       2.5      1.1
Capital & Financial Account
Net FDI                               US$bn                2.6         1.0       0.0    -2.7    -7.8    -6.3    -4.2    -3.3     -7.1      na        na       na
Capital & Financial Account Balance   US$bn                5.1        -9.8     -11.8   -11.4   -35.6   -22.8    -6.2     7.2     -7.3      na        na       na
Reserves
International Reserves                US$bn                 67          70       83     119      92      98     118     143      149       na        na       na
International Reserves                Import Months        8.1         7.8      8.1    10.4     7.5    10.0     9.0     9.6      9.6       na        na       na
Exchange Rate
Average exchange rate                 MYR/USD             3.80       3.79      3.67    3.44    3.33    3.52    3.22    3.06     3.09     3.18      3.38        --
Year-end exchange rate                MYR/USD             3.80       3.79      3.55    3.33    3.55    3.41    3.13    3.16     3.05     3.33      3.40        --
External Debt
External Debt                         % of GDP            40.7       36.4      30.9    28.2    30.7    32.6    28.6    29.2     27.0       na        na       na
Public Finance
Budget Deficit                        % of GDP            -4.0       -3.4      -3.2    -3.1    -4.6    -6.7    -5.4    -4.8     -4.5      -4.2      -3.5     -3.0
Govt Total Debt                       % of GDP            43.9       42.1      40.6    40.1    39.8    50.8    51.2    51.8     53.5       na        na       na

Source: CEIC & Morgan Stanley Research E = Morgan Stanley Research estimates
                                                                                                                                                                    46
                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                               ASEAN Chartbook
                                                                                                                                                 September 2013




Singapore Macroeconomic Indicators
Singapore                                                2004      2005      2006    2007    2008    2009    2010    2011     2012    2013E     2014E    2015E
GDP at real 2005 prices               S$bn                194       209       227     247     252     250     286     301      305      314       325      338
GDP at current market prices          S$bn                190       209       231     268     270     275     316     334      346      360       381      406
GDP                                   US$bn               113       125       146     178     191     189     232     266      277      287       285      303
Growth rates
GDP                                   YoY%                9.2       7.4        8.6     9.0     1.7    -0.8    14.8     5.2      1.3      2.9      3.6      4.0
Private Consumption                   YoY%                6.1       3.6        4.5     6.7     2.9    -0.5     6.2     4.6      2.2      2.5      3.6      4.0
Government Consumption                YoY%                2.2       5.2        4.6     2.9     6.4     4.2    11.2     0.5     -3.6      9.3      3.5      3.5
Gross capital formation               YoY%               51.2      -0.4       17.2    16.8    28.5   -21.0     5.4    12.7     26.8      4.6      3.4      3.0
Gross fixed capex                     YoY%               10.1       0.4       13.9    17.2    13.7    -3.2     6.1     6.3      6.6     -0.3      5.5      5.8
EXPGS                                 YoY%               19.1      12.4       10.8     9.0     5.0    -7.6    18.6     3.5      0.3      1.7      6.0      8.0
IMPGS                                 YoY%               22.9      11.3       11.1     8.1     9.6   -11.2    15.9     3.6      3.2      2.1      6.3      8.5
Domestic demand                       YoY%               15.5       2.6        8.1     9.3    11.8    -7.6     6.6     6.5      9.7      4.2      3.5      3.5
Domestic demand (ex inventories)      YoY%                6.7       2.8        7.3     9.5     7.0    -0.8     6.8     4.6      2.9      2.4      4.3      4.6
Interest Rates
3mth Interbank Rate                   % pe               1.44       3.25      3.44    2.38    1.06    0.69    0.44    0.38     0.38    0.40      0.40     1.00
Prices
Consumer Price Index                  YoY%                1.7        0.5       1.0     2.1     6.6     0.6     2.8     5.2      4.6     2.4       2.5      2.6
Manufactured Producer Price Index     YoY%                4.6        5.7       2.4    -1.6     3.4   -13.5     1.7     5.3      0.4     na        na       na
Current Account
Exports (Goods)                       US$bn                207       242       281     313     355     289     371     434      436      434     460        497
Imports (Goods)                       US$bn                168       195       230     255     312     239     305     362      375      371     397        433
Trade Balance                         US$bn                 39        47        51      58      43      49      66      73       61       63       63        64
Net services, income and transfers    US$bn              -19.8     -19.8     -14.5   -11.4   -14.0   -15.8    -4.0    -7.3     -9.5    -10.5     -9.8     -10.4
Current Account Balance               % of GDP            17.1      21.4      24.8    26.1    15.1    17.7    26.8    24.6     18.6     18.1     18.5      17.6
Capital & Financial Account
Net FDI                               US$bn              13.4        6.5      18.1    10.1     5.4     0.9    28.3    29.7     33.6      na        na       na
Capital & Financial Account Balance   US$bn              -6.0      -15.6     -18.0   -24.5   -16.2   -24.6   -22.4   -44.2    -28.5      na        na       na
Reserves
International Reserves                US$bn             112.6     116.2      136.3   163.0   174.2   187.8   225.8   237.7    259.3      na        na       na
International Reserves                Import Months       8.1       7.1        7.1     7.7     6.7     9.4     8.9     7.9      8.3      na        na       na
Exchange rates
Average Exchange rate                 SGD/USD            1.69      1.67       1.59    1.51    1.41    1.45    1.36    1.26     1.25    1.26      1.31        --
Year-End Exchange rate                SGD/USD            1.64      1.67       1.54    1.45    1.48    1.40    1.31    1.30     1.22    1.28      1.32        --
Public Finance (FY Ending Mar)
Budget Deficit                        % of GDP           -0.3        0.7       0.3     2.7    -0.3    -0.3     1.0     0.7      1.1     0.7       0.7      0.5
Govt Total Debt                       % of GDP           98.0       95.8      89.2    87.3    94.7   106.1   101.7   106.0    111.4     na        na        na
Source: CEIC & Morgan Stanley Research        E= Morgan Stanley Research estimates

                                                                                                                                                                  47
                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                  ASEAN Chartbook
                                                                                                                                                    September 2013




Thailand Macroeconomic Indicators
Thailand                                                     2004     2005    2006    2007    2008    2009     2010     2011      2012   2013E    2014E     2015E
GDP at real 1988 prices                 Bht bn              3,688    3,858   4,055   4,259   4,365   4,263    4,596    4,600     4,898    5,078    5,300     5,555
GDP at current market prices            Bht bn              6,489    7,093   7,845   8,525   9,080   9,042   10,105   10,540    11,375   12,024   12,853    13,792
GDP                                     US$bn                 161      176     207     265     275     264      319      346       366      393      408       438
Growth rates
GDP                                     YoY%                  6.3      4.6     5.1     5.0     2.5    -2.3      7.8      0.1       6.5      3.7      4.4       4.8
Private Consumption                     YoY%                  6.2      4.6     3.2     1.8     2.9    -1.1      4.8      1.3       6.7      2.4      2.6       3.0
Government Consumption                  YoY%                  5.7     11.3     2.2     9.8     3.2     7.5      6.4      1.1       7.5      5.0      5.0       6.5
Gross capital formation                 YoY%                 12.8     12.8    -3.6     1.0     8.1   -25.2     28.7      0.1      16.8      6.1      7.1       8.9
Gross fixed capex                       YoY%                 13.2     10.5     3.9     1.5     1.2    -9.2      9.4      3.3      13.2      3.4      6.6       7.6
EXPGS                                   YoY%                  9.6      4.2     9.1     7.8     5.1   -12.5     14.7      9.5       3.1      2.3      4.1       5.0
IMPGS                                   YoY%                 13.4      9.0     3.3     4.4     8.9   -21.5     21.5     13.7       6.2      2.0      3.6       5.5
Domestic demand                         YoY%                  7.9      7.5     1.2     2.4     4.3    -6.9     10.3      1.0       9.4      3.7      4.1       5.1
Domestic demand (ex inventories)        YoY%                  7.9      6.8     3.3     2.5     2.5    -2.3      6.1      1.8       8.4      3.0      3.9       4.7
Interest Rates
1D repurchase rate                      % pe                 1.90     3.94    5.00    3.25    2.75    1.25     2.00     3.25      2.75     2.50     3.50      3.50
Prices
Consumer Price Index                    YoY%                   2.8     4.5     4.7     2.2     5.5    -0.8      3.3      3.8       3.0      2.3      2.6       2.5
Core CPI                                YoY%                   0.5     1.5     2.3     1.1     2.3     0.3      0.9      2.4       2.1       na       na       na
Current Account
Exports (Goods)                         US$bn                   95     109     128     151     175     151      192      219      226      230       243      259
Imports (Goods)                         US$bn                   93     106     114     125     158     118      162      202      220      228       239      257
Trade Balance                           US$bn                  1.5     3.4    13.7    26.6    17.3    32.6     29.8     17.0       6.0      2.8       4.1      2.0
Net services, income and transfers      US$bn                  0.0   -11.0   -11.4   -11.0   -15.2   -10.7    -19.7    -11.1      -5.8     -6.3      -6.1     -6.1
Current Account Balance                 % of GDP               1.7    -4.3     1.1     5.9     0.8     8.3      3.1      1.7       0.0     -0.9      -0.5     -0.9
Capital & Financial Account
Net FDI                                 US$bn                  5.8     7.5     8.5     8.3     4.4     0.7      4.5     -0.4      -3.0      na        na       na
Capital & Financial Account Balance     US$bn                  3.6     7.0     8.1    -1.6    12.6    -2.5     25.1     -5.2      11.5      na        na       na
Reserves
International Reserves                  US$bn                49.8     52.1    67.0    87.5    111      138      172      175      182       na        na       na
International Reserves                  Import Months         6.4      5.9     7.0     8.4    8.4     14.1     12.8     10.4       9.9      na        na       na
Exchange rates
Average Exchange rate                   THB/USD              40.3     40.2    37.9    32.2    33.0    34.3     31.7     30.5      31.1     30.9     32.9        --
Year-End Exchange rate                  THB/USD              39.2     41.1    35.7    30.2    35.0    33.2     30.1     31.2      30.6     32.2     33.3        --
External Debt
External Debt                           % of GDP             36.5     33.6    33.8    28.1    27.6    28.6     31.5     30.8      36.4      na        na       na
Public Finance (FY ending September)
Fiscal Deficit: Central Govt            % of GDP             -0.2      0.3    -0.7    -1.6    -1.0    -5.7     -0.8     -2.7      -2.9     -2.4      -1.9     -2.5
Govt Total Debt                         % of GDP             48.1     46.5    40.3    37.4    38.2    43.9     42.4     40.8      43.7       na        na       na
Source: CEIC & Morgan Stanley Research E= Morgan Stanley estimates
                                                                                                                                                                     48
                                                                                                            MORGAN STANLEY RESEARCH
                                                                                                                         ASEAN Chartbook
                                                                                                                           September 2013




Bull Bear Base Case: GDP Growth and Inflation



  Real GDP (%YoY)                2012        2013E         2014E       2015E   Inflation (%YoY)   2012   2013E   2014E    2015E
  Global                                                                       Global
  Bull                                         3.2           4.1        4.4    Bull                       3.4     3.6      3.9
  Base                            3.2          2.9           3.5        3.7    Base               3.3     3.3     3.0      3.1
  Bear                                         2.6           2.4        2.7    Bear                       2.9     2.0      2.1

  Indonesia                                                                    Indonesia
  Bull                                         5.7           5.5        5.8    Bull                       7.5     7.3      6.2
  Base                            6.2          5.6           5.1        5.5    Base               4.3     7.3     7.6      6.5
  Bear                                         5.5           4.3        5.0    Bear                       7.1     8.6      7.1

  Malaysia                                                                     Malaysia
  Bull                                         4.3           5.2        5.4    Bull                       2.0     2.8      2.8
  Base                            5.6          4.1           4.3        4.8    Base               1.7     1.9     2.4      2.4
  Bear                                         3.9           2.5        3.9    Bear                       1.8     2.0      2.0

  Singapore                                                                    Singapore
  Bull                                         3.1           5.1        5.2    Bull                       2.6     3.2      3.3
  Base                            1.3          2.9           3.6        4.0    Base               4.6     2.4     2.5      2.6
  Bear                                         2.7           1.1        2.6    Bear                       2.2     1.8      1.9

  Thailand                                                                     Thailand
  Bull                                         3.9           5.4        5.5    Bull                       2.5     3.2      3.1
  Base                            6.5          3.7           4.4        4.8    Base               3.0     2.3     2.6      2.5
  Bear                                         3.5           2.7        3.9    Bear                       2.1     2.0      1.9


  Source: CEIC & Morgan Stanley Research E= Morgan Stanley estimates




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Bull Bear Base Case: Policy Rates

  Policy Rates               2012         2013E         2014E          2015E
  Indonesia
  Bull                                     7.25          7.25          7.25
  Base                       5.75          7.75          7.75          7.75
  Bear                                     9.00          9.00          9.00

  Malaysia
  Bull                                     3.00          3.00          3.50
  Base                       3.00          3.00          3.00          3.00
  Bear                                     3.00          2.50          2.50

  Singapore
  Bull                                     0.40          0.40          1.25
  Base                       0.38          0.40          0.40          1.00
  Bear                                     0.40          0.40          0.40

  Thailand
  Bull                                     2.50          4.00          4.00
  Base                       2.75          2.50          3.50          4.50
  Bear                                     2.50          2.50          2.50

  Source: CEIC & Morgan Stanley Research E= Morgan Stanley estimates




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Description: What Do Cross-Currents of DM Recovery, Rising Real Rates and China Slowdown Mean for ASEAN