EMTA Forum in Singapore - October 21

EMTA FORUM IN SINGAPORE
Wednesday, October 21, 2015  

Sponsored by  

Fullerton Hotel
The Straits Room, Level 4
1 Fullerton Square
Singapore

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)
David Fernandez (Barclays)
Nizam Idris (Macquarie Bank)
Will Oswald (Standard Chartered) 

"Asia: Prospects and Challenges for the Investor"
Liew Tzu Mi (GIC Private Limited) – Moderator
Adam McCabe (Aberdeen Asset Management)
Joel Kim (Blackrock)
Don Hanna (Roubini Global Economics)
Desmond Soon (Western Asset Management)

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

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 Celebrates Tenth Year of Forums in Asia with Singapore Panel

EMTA celebrated the tenth anniversary of its Asian outreach when it held its Singapore Forum on Wednesday, October 21, 2015.  In introductory remarks, EMTA’s Senior Legal Counsel Leslie Payton-Jacobs thanked ING for its decade-long support of the event, and noted how the Forum had consistently gathered momentum, growing to a standing-room only crowd of 150 attendees.

Tim Condon of ING moderated the Forum’s sell-side panel.  Condon reviewed market performance since last year’s event and asked speakers why investors had been disappointed.

Will Oswald (Standard Chartered) responded that the market had  erred in its forecast of an “oil dividend” boosting consumer spending because it had forgotten that the main driver of lower commodity prices was decreased aggregate demand.

David Fernandez (Barclays) recalled that, last year, sell-side firms had been criticized for not raising their growth forecasts for Asian oil-importers; but that economists’ belief in a continued Chinese slow down, which was the basis for maintaining lower growth expectations, had proven correct.  Nizram Idris (Macquarie Bank) identified US consumers as the only bright spot in terms of their reactions to lower oil prices.  Asian economies had witnessed the biggest downside surprises on inflation, commented Claudio Piron (Bank of America Merrill Lynch).

Speakers discussed their expectations for US rate hikes.  Following mostly disappointing economic data, and prior to November US jobs numbers released several weeks later, most noted their lack of strong conviction on when the Fed would act (although house forecasts largely called for a December hike).  Idris added that inflation-targeting regimes are relatively new, and “are still in a way an experiment.”  A Fed focused on nominal GDP figures would have already hiked rates, he stated.

On China, Piron expressed surprise by 3Q annualized growth figures of 6.9%, having expected stock market turbulence to depress growth.  However, he noted that Bank of America Merrill Lynch’s 6.8% growth forecast for 2016 put the firm squarely in the more constructive camp, where he was joined by Standard Chartered.  Fernandez noted that unofficial estimates of 3Q Chinese growth had ranged from 5½ to 6%; Barclays estimated Chinese growth next year would be 6%, although that was likely to be upgraded as more official economic numbers were released. 

Idris feared that real interest rates were too high, and that Chinese officials might be falling behind the curve.  Chinese leaders still had options, which they had not yet exhausted, to ensure a soft landing, but Idris questioned who was actually in charge of the economy.  “It feels like Prime Minister Li is the weakest leader in years—it feels like he has been pushed to the periphery,” he stated.

On the renminbi, twelve-month forecasts ranged from 6.9 per USD (Barclays) to 6.5 per USD (ING).  “This is still breathtaking how things are changing,” observed Fernandez.  Oswald stressed that changes in the fx regime should not be interpreted as an attempt to spur growth via a devaluation; it appeared to him that China was responding to the laundry list in the IMF’s SDR inclusion report. 

The panel concluded with a discussion of the move to “risk-on” following several months of “risk-off” behavior.  If no disappointing news emerged from China, the “risk-on” state could last until the end of 2015 in Fernandez’s opinion; however, with the potential for an upside surprise to 2016 Chinese growth limited, “risk-off” would probably return next year.  Piron and Idris also voiced concern.  Oswald observed that there was not a lot of conviction in trades, though he voiced greater optimism for 2016. 

EMTA Board Director Liew TzuMi (GIC Private Ltd) led the Forum’s second panel, composed mostly of EM investors.  Did recent EM debt outflows signal an end to the fairy tale, she asked, following general frustration on the pace of EM reforms, the downturn in commodity pricing and disappointments in countries such as Brazil, Turkey, South Africa and Indonesia. 

Panelists affirmed the rationale for investing in EM debt on at least a long-term basis.  Adam McCabe (Aberdeen Asset Management) reminded attendees that the appeal of EM has always been its relatively lucrative yields.  In certain parts of EM fundamentals remain sound, with large pools of domestic savings providing some capacity for policy makers to respond to challenges.  Desmond Soon (Western Asset Management) pointed out that technical factors (such as under-representation in benchmark indices and under-allocation by US institutional investors) also support EM.  Don Hanna (Roubini Global Economics) questioned whether EM countries should be lumped together in one asset class, and stressed that small open EM economies were much more vulnerable to external factors. 

On the much-anticipated US rate hike, McCabe argued that a Fed move would be a positive development, demonstrating confidence in future growth.  Hanna agreed, while warning that, short-term, it could aggravate EM capital outflows.  No more than 3 Fed hikes were likely in 2016, he added.

Blackrock’s Joel Kim commented that, on China, “everyone agrees that economic growth will decelerate.  It doesn’t appear to me that growth is falling off a cliff, or that there will be a complete collapse.”  Soon expressed his concern that officials could make “a serious policy mistake,” in liberalizing the capital account prematurely in their attempt to fast track IMF’s SDR inclusion.

Hanna did not expect China to liberate its capital account in the near future.  A switch to linking the renminbi to a basket of currencies was possible, but Beijing “likes discretion too much to allow for much transparency.”  In sum, analysts had no real idea of who was currently deciding economic policies and what was driving them, he argued.  Although he did not believe it was the motivation of Chinese officials, McCabe reasoned that a fall in the renminbi vis-à-vis the dollar could be seen as a competitive devaluation by some emerging country policy-makers, and believed they would react accordingly.

Liew noted that in an era of unprecedented global liquidity, sell-side liquidity had contracted, while the amount of assets held by the buy-side had increased.  Soon noted that enhanced peer-to-peer platforms, consolidating trades in centers of liquidity, greater analysis by the buy-side of its own clients profile, and better understanding of the market segmentation (e.g. captive vs. cross over investors) could be part of the solution, “but there is no silver bullet,” he concluded.