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EMTA Forum in Hong Kong - Oct. 8

Monday, October 8, 2018

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. - Luncheon and Panel Begin

"Investing in Asia 2018-2019: Prospects and Risks"
Robert Carnell (ING Bank) – Moderator
Mark Baker (Aberdeen Standard Investments)
Johanna Chua (Citi)
Andrew Tilton (Goldman Sachs)
Angus Hui (Schroders)

Luncheon will be served with the compliments of ING Bank. 

Additional support provided by MarketAxess. 

Registration fee for EMTA Members: US$50 / US$695 for Non-members. 


EMTA Hong Kong Panel Forecasts Lingering Trade War and Further Yuan Depreciation

The majority of attendees at EMTA’s Annual Hong Kong panel expected the US –China trade war to continue unresolved for at least a year, according to an electronic poll conducted by event moderator Robert Carnell (ING). The event was held on October 8, 2018, sponsored by ING with the additional support of MarketAxess.

The future RMB/USD fx rate was the first topic Carnell raised during his discussion. Goldman Sachs’ Andrew Tilton predicted the 7 barrier would be broken in 2019. In his estimation, Beijing would work to stabilize the currency as much as possible, to avoid both aggravating the trade war and a recurrence of the capital outflows that occurred after the 2015 devaluation.

Citi’s Johanna Chua concurred that the dollar would soon buy more than 7 Chinese yuan. While anticipating that the Chinese current account will go into a deficit, she did not foresee Beijing using FX as a policy adjustment mechanism. Rather, China’s desire to maintain current interest rates would leave the RMB as “collateral damage.” Pushed by Carnell to identify a level where Chinese officials would feel forced to act to prevent further FX deterioration, Chua demurred, saying it was “hard to define a specific level where all hell breaks loose.”

Aberdeen Standard Investment’s Mark Baker echoed the views of further yuan depreciation, while predicting the currency would be one of the better performers in EM FX. The analysis portfolio managers needed to conduct, in his view, was how a weaker RMB would affect other Asian and Latin credits.

Carnell asked speakers if the EM sell-off was truly a surprise, and how much further could prices decline. Angus Hui (Schroders) responded that, “some of the excess has been withdrawn from the system…although the US-China trade war had complicated the picture.” However, the effect of the US tax stimulus on international finance remains unclear, he added.

Baker noted that the current sell-off was unusual in that, while there are pronounced outflows from countries such as Argentina, South Africa and Indonesia, there continued to be inflows into EM fixed-income mutual funds. A market bear could thus take the view that outflows from such funds continue to overhang the market, he reasoned. However, institutional investors remain under-allocated to EM credits, which should offer long-term support.

The effect of higher oil prices on Asian economies was reviewed. Chua pointed out that the higher energy costs were the result of supply issues (e.g., Iran, Nigeria and Libya) rather than rising demand. Most panelists concurred that higher oil pricing was not sustainable and would eventually be offset by increased shale supply. In the meantime, India and Indonesia were seen as the most vulnerable countries in the region to higher oil costs.

“Expect the unexpected; and expect that to be bad,” was the view of Baker’s firm on the US-China trade war. Baker was unsure if China would make additional concessions, seeing de-escalation as increasingly less probable. He ventured that the next G-20 summit might be an opportunity for the US and Chinese leaders to make progress.

Chua cautioned that the increased rhetoric on the US side demonstrates that, “the focus keeps getting bigger, and the goal posts keep moving, and I’m not sure what deal can satisfy the hawks.” Her base case was that the 25% tariff on Chinese imports would go into effect as scheduled on January 1, with Mexico the greatest beneficiary, followed by Vietnam and Malaysia. “The US Vice President’s speech really raised the bar on the issues the US has with China,” Tilton stated, specifying that an escalation of the dispute was also his base case.

Panelists concurred that the de-escalation of tensions on the Korean peninsula had limited effect on EM. “So it reduces geo-political risk, but no one really thought the risk was that high,” summarized Chua. Tilton argued that domestic issues were much more important for South Korea.