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Singapore Forum - October 15, 2012

Global Growth, Asian Markets Discussed at EMTA Singapore Forum
ING hosted EMTA’s Seventh Annual Forum in Singapore on Monday, October 15, 2012.  A capacity crowd of 150 EM professionals attended the lunch-time event, where panelists focused largely on prospects for Asian financial markets with a spotlight on China.
Tim Condon of ING began the session by requesting that panelists discuss the overall external environment.  Igor Arsenin of Barclays confirmed his firm’s 3.5% global growth estimate for 2013, with EM credited for all of the improvement from 2012.  Royal Bank of Scotland’s Woon Khien Chia saw more downside surprises possible in Europe, and expected two more quarters of sub 2% growth in the US.  Will Oswald (Standard Chartered) reasoned that the challenge remains to get growth rates up in the developed economies, and expected weak growth for the near term.  Dave Fernandez of JPMorgan had a relatively benign outlook, arguing that many tail risks seemed to have decreased.
On China, Arsenin commented that the country was benefiting from reasonable employment numbers and a decision by policy makers to “stay the course.”  Fernandez took an opposing view point, saying markets have consistently been “disappointed” by China’s policy response on growth.  Oswald was constructive on Chinese prospects, all while stressing the need for deeper structural reform.
The future of the CNH market was debated, following a drop-off in enthusiasm for the offshore Chinese currency.  Arsenin noted that initial flows into the CNH market had included speculative flows, viewing it as a one-way currency bet.  Going forward, the market will continue to develop, albeit at a slower speed, he concluded.  Oswald argued that the CNH gambit had been successful because it had achieved Beijing’s primary goal of becoming a settlement currency.  “It’s a petri dish,” which served to allow for the internationalization of the CNY, he stated.
Condon questioned whether his panelists were concerned by “hot money” inflows into Asia originating in the US.  Arsenin reasoned that equity investors had been so badly hurt by the 2008 financial collapse that they remained averse to returning to stocks.  He believed that these investors would thus prefer to remain in fixed income assets, “to eke out every iota of spread compression still possible.”  Fernandez expected inflows to EM to continue, with more inflows into hard currency –denominated bonds.
The panel concluded with analyst recommendations.  Several speakers favored Indian bonds.  Fernandez expected general FX appreciation for Asian currencies in 2013, but warned it would be “choppy, with a lot of swings.”  Chia was bullish on the CNY, Sing $ and Philippine peso and seconded an INR underweight.  Oswald recommended the Thai baht near-term, as well as the BBB corporate sector.  Arsenin also spoke positively on the MYR and would underweight INR.
Don Hanna of Fortress Investment Management led the event’s panel of investment managers.  Hanna reviewed developments in Europe, stating that officials were “sticking band aids to problems as they develop, bumbling on a winding road that will eventually lead to greater integration.”  How were EU issues affecting Asia, he asked.
Anthony Michael of Aberdeen Asset Management was more concerned by US risk than any Eurozone concerns, because of the possible “fiscal cliff.”  The EU had done enough to backstop Spain for the near-term, he argued.  On the other hand, Michael expected that the high levels of unemployment in many EU countries would affect growth for the next decade.  Schroder’s Rajeev DeMello concurred that the fiscal cliff was a serious concern, while hypothesizing that politicians would reach some agreement once the US elections were over. 
Goetz Eggelhoeffer (Rohatyn Group) saw potentially positive signs in the US, with the cost of land, labor and capital being relatively cheap to other regions, and affirmed that the EU was a greater risk to Asian markets than the US.  Stephen Jen (SLJ Macro Partners) criticized the US Treasury for doing little since 2008, while the EU and China had worked on structural reforms.
On a Chinese slowdown, Eggelhoeffer emphasized that decreased growth was deliberate, and officials did not wish to return to 9 or 10% growth.  Jen countered that, in fact, real GDP growth in China was more in the 3.5 to 4% range, and represented a cyclical decline rather than a planned slowdown.  However, Beijing will not allow a hard landing this year because of the upcoming leadership transformation, he added.
Speakers described how regulatory changes were altering the market.  Michael noted that, despite “voracious” investor appetite for new deals, secondary trading markets remained illiquid.  He warned that asset management firms would be the next subject of regulatory changes; “we are all seeing increased costs in being in this business.”  Agreeing, DeMello added that trading costs had risen and predicted industry consolidation, as banks were being pushed to divest of asset management arms.
Getting high-yielders Indonesia and Philippines “right” would be critical to future performance, in Michael’s opinion.  He favored the Sing $ and BB or BBB Asian corporates.  Eggelhoeffer favored equities, and believed the integration of Laos, Cambodia and Myanmar into the global economy would be an interesting theme to follow.  Changes in Philippine birth control laws could lead to a more sustainable growth rate, he added.
DeMello spoke positively on the INR, while Jen wouldn’t be surprised by an equity sell off (though he specified he wouldn’t short stocks either).  Moderator Hanna offered his own praise of the Philippines, while expressing concern on Indonesia and its three presidential candidates.
In addition to ING’s sponsorship, LCH Clearnet provided additional support for the program.