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EMTA Forum in Hong Kong - October 23

Friday, October 23, 2015

Sponsored by ING 

JW Marriott
Pacific Place, 88 Queensway
Salon 6 - JW Marriott Ballroom (Level 3)
Hong Kong

12:00 noon - Registration 

12:30 p.m. - Panel Discussion

"Investing in Asia: Prospects and Risks"
Tim Condon (ING Bank) – Moderator
Brad Gibson (AB)
Adarsh Sinha (Bank of America Merrill Lynch)
Johanna Chua (Citi)
Bryan Collins (Fidelity)

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. 


EMTA Hong Kong Forum Panelists Discuss Chinese Growth and Renminbi 

EMTA’s 10th Annual Hong Kong Forum was held on Friday, October 23, 2015.  ING hosted the event once again, with 100 market participants in attendance.

Repeating his moderating duties from EMTA’s Singapore Forum two days prior, Tim Condon of ING asked Hong Kong speakers to discuss their thoughts on the global economy.  Condon noted that, since the Forum last year, the much-discussed oil price dividend had failed to materialize, and US rate hikes had been repeatedly postponed.  

Brad Gibson (AB) agreed that much of the optimism for 2015 had proven wrong, and noted that his firm was likely to downgrade 2016 growth forecasts as well.  Adarsh Sinha (Bank of America Merrill Lynch) concurred that the global slowdown had been more persistent than expected.  The commodity dividend, which many economists had hoped would provide momentum, was in fact probably offset by muted wage growth.  Sinha believed that Central Banks would have to continue to provide liquidity to counter the persistence of the weak global economy, and specified that he expected the ECB to increase bond-buying and weaken the euro, although he expressed skepticism that these actions would benefit EM local markets, as the US’ QE policy had.

Johanna Chua of Citi highlighted her bearish stance on “weak and sub-par” global growth.  “There are a lot of structural and fiscal policies that would be more appropriate than the current mix, but we all know how difficult politically some of these are to enact,” she stated.  She concurred that the ECB and BoJ would continue to provide liquidity.

“The message when the largest part of the developed global economy is struggling to hike interest rates 25 bps is that things are pretty bleak,” commented Fidelity’s Bryan Collins.  His personal view was that the US FOMC should have raised rates earlier in the year, and “had missed the opportunity to show leadership and provide confidence.” 

Condon prompted panelists to share views on China.  Chua did not expect a hard landing, although “a soft landing in China is equal to a hard landing in other EMs.”  4% to 5% real growth was possible in 2016, and Chinese leaders still had a lot of tools at their disposal.  Gibson agreed that a hard landing should not be the base case.

Sinha expected the renminbi fx regime to become more flexible in 2016, with the yuan’s inclusion into the IMF’s SDR a secondary, not primary, rationale, and that the PBoC would intervene less in the fx market in the future.  He forecast 6.50 RMB per dollar by year-end, which he admitted was aggressive.  “An artificial peg will no longer work,” opined Collins, “the renminbi needs to reflect international trade moves.”  Panel forecasts for the RMB/$ exchange rate in twelve months ranged from 6.90 (Bank of America) to 6.50 (AB). 

Speakers concurred that Asian rate cuts were likely to occur, with South Korea, Taiwan, India, Indonesia, Thailand and Singapore as possible easing candidates.  Chua stressed that rate cuts would be a surprise in Malaysia or the Philippines.

Reflecting on recent turmoil, Condon pondered if the EM growth story marketed to investors over the past generation was no longer valid.  For Chua, some EM countries have become the victims of their own successes, and now have problems typically associated with developed countries – e.g. aging populations, stagnant incomes, high household debt levels, etc.  China in recent years had assisted many EM countries in camouflaging such issues with its strong commodity demand, thereby covering up the need for structural reforms.  “EM countries have matured, and they cannot repeat the productivity growth of earlier years,” she asserted.

The panel concluded with a discussion of liquidity, with Collins labeling it the biggest challenge for investors.  “There is no high yield supply, so no one is selling, and there is limited secondary market trading,” he stated.  Despite these factors, the risk-adjusted returns continued to outperform, and cycles are normal and healthy if appropriate reforms (such as the reduction of subsidies) were occurring.  However, a selective stance in EM investment was necessary.  Gibson noted that reduced liquidity also provided potential opportunities for active investors.