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EMTA Forum in Singapore

Tuesday, October 21, 2014

Sponsored by ING 

Fullerton Hotel
The Straits Room, Level 4
1 Fullerton Square

12:00 noon - Registration 

12:15 p.m. - Luncheon and Panels Begin

"Asia: A Sell-Side Assessment of Risk and Reward"
Tim Condon (ING Bank) – Moderator
Claudio Piron (Bank of America Merrill Lynch)
Krishna Hegde (Barclays)
Taimur Baig (Deutsche Bank)
Will Oswald (Standard Chartered)

"Asia: Prospects and Challenges for the Investor"
Don Hanna (Roubini Global Economics) – Moderator
Tung Siew Hoong (GIC Private Limited)
Roland Mieth (PIMCO)
Goetz Eggelhoefer (The Rohatyn Group)
Rajeev DeMello (Schroders)

The event will conclude at approximately 2:30 p.m.  

Additional support provided by MarketAxess. 

Luncheon will be served with the compliments of ING Commercial Bank 

Attendance is complimentary for EMTA Members. The registration fee for non-members is US$695. 

Indonesia and China Dominate Discussion at EMTA Forum in Singapore

EMTA’s 9th Annual Forum in Singapore was held on Tuesday, October 21, 2014.  ING hosted the event at the city’s Fullerton Hotel, with over 140 market participants in attendance.  The event followed the transfer of power in Indonesia, and Chinese 3Q GDP data publication, giving speakers ample news for discussion.

“President Jokowi’s election had raised the hopes of investors in Indonesian financial assets,” noted moderator Tim Condon (ING) in his opening remarks.  However, political challenges (including Jokowi’s lack of a majority) and concerns over economic policies had caused some investors in Asia’s “poster child for high risk, high reward” to reduce their exposure; was this justified?

Deutsche Bank’s Taimur Baig advised investors to remain cognizant of political risk.  “This issue has the makings of a constitutional crisis…even if there is a history of pragmatism.”  Baig added that push-back against Jokowi from the opposition via its ending the direct election of local officials “shows the strength of the powers he is fighting against.”  Will Oswald (Standard Chartered) reminded attendees that some of the recent inflows into Indonesia had been from investors fleeing Russia.  “Thus, these inflows might not be Indonesia-specific, and that might add to fragility,” he concluded. 

In contrast, Claudio Piron of Bank of America Merrill Lynch offered a more bullish assessment.  “The news flow from Jokowi will turn more positive once inaugurated as President, allowing him to play hardball with the opposition by exercising his direct executive powers,” he affirmed.” A snap poll by Condon for year-end 2015 rupiah forecasts showed a narrow range, with estimates from 11,900 per USD (Oswald) to 12,500 (Baig).

Speakers were in agreement that Chinese growth would continue to decelerate.  Baig reasoned that the economy had dropped to the leadership’s #3 priority, with Beijing focused more on stabilizing internal party dynamics, and “myriad political tensions, such as in Hong Kong and Taiwan…China seems to be picking one battle after another.”  On the other hand, Oswald noted that the Chinese government recognized the paramount importance of growth in maintaining social stability.

Citing the Conference Board’s forecast of Chinese GDP dropping to 3.9% in the coming decade, Condon asked for speaker thoughts on future growth.  “Do I see growth at 7% over ten years?  Given both demographics and the level of urbanisation now reached, absolutely not,” stated Oswald.  For Baig, if one expected growth to remain at 7%, one was betting on very favorable external factors.
The mid-October volatility in EM could represent a buying opportunity, according to Piron.  As it benefited more than other regions from lower commodity pricing, EM Asia was expected to outperform according to a recent client survey.  He cautioned that, this notwithstanding, developments in Greece and with the ebola epidemic warranted attention.

Investor speakers on a second panel moderated by Don Hanna (Roubini Global Economics) reviewed G-3 developments.  Speakers did not expect dramatic increases in US rates despite recent improvements in the US economy.  GIC Private Ltd’s Tung Siew Hoong viewed 2.1% yields as “too low, but I don’t know if it should hit 3%.”  Rajeev DeMello (Schroder Investment Management) believed that the US economy had returned to a “Goldilocks” scenario, and did not foresee an increase in the next 3-6 months.  This would translate into a favorable scenario for Asian markets, he added.

The deceleration in the Chinese economy was also not a huge concern for investors, following the release of declining (though better-than-expected) Chinese GDP figures.  “China will muddle through; their external vulnerabilities are low,” opined PIMCO’s Roland Mieth.  Lower commodity prices benefited China, added DeMello, who agreed that China would be able to cushion the slow-down.

Speakers also reviewed the Japanese economy, reviewing topics such as the proposed sales tax increase and the political ramifications of a weaker JPY.  As for the Prime Minister Abe’s much heralded plan to revive the Japanese economy, “the ‘third arrow’ has really disappeared; that has been a big disappointment,” stated DeMello.  Mieth predicted that macro forces will push the yen lower, even if domestic politics prevented any further depreciation in the near-term.

Panelists concurred in an optimistic outlook on India.  “I expect one hundred small steps, not a big bang, and so far Prime Minister Modi has not disappointed me,” stated Eggelhoefer.  He cited the recent rollback of diesel fuel subsidies as an encouraging sign, and also viewed the potential implementation of a national sale tax as positive for the economy.  DeMello acknowledged he was becoming more confident in Indian macro economic stability.  Mieth also spoke positively on India, with both he and Tung listing it as among their favorite trades for 2015.

Investor views on Indonesia varied.  “There is money to be made on Indonesian bonds,” according to DeMello, while maintaining a more uncertain view on the rupiah.  Eggelhoefer, a self-avowed Indonesian “perma-bear” revealed that he had become marginally more optimistic, but he remained skeptical that President Jokowi had “the political backbone, and the support, to confront opposing forces.”