Asia Outlook and Strategy 2012 Toughing it out - Crédit Agricole CIB

FIM RESEARCH – January 2012 

Asia Outlook and Strategy 2012 

Toughing it out 

Mitul Kotecha Frances Cheung Dariusz Kowalczyk 

Managing Director 

Head of Global FX Strategy 

+852 2826 9821 

Senior Strategist 

Asia ex-Japan 

+852 2826 1520 

Senior Economist/Strategist 

Asia ex-Japan 

+852 2826 1519 

mitul.kotecha@ca-cib.com frances.cheung@ca-cib.com dariusz.kowalczyk@ca-cib.com 

catalystresearch.ca-cib.com 

Crédit Agricole Corporate and Investment Bank is authorised by the Autorité de Contrôle Prudentiel (ACP) 

and supervised by the ACP and the Autorité des Marchés Financiers (AMF) in France and subject to 

limited regulation by the Financial Services Authority. Details about the extent of our regulation by the 

Financial Services Authority are available from us on request.


Contents 

Main views and recommendations 1 

G3: Toughing it out 3 

Asia: Europe triggers deeper slowdown 7 

Country outlook 17 

Australia: Vulnerability 17 

China: Countering hard-landing risks 19 

Hong Kong: External headwinds 29 

India: Battling to regain macro stability 31 

Indonesia: Resilient 33 

Korea: Better positioned but still volatile 35 

Malaysia: Prepared to act on slowdown 37 

New Zealand: Rebuilding boosts activity 39 

Philippines: Ready to weather global storms 41 

Singapore: Sailing through the IT turbulence 43 

Taiwan: Consumers versus manufacturers 45 

Thailand: Time to show resilience 47 

Vietnam: Dong under downward pressure 49 

Appendices 51 

Macro-economic forecasts 51 

Interest rates forecasts 51 

FX forecasts 52 

Commodity price forecasts 52 

Sovereign ratings 52 

Jan 2012


Jan 2012


Main views and recommendations 

‘Toughing it out’. Following a tumultuous 2011 the backdrop to 2012 is a difficult one. Investors will have 

to battle through a multitude of uncertainties, toughing it out for yet another year. Growth will slow further 

while risk aversion will remain elevated for some time to come as Eurozone travails remain in the spotlight. 

Asian growth will still look far more impressive than elsewhere, with monetary easing set to provide support 

to regional economies. High-beta FX including Asian currencies will remain vulnerable in Q1 but recover 

further out on resilient fundamentals. Front-end Asian rates are likely to move down with easier monetary 

policy, while curves will steepen, reflecting a less pessimistic outlook for growth than what is currently priced 

in. 

 

 

 

G3 growth. The backdrop to 2012 is very 

difficult. Even with a resolution to Eurozone 

problems, economic growth globally will slow. 

While the US will likely avoid recession, 

Europe will at least fall into a ‘mild’ recession, 

if not a deep one. Japanese growth will be 

supported by stimulus but will not escape the 

slowdown in external activity. We look for GDP 

growth of 1.9%, 2.5%, and 0.0% for the US, 

Japan and Eurozone, respectively, over 2012. 

G3 interest rates. Monetary policy will remain 

very accommodative. The Fed will maintain 

the Fed Funds target rate at 0.00-0.25% into 

2013, with an expansion of its balance sheet in 

H112 likely. In the Eurozone, we expect the 

ECB policy refi rate to be cut to 0.5% by March 

2012. The ECB will also further strengthen its 

‘enhanced credit support’ measures. Ongoing 

deflation in Japan will maintain the pressure 

on the BoJ to keep policy accommodative. 

G3 FX. After a bad year in 2011, over the next 

12 months we expect a recovery in most highbeta 

currencies against the USD. Conversely, 

major currencies including CHF, JPY, EUR 

and GBP are all expected to weaken. Although 

we ultimately expect the crisis in the eurozone 

to be resolved, the EUR will be constrained by 

relatively slower growth and overvaluation and 

will weaken gradually over 2012 to around 

1.26 versus USD. 

 

from European banks account for 7.9% of GDP, 

so their retrenchment will impact availability of 

credit in a way that can also be managed. 

Moreover, policy can cushion economies from 

negative external developments as falling 

inflation means large scope for stimulative 

measures. Main policy rates will be lowered by 

an average of 60bp in Q1-Q312, and fiscal 

policy will be eased as well. 

Asia rates. Given the scope for policymakers 

to ease, via liquidity measures and policy rates, 

we see further downside to front-end interest 

rates across many Asian markets. Most Asian 

curves are very flat, which appears to imply an 

extremely low growth/shallow recession 

scenario for Asia – a view that we do not share. 

There are also local factors paying up mid- to 

long-end rates such as THB and KRW rates. 

We expect an obvious slowdown in growth, but 

we believe the realisation of a no-recession 

outcome would be enough to trigger some 

curve normalisation and steepening. We see 

supportive factors for Asian bases, preventing 

them from reaching the lows hit during the last 

crisis in 2008-09: appetite for USD paper; better 

dollar cash positions; better prepared Asian 

central banks. In terms of sovereign CDS, we 

see relative value via going long risk in a 

number of markets: Indonesia, Thailand, China 

and Korea, but only when market jitters have 

passed. 

 

Asia growth and inflation. Emerging Asia 

slowed markedly in 2011, to about 7.5% from 

9.2% in 2010. This year, the region will 

decelerate further. Past rate hikes will continue 

to weigh, and Chinese growth will be lower as 

policymakers are determined to bring down 

domestic prices. Delayed resolution of the 

European crisis will weigh on sentiment, 

investment and consumption, while recession 

in the Eurozone will hurt exports. Still, Asian 

growth will remain solid, at 6.5%. The region’s 

exposure to the Eurozone, is manageable – 

15.9% of exports are destined for there. Loans 

 

Asia FX. Downside risks will prevail until a 

convincing solution to the Eurozone crisis 

materialises. The most vulnerable currencies 

come from countries where there is a lot of 

foreign capital that could leave – the KRW and 

the SGD – or where current accounts are in 

deficit – the INR and the VND. The CNY, the 

CNH and the HKD will be safe havens. After 

Europe sorts out its problems, Asian FX will 

recover as fundamentals will become the focus 

of markets again. We see the biggest upside for 

the KRW, the MYR and the SGD. The INR is 

likely to do well given how much it fell in 2011. 

Jan 2012 1




Mitul Kotecha 

mitul.kotecha@ ca-cib.com 

Market stress in 2011 

reached extreme 

proportions 

A credible resolution to the 

Eurozone crisis will be 

required to allow markets to 

heal 

The US will lead growth 

during 2012, but there will 

be several constraints to 

recovery 

The Eurozone will register 

barely no growth over 2012 

G3 

Clouded in uncertainty 

2011 was by any account an extremely tough year. The constant 

gyrations from ‘risk on’ to ‘risk off’ meant that it was practically 

impossible to see beyond the very short term. Concerns about global 

growth, and in particular the Eurozone debt crisis, destroyed any 

optimism that existed earlier in the year. Indeed, any stress in H111 

looked somewhat benign compared to the horrors investors faced over 

H2. Expectations that the ‘soft patch’ in growth in H111 would prove 

temporary were not borne out as activity declined further over H2. 

Policy makers reacted with plenty of announcements and policy 

prescriptions, but without implementation we were faced with mere 

empty promises. It was not just in the Eurozone where policymakers 

failed to get a handle on the crisis, but also in the US where the 

Supercommittee failed to agree on medium term deficit reduction. 

The backdrop to 2012 is therefore a very sour one. A credible 

resolution to the Eurozone crisis will be required to allow markets to 

heal. Even with a resolution, economic growth globally will slow and 

while the US will likely avoid recession, Europe will at least fall into a 

‘mild’ recession if not a deeper one. Japanese growth will be 

supported by a major stimulus package but like most economies will 

not escape a slowdown in external activity. The first few months of the 

year will likely remain clouded in uncertainty and even solutions to the 

crisis in the Eurozone will take time to implement. Further out, we 

expect risk appetite to improve and risk assets to rally but a weaker 

global growth outlook will remain a major dampener on sentiment. 

The US economy will once again lead G3 growth in 2012, following 

a rebound in indicators over H211. Nonetheless, constraints on 

consumer spending will remain in place, especially given the slow 

pace of jobs growth. Household and business spending will also be 

restrained by expectations of major fiscal restraint given automatic 

deficit cuts that will come into effect. Capital investment has been 

quite healthy as corporate profits have held firm but the pace of 

business investment is likely to slow while firms may remain reluctant 

to significantly pick up the pace of hiring. Weaker growth in Europe 

and emerging markets will mean that net exports are unlikely to 

contribute to growth over 2012, while financial contagion from the 

Eurozone will remain a significant risk to the outlook. We look for 1.9% 

GDP growth in 2012 for the US. 

The European economy will face significant headwinds from fiscal 

austerity measures, as well as the negative sovereign feedback loop 

and subsequent reductions in credit to the private sector. However, 

counterbalancing these will be no recession in the US, relative 

strength in emerging economies, German domestic economic 

resilience and a weaker EUR. Overall, the Eurozone economy will 

likely enter into a ‘mild recession’ with no growth expected for the full 

year 2012. Attention will continue to focus on the debt crisis and the 

ability of the Eurozone to recover. Greater fiscal union and a 

strengthening of measures to provide a firewall to the spread of 

contagion will be crucial to implement in the months ahead. Ultimately 

success will partially be judged by the extent that peripheral bond 

yields ease unaided by the ECB. 



Strong pace of Japanese 

growth unlikely to be 

sustained but recovery 

supported by stimulus 

Major central banks will 

continue to maintain very 

accommodative monetary 

policy 

US bond yields at 

exceptionally low levels 

unlikely to persist 

JPY and EUR set to 

weaken against the USD 

but high beta currencies to 

strengthen 

Following three quarters of negative growth, with the economy 

undermined by the impact of the devastating earthquake and tsunami 

in March 2011 Japan bounced back in Q311. The strong pace of 

growth is unlikely to carry forward into 2012, however. Growth has 

been led by private consumption which has proven surprisingly 

resilient over recent months. We expect government consumption 

and public investment to support the recovery process going forward 

following the approval of a JPY18trn stimulus package. Consequently, 

growth in 2012 will be firm at 2.5% although Japan will not be able to 

avoid some negative impact from weaker growth externally especially 

from key export markets such as the Eurozone. 

Monetary policy will continue to remain very accommodative across 

the major economies. In the US the Fed will maintain its commitment 

to keeping the Fed Funds target rate at 0-0.25% throughout 2012 and 

into 2013. Disinflationary pressures will likely intensify in the months 

and quarters ahead, alleviating any urgency for the Fed to reverse its 

course on policy. Moreover, weak growth and easing inflation will 

support additional quantitative easing, with the Fed set to expand its 

balance sheet in H112. Although QE3 may be in the region of 

USD400bn to USD600bn, the impact on interest rates and growth are 

likely to be limited. In the Eurozone, inflation is likely to decline 

especially sharply in Q212 but core inflation will decline only gradually. 

Consequently we expect the ECB policy refi rate to be cut to 0.5% by 

March 2012. The ECB will also further strengthen its ‘enhanced credit 

support’ measures including ongoing bank liquidity support. In terms 

of its bond buying, the ECB will continue its purchases of peripheral 

debt temporarily and in limited quantities but strong political opposition 

will prevent a more aggressive stance. Ongoing deflation in Japan 

together with downside risks to growth from weaker growth externally 

will maintain the pressure on the BoJ to keep policy accommodative 

for a prolonged period of time. 

US bond yields have fallen to exceptionally low levels and while 

foreign central banks had reduced their buying the Fed had taken up 

the slack. Eventually yields will move higher and while global growth 

will be relatively weak and inflation subdued we do not believe that 

10Y bond yields around 2% are warranted. Upward pressure on yields 

will also come from a very heavy supply schedule over the next 12 

months. Improving risk appetite, albeit gradual, will also contribute to 

less Treasury demand. Even in the Eurozone, we look for an eventual 

narrowing in peripheral versus core bond yields but the path ahead for 

peripheral debt will by no means be a straightforward one. 

Our near-term FX forecasts are dictated by our views on risk. 

Although we will likely see bouts of good news, gyrations in risk will 

continue to be significant and volatility will remain elevated. Safehaven 

currencies such as the JPY will remain well supported, while 

high-beta commodity and emerging market currencies will remain 

under pressure in the short term. Further out, fundamentals will play a 

stronger role in driving currencies if, as we expect, risk appetite 

normalises. Over the next 12 months we expect a recovery in most 

high-beta currencies against the USD, but major currencies including 

CHF, JPY, EUR and GBP are all expected to weaken. Although we 

ultimately expect the crisis in the Eurozone to be resolved the EUR will 

be constrained by relatively slower growth, and overvaluation and will 

weaken gradually over 2012 to around 1.26 versus USD. 



Growth revised lower in most cases 

Growth forecasts have 

been revised sharply lower 

for many major economies 

due to austerity, reduced 

credit and the Eurozone 

crisis 

3.5 

3.0 

2.5 

2.0 

% 

Jan 11 Consensus forecasts for 2012 GDP grow th 

Dec 11 Consensus forecasts for 2012 GDP grow th 

CACIB forecasts for 2012 GDP grow th 

1.5 

1.0 

0.5 

0.0 

US Japan Eurozone 

UK 

Fed and BoE most aggressive 

Fed looks set to embark on 

more QE, while the BoE 

will also expand its balance 

sheet. ECB and BoJ 

remain reluctant 

380 

330 

280 

Rebased 

2007=100 

BoJ 

BOE 

Central Banks Balance Sheet Size 

Fed QE2 

Fed QE1 

ECB 

Fed 

230 

180 

130 

80 

2007 2008 2009 2010 2011 

Commodity currencies favoured 

Commodity currencies 

remain the top picks in our 

G10 FX forecast grid, while 

JPY and CHF look weakest 

20 

15 

10 

% 

12M Carry-adjusted Return (vs USD) 

5 

0 

-5 

-10 

-15 

CHF JPY SEK EUR GBP NOK CAD NZD 

AUD 

Sources for the above charts: Bloomberg, Reuters, Crédit Agricole CIB 



Lower wealth to dampen spending 

Weaker equity markets will 

result in reduced consumer 

wealth, adding to the 

already significant 

restraints on US consumer 

spending 

70 

65 

60 

55 

50 

45 

US households & nonprofit organisations net w orth (USDtrn) 

Russell 3000 stock index (RHS) 

1000 

900 

800 

700 

600 

500 

400 

40 

300 

35 

01 02 03 04 05 06 07 08 09 10 11 

200 

Japanese exports suffering 

Government consumption 

and public investment to 

support the recovery 

process, but weak external 

demand and strong JPY 

will weigh on exports 

60 

40 

20 

0 

-20 

Japan Industrial Production YoY% 

Japan Exports YoY% (RHS) 

-40 

-60 

2004 2005 2006 2007 2008 2009 2010 2011 

Will the crisis be resolved? 

Much of the damage to 

markets and economies 

has stemmed from the 

Eurozone debt crisis. 

Without any resolution 

2012 could be a bleak year 

35 

30 

25 

20 

15 

10 

5 

European government bond Spreads vs Bunds, % 

Greece 

Portugal 

Ireland 

Italy 

Spain 

0 

Jul Aug Sep Oct Nov 

2011 




Frances Cheung 

frances.cheung@ca-cib.com 

Dariusz Kowalczyk 

dariusz.kowalczyk@ca-cib.com 

Asia is slowing on policy 

tightening and external 

weakness 

European fiscal woes will 

continue to weigh on Asian 

growth via exports and 

reliance on European 

banks for financing 

Asia 

Europe triggers deeper slowdown 

Emerging Asian GDP growth slowed quite sharply in 2011, to about 

7.5% from 9.2% in 2010. Weaker performance reflects a confluence of 

internal and external factors. High inflation during much of 2011 

triggered monetary as well as fiscal tightening. This curbed domestic 

demand. In addition, political scandals led to a slowdown in 

investment in India, while in China real estate investment slowed due 

to policies aimed at curbing house prices. Externally, the deceleration 

in the developed world is weighing on demand for Asian exports. 

Moreover, the Eurozone fiscal crisis and related market volatility have 

hurt confidence, curbing consumption and investment. 

This year, emerging Asia is likely to decelerate further, to 6.5%. 

There are four key reasons behind the less upbeat outlook. Firstly, last 

year’s rate hikes will continue to have a negative impact on demand in 

H1. Secondly, China seems determined to bring home prices down by 

continuing its restrictive housing policy, which is bound to slow its 

investment and overall growth. Thirdly, turbulence in global financial 

markets is likely to last until Europe convinces them that its fiscal woes 

will be solved. This will continue to limit household spending and 

expenditures on fixed assets. Finally, we expect the Eurozone to 

barely grow this year, with a recession in Q411-Q212. 

Fortunately, Asian exposure to the Eurozone, while significant, is 

manageable. As much as 15.9% of regional exports are destined for 

there. While weakness in European demand will have a clear impact 

on Asia’s exports, it will not ‘make or break’ the region. Loans from 

European banks account for 7.9% of Asian GDP, including 5.2% in 

Korea, 5.1% in China and 2.4% in India. As European banks retrench, 

this will impact the availability of credit in Asia. However, we believe 

the dependence on European banks is not large enough to cause 

major disruptions. For some smaller economies that are key financial 

centres, Hong Kong and Singapore, the dependence is higher at 

18.6% and 15.3%, respectively; this requires closer monitoring. 

Monetary policy will be 

eased as inflation is in 

decline 

Fiscal easing will be used 

to support aggregate 

demand 

Interest rate outlook. We believe that Asian policymakers have the 

ability and willingness to cushion their economies partially from 

negative external developments. Most countries in the region have the 

monetary and fiscal flexibility to support growth. Declining inflation 

means that the scope for stimulative policy measures is large. CPI 

inflation peaked in the region in August and we expect a continued 

decline throughout Asia. Downward pressure on prices is coming from 

decelerating demand, slowing money supply growth, past monetary 

tightening, falling global commodity prices and base effects. Main 

policy rates can be lowered to stimulate lending, and already in Q411 

Indonesia and Thailand softened their policy stance. We expect an 

average of 60bp in cuts in Q1-Q312, with Vietnam and India being the 

most aggressive (300bp and 100bp, respectively). Required reserve 

ratios will be lowered as well. 

Fiscal outlook. On the fiscal front, policy easing has also begun, with 

budget positions deteriorating since the summer. We expect solid 

growth in expenditures and a deterioration in fiscal positions this year 

across the region as governments try to stimulate growth. 



Asian FX to recover only 

after credible solution to 

European fiscal crisis is in 

sight 

The KRW, the SGD and 

the INR are the most 

vulnerable to negative 

external developments 

Regional safe havens: the 

CNY, the CNH, the HKD 

The KRW, the MYR, the 

SGD and the INR will see 

the biggest rebound 

More downside to front-end 

Asian rates; rate curves to 

steepen 

Local factors to drive up 

mid- to long-end THB rates; 

and KRW rates at times of 

risk aversion 

Asian basis better 

positioned this time round 

Some sovereign credits 

present relative value: 

Indonesian, Thai, Chinese 

and Korean 

FX outlook. Until there is a convincing solution to the Eurozone 

fiscal crisis on the horizon, downside risks to Asian FX will prevail due 

to capital outflows and concerns over regional exports, growth and 

external positions. Currencies that are the most vulnerable are those 

from countries where there is a lot of foreign capital that could leave in 

times of risk aversion, such as the KRW and the SGD, or where 

current account positions are negative, such as the INR and the VND. 

The CNY, the CNH and the HKD will be the regional safe havens. 

After Europe sorts out its problems, emerging Asian FX will recover as 

fundamentals become the focus of markets again. These are solid in 

most cases. We see the biggest upside for currencies from countries 

with strong fundamentals, such as the KRW, the MYR and the SGD. 

The INR is likely to do well given how much it fell in 2011. 

Interest rate markets. Given the scope for policymakers to ease, via 

liquidity measures and policy rates, we see further downside to frontend 

interest rates across many Asian markets. Most Asian curves are 

very flat, except the HKD and SGD curves, which follow USD rates 

more, which appear to imply an extremely low growth/shallow 

recession scenario for Asia – a view that we do not share. We do 

expect an obvious slowdown in growth, but we believe a realisation of 

a no-recession outcome would be enough to trigger some curve 

normalisation and steepening. 

There could be local factors that are driving curves steeper. In 

Thailand, post-flood reconstruction and government stimulus projects 

could lead to liability hedging flows to pay up the curve, across the 5- 

10Y segment. Meanwhile, less repatriation of USD could mean more 

downside to front-end THB rates at times of risk aversion. In Korea, 

shortening of duration in bond investment by foreign investors during 

risk-off trading sessions is pushing up long-term yields and rates, and 

the Korean rates market is not dovish enough in pricing in rate cuts. 

The impact on Asian basis has been more measured so far compared 

with the last credit crisis. It has been our view that we are unlikely to 

see the extremely tight USD liquidity situation repeat itself. There 

could be a number of factors supporting this view. Firstly, the issues 

that have led to the current financial market jitters originate from 

Europe, not the US. Investors still have appetite for USD paper, 

providing liquidity for entities that need USD funds. Secondly, data and 

anecdotal evidence suggest that dollar cash positions at non-US 

banks and bond investors have improved over the past two years. 

Thirdly, central banks are better prepared, having coordinated efforts 

to ensure enough liquidity via FX swap lines for example. 

Sovereign credits. Most Asian sovereign CDS premiums have 

widened during 2011, upon worries over the Asian growth outlook. 

Comparing CDS premiums/implied probabilities of default with 

economic fundamentals such as debt/GDP ratios, we see relative 

value via going long risk in a number of markets in Asia. In this 

connection, Indonesia, Thailand, China and Korea stand out, with their 

CDS premiums pricing in cumulative default probabilities of 11.7- 

15.9% in the next five years, while their debt/GDP ratios are well 

below 40%. We do expect some fiscal stimulus this year but overall 

the ratios will still be very manageable. 



Growth slowing but still tops others 

Emerging Asian growth will 

slow to 6.5% this year from 

about 7.5% but will remain 

faster than in the 

developed world or other 

emerging regions 

15 

10 

5 

% YoY 

GDP grow th: EM Asia-11 vs G3 

Forecast 

0 

EM A sia G-3 

-5 

01 02 03 04 05 06 07 08 09 10 11 

12 13 

Almost all economies will decelerate 

Growth will slow across the 

region, the most in 

Malaysia and Hong Kong, 

and only Thailand will 

accelerate 

15 

12 

9 

YoY % 

GDP grow th 

10 

11 (estimate) 

12 (forecast) 

13 (forecast) 

6 

3 

0 

Malaysia 

Philippines 

Korea 

Thailand 

Hong 

Kong 

Taiwan 

Singapore 

Vietnam 

Indonesia 

India 

China 

Output growth in decline 

Growth in industrial output 

has slowed… 

…and manufacturing PMI 

points to further 

deceleration 

70 

60 

pts 

Manufacturing PMI and industrial production 

Average manufacturing PMI* 

Average industrial production 

grow th** (RHS) 

% YoY 

50 

25 

50 

* China, Hong Kong, India, Korea, Singapore, 

Taiw an 

40 

**China, India, Korea, Malaysia, Singapore, 

Taiw an, Thailand 

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 

0 

-25 

Sources for the above charts: Bloomberg, CEIC, Crédit Agricole CIB 



External demand weakening 

Asian export growth has 

slowed… 

50 

EM Asia exports vs US / Eurozone manufacturing sentiment 

70 

…in line with weakening 

demand in Europe and the 

US 

25 

60 

0 

50 

Exports (Asia11), %, YoY 

-25 

US ISM manufacturing, 

advanced 2M (RHS) 

EC Manufacturing PMI, 

-50 

advanced 2M (RHS) 

07 08 09 10 11 

40 

30 

High dependence on exports 

Share of exports in GDP is 

close to Lehman levels… 

…making region vulnerable 

to an external slowdown 

250 

200 

150 

100 

% 

2007 

2008 

2009 

2010 

EM Asia: share of exports in GDP 

50 

0 

Singapore 

Hong Kong 

Malaysia 

Taiwan 


Vietnam 

Philippines 

Korea 

Indonesia 

China 

India 

European slowdown will hurt 

Eurozone is a significant 

market for Asian 

exporters… 

…but its importance should 

not be overestimated 

24 

20 

16 

12 

8 

4 

0 

% Exports by destinations, share of total 12M rolling 

(as of July 2011) 

* end of 2010 

EU USA 

data used 

India 

China 

Vietnam* 

Malaysia 

Philippines 


Indonesia 

Hong 

Kong 

Singapore 

Taiwan 

Korea 




Exposure to European banks 

Loans from European 

banks account for a 

sizeable but manageable 

share of Asian GDP, in 

particular in China and 

India 

Exports to Europe (% of GDP) 

20% 

18% 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

DZD 

VND 

RUB 

MYR 

ILS THB 

ZAR 

CNY 

IDR 

PHP 

INR 

ARS 

VEB 

MEA 

Asia 

KRW EGP 

SAR PEN 

COP 

QAR 

Latam 

BRL 

MXN 

UAH 

TRY 

0% 5% 10% 15% 

20% 

Loans from Eurozone banks (%GDP) 

What if European banks deleverage 

Asian vulnerability to 

deleveraging of European 

banks is limited, except in 

Hong Kong and Singapore 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Loans from Eurozone banks as share of GDP 

CNY 

IDR 

THB 

ILS 

PHP 

DZD 

INR 

KWD 

ZAR 

MYR 

VND 

ARS 

COP 

RUB 

KRW 

SAR 

QAR 

EGP 

PEN 

BRL 

TND 

MXN 

TRY 

UAH 

SGD 

MAD 

HKD 

CLP 

PLN 

RON 

HUF 

CZK 

Inflation is slowing 

Price pressures are 

declining across Asia and 

we expect much lower 

inflation this year versus 

2011 

10% 

8% 

6% 

YoY 

Average CPI inflation in EM Asia* 

4% 

2% 

0% 

-2% 

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 

* WPI inflation used for India 

Jul-11 

Sources for the above charts: Bloomberg, CEIC, Datastream, BIS, IMF, Crédit Agricole CIB 



Rate cuts will continue 

Rate-cutting cycle began in 

Q411 and we expect an 

average of 60bp this year 

16 

12 

8 

% 

EM Asia policy rates 

Sep-11 Nov-11 Sep-12F 

* 6M SOR 

4 

0 

EM Asia 

average 

Singapore* 

Hong Kong 

Taiwan 

Korea 

Malaysia 


Philippines 

China 

Indonesia 

India 

Vietnam 

Fiscal tightening will be reversed 

Asian governments 

tightened budget positions 

in 2011, creating room for 

more spending in 2012 

2 

0 

% 

EM Asia - budget deficit / GDP 

consolidati on is over 

-2 

-4 


Jul-11 

Current accounts deteriorating 

Narrowing trade surpluses 

are leading to a 

deterioration of current 

account positions 

24 

16 

8 

% 

EM Asia current account (% of GDP) 

10 

11 (estimate) 

12 (forecast) 

13 (forecast) 

0 

-8 

Vietnam 

India 

Indonesia 

Korea 

China 


Philippines 

Hong 

Kong 

Taiwan 

Malaysia 

Singapore 




Large foreign liabilities an FX risk 

Liabilities to foreign 

investors are large, posing 

a risk of further capital 

outflow 

600 

500 

400 

300 

200 

USD bn 

EM Asia: portfolio investments (September 2011*, **) 

Debt 

*when international investment position is not available for 

Equities the most recent quarters, sum of flows is used 

**June for China, Hong Kong, Philippines, Thailand; M arch 

for India, M alaysia 

***Singapore - no breakdown into equity and debt available 

100 

0 

Korea 

Hong Kong** 

Taiwan 

Singapore*** 

China** 

India** 

Malaysia** 

Indonesia 

Thailand** 

Philippines** 

FX liquidity ratios vary 

FX liquidity ratio shows 

whether a country has FX 

funds to outweigh outflows 

We look at FX reserves 

and short-term current 

account positions, and 

compare the sum to 

potential outflows: shortterm 

imports, short-term 

debt and foreign 

investments 

China is the most stable 

while India’s liquidity has 

deteriorated 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 

China* 

EM Asia: reserve + 6M current account - coverage of 6M imports, 

short-term debt, portfolio investments* 

*if international investment position (IIP) is not 

June 2008 

available for the most recent quarters, sum of flows 

June 2011** 

is used 

**M arch for: IIP - China, Hong Kong, India, Indonesia, 

M alaysia, Philippines, Thailand; debt - Hong Kong, 

India, Philippines, Singapore, Taiwan 

Philippines* 

Taiwan 

Thailand* 

India* 

Malaysia* 

Indonesia* 

Korea 

Singapore 

Hong_Kong* 

Local factors drive front-end rates 

Correlation at the long end 

is higher than at the front 

end 

1 

Correlation betw een LCY IRS and USD IRS, past one year 

Local factors dominate in 

the CNY, INR, KRW and 

THB rates markets 

Monetary easing via 

liquidity measures and 

policy rate cuts to pressure 

down front-end rates 

0.5 

0 

-0.5 

2Y IRS 

10Y IRS 

-1 

VND THB CNY INR MYR PHP TWD IDR KRW 

SGD 

HKD 




Asian rate curves are flat 

The flat curves appear to 

price in an extremely low 

growth/recession period 

ahead 

This is a view that we do 

not share 

180 bp 

160 

140 

2/5Y IRS* 

2/10Y IRS* 

120 

100 

80 

60 

40 

20 

* average: CNY, KRW, TWD, THB, INR 

0 

-20 

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 

Downgrades in advanced 

economies to trigger faster 

asset re-allocation? 

Relative value – fiscal position 

5Y gov't bond yield % 

9 

8 

7 

6 

5 

4 

3 

2 

1 

0 

* end of 2010 data 

used for Indonesia 

US 

Indonesia 


China 

Malayisa 

Thailand WHT 

Taiw an 

-11 -9 -7 -5 -3 -1 

September 2011 Fiscal balance, % to GDP* 

Korea 

Korea WHT 

1 3 

Relative value – credit rating 

Indonesian, Korean, Thai, 

Chinese and to a lesser 

extent Malaysian govies 

offer attractive yields 

versus fiscal positions and 

ratings 

Vietnam (BB-) 

Philippines (BB+) 

Indonesia (BB+) 

India (BBB-) 

Thailand (A-) 

Malaysia (A) 

South Korea (A+) 

Taiw an (AA-) 

China (AA-) 

Japan (AA-) 

Hong Kong (AAA) 

US (AA+) 

Germany (AAA) 

UK (AAA) 

Singapore (AAA) 

5Y gov't bond yields, % 

0 2 4 6 8 10 12 14 

Sources for the above charts: Bloomberg, CEIC, S&P, IMF, Crédit Agricole CIB 



Asian sovereign CDS widened 

Most Asian sovereign CDS 

premiums widened during 

2011 on worries over 

growth 

120 

90 

bp 

Change in CDS YTD 12/16/2011 

60 

30 

0 

Germany 

US 

Japan 

Vietnam 


Korea 

Philippines 

Malaysia 

Indonesia 

Hong Kong 

China 

Go long risk…when jitters pass 

We see relative value via 

going long risk in some 

Asian sovereigns…but only 

when market jitters start to 

pass 

5Y default probability (%) 

18 

16 

14 

12 

10 

8 

6 

4 

2 

0 

China 

Indonesia 


Korea 

Hong Kong 

Philippines 

Malaysia 

Germany 

0 20 40 60 80 100 120 

Public debt to GDP (%) 

US 







mitul.kotecha@ca-cib.com 

Cheung Kin Tai 

kintai.cheung@ca-cib.com 

Australia 

Vulnerability 

The Australian economy has grown reasonably close to trend 

despite flood disruptions. Nonetheless, the terms of trade appear to 

have peaked, and Eurozone debt woes and slowing Chinese growth 

leave the export-dominated economy vulnerable to external shocks. 

Indeed exports are expected to moderate due on weakening external 

demand and falling commodity prices. Already there are signs that 

slowing Asian trade is beginning to have an impact on Australia’s 

economy and this is likely to continue into 2012. Recent data suggest 

that the housing market remains subdued and employment growth has 

slowed, with the jobless rate rising. However, private consumption has 

picked up while a resumption in coal and iron ore production, and 

strong investment in the mining sector, will likely support growth. 

Going forward, the economy is expected to grow by 3.1% and 3.2% 

in 2012 and 2013 respectively although significant downside risks 

exist. Our expectation of a soft landing for the Chinese economy will 

mean that Australia may be protected to some extent from a recession 

in Europe and weak recovery in the US. However, financial contagion 

may still exert a negative influence, especially if the Eurozone crisis is 

not resolved soon. Investment demand remains strong in the resource 

sector but this contrasts with the caution in the household sector. 

Interest rate outlook. The RBA has maintained a neutral monetary 

policy stance lowering its Cash rate by 25bp to 4.25% at its December 

meeting. The inflation outlook has softened on weakening demand 

and lower wage pressures and taken together with easing labour 

market conditions, inflation is set to ease to within the RBA’s 2-3% 

target band. The effects of the Eurozone crisis and over-indebted 

residential housing market means that more rate cuts are likely. 

Currently the market has priced in aggressive rate cuts over the 

coming quarters, but we reckon this is overdone given the moderate 

growth outlook. We have revised our rate forecasts and look for one 

more 25bp rate cut by Q212. 

AUD outlook. Our forecasts look for AUD to move even further from 

fair value over 2012, with the currency set to reach 1.10 against the 

USD by the end of the year. AUD will, however, continue to face a 

major headwind from an elevated level of risk aversion over the next 

few months and possibly longer. AUD direction will be greatly 

influenced by the general direction of the USD. Our expectation of 

some, albeit gradual USD appreciation over 2012 will at the least 

mean that AUD will find some restraint from this corner. Nonetheless, 

the AUD has several positive factors playing in its favour which we 

believe will be sufficient to overcome a firmer USD index. In particular, 

we continue to believe that the market is overly dovish on expectations 

of policy easing by the RBA. Although further easing is likely over the 

coming months the market has priced in over 100bp of rate cuts by the 

end of Q212. Once it becomes clear that this is not justified AUD will 

rally given its strong correlation with interest rate differentials. Overall, 

despite downside risks we see AUD remaining resilient, helped also 

by ongoing diversification flows of central banks, particularly in Asia. 



Growth vulnerable in 2012 

Australia is vulnerable to 

Eurozone debt woes and 

slowing Chinese growth 

We look for growth of 3.1% 

and 3.2% in 2012 and 

2013, respectively 

2.0 

1.5 

1.0 

0.5 

0.0 

% 

Australia GDP 

% 

forecast 

6 

5 

4 

3 

-0.5 

-1.0 

-1.5 

QoQ 

QoQ F 

YoY (RHS) 

YoY F (RHS) 

-2.0 

00 01 02 03 04 05 06 07 08 09 10 11 

12 13 

2 

1 

0 

Softer labour market conditions 

Employment growth has 

slowed, with an increasing 

jobless rate. Softer labour 

market conditions will help 

ease inflationary pressures. 

50 

40 

30 

20 

10 

Australia employment (000, 3M average) 

Unemployment rate RHS 

% 

6.0 

5.6 

5.2 

4.8 

0 

4.4 

-10 

Jul- 

05 

Jan- 

06 

Jul- 

06 

Jan- 

07 

Jul- 

07 

Jan- 

08 

Jul- 

08 

Jan- 

09 

Jul- 

09 

Jan- 

10 

Jul- 

10 

Jan- 

11 

Jul- 

11 

4.0 

Will softer Chinese growth hit AUD? 

Weaker China 

manufacturing activity 

points to some downside 

risks to the AUD 

65 

60 

55 

50 

45 

40 

35 

07 08 09 10 11 

China manufacturing PMI AUD/USD (RHS) 

1.10 

1.00 

0.90 

0.80 

0.70 

0.60 






China 

Countering hard-landing risks 

Growth outlook. The Chinese economy is continuing its gradual 

slowdown, which is being caused by three factors. Firstly, the fight 

against inflation and related ongoing monetary tightening until summer 

2011, reduced the availability of credit and aggregate demand. 

Secondly, measures to curb housing prices have triggered not just a 

decline in prices but also a slowdown in demand and construction 

activity. Thirdly, the deteriorating external environment has led to 

weakening export growth and a narrowing external surplus. 

Latest developments in the housing market are raising concerns 

over the outlook for the entire economy. Prices started to fall in the 

majority of cities for the first time since 2008. The declines are a result 

of government policies aimed at curbing the rental component of 

inflation and preventing unaffordable housing from threatening social 

stability ahead of this year’s transition of power. 

However, they are already having a negative impact on economic 

activity and the downside appears bigger than the government would 

be willing to accept. If left unchecked, the process may directly 

subtract 1.5 percentage points from 2012 GDP growth, and its indirect 

consequences could lead to a hard landing and a financial crisis. 

Elevated price levels point to a risk of further major declines, which 

would not only hit investment and consumption but also threaten 

public finances. Such a scenario would be unacceptable for policy 

makers due to its economic, social and political implications. The 

situation is being made worse by weakness abroad, which has already 

slowed exports and manufacturing activity. Without significant policy 

easing, growth could fall from slightly above 9% in 2011 to below 7% 

this year, which would be below the five-year plan target. 

To prevent such a scenario from materializing, we expect policy 

makers to ease all macroeconomic policies, with the objective of 

limiting house price declines to 10% over the next two years and 

achieving GDP growth of 7-8%. We expect particular determination in 

preventing significant economic or financial market disruption given 

that 2012 is a year of transition of power to a new generation of 

leaders. We expect measures on the monetary, fiscal and currency 

fronts, and believe that they will allow policy makers to engineer a 

successful soft landing. Our forecast calls for GDP growth to moderate 

to 8.0% in 2012. 

Interest rate outlook. We expect 200bp in required reserve ratio 

(RRR) cuts in Q1-Q3, following recent easing, with the next one in 

January. The RRR remains at a high level, trapping about CNY16trn in 

reserves, and the additional liquidity its cuts will release will stimulate 

lending and demand. 

We believe that the People’s Bank of China (PBoC) will try to bring 

the benchmark 7D repo rate down to 2.3% by Q2. Such a policy 

outlook means that the short end of the CNY IRS curve will be 

pressured further down. We expect the 2Y tenor to bottom out in Q3 at 

2.3% and then rise only gradually as – if Europe solves its fiscal 

woes – the global environment should improve. Longer rates are likely 

to bottom around mid-year on expectations that both growth and 



inflation will recover in the medium term. The 10Y benchmark should 

dip at least to 2.8% but then could rise quite sharply and end the year 

above 3.5%. 

Improved liquidity alone will not be enough to significantly increase 

lending. Thus, we expect an increase in lending guidance by Q1. We 

forecast CNY9.0-9.5trn in new loans in 2012, which will help boost 

aggregate demand in the economy and provide sufficient funds for 

real estate development. 

Finally, by Q2, main policy rates will begin to be lowered. Having 

boosted nominal rates five times, the PBoC has room to cut them, 

given that sharp drop in CPI inflation will bring real rates to positive 

territory. We expect two cuts by 25bp in 1Y deposit and lending rates, 

with the first coming by the spring, after CPI inflation falls below 4% 

YoY. Our annual forecast for CPI inflation in 2012 is 3.4%, down from 

about 5.5% last year, but we see it declining below 3% YoY in Q3. 1Y 

lending year is likely to end 2012 at 6.06%. 

If house prices fall excessively, we would also expect a reduction in 

mortgage rates and / or down payment ratios. They could be easily 

lowered, boosting demand for housing. Other administrative curbs 

may also be relaxed, such as the number of units that a family is 

allowed to own in a city. 

Fiscal outlook. Boosting fiscal spending will also be necessary. In 

2012 we expect expenditure to rise to 24% and the budget deficit to 

widen to 2.0% of GDP, from 0.7% in Q311. Personal income tax cuts 

are likely, which – combined with rapid growth in nominal wages – 

would sustain consumption. A reduction in business tax rates, as well 

as cuts in lending rates and increases in lending quotas, should 

support non-housing investment. This will sustain fast growth of 

aggregate demand. 

New issuance needed to fund the fiscal gap will lead to a widening 

of bond-swap spreads and may push sovereign CDS higher. 

Sovereign yields are likely to still decline, especially at the short end, 

through Q2, before rebounding during H2. 

CNY outlook. China will also try to protect its exporters so as to limit 

the drag on growth, coming from a narrowing trade surplus, by limiting 

appreciation of the CNY. It no longer needs as fast an appreciation of 

its currency as during the past year, as CPI inflation and trade surplus 

are in decline. We expect the surplus to narrow to 0.7% of GDP this 

year and the current account surplus to 1.4% of GDP. In fact, a more 

balanced external position itself means less upward pressure on the 

CNY, already in the last months of 2011 the currency frequently came 

under downward pressure. 

We expect only a 2% gain versus the USD this year, which will limit 

the downside to exports. Our year-end target is 6.20 but the risks are 

skewed towards a higher level than that. There even exists a small 

risk of allowing a further modest weakening of the CNY (although this 

is not our central scenario). 

Moreover, FX policy will be gradually modified by increasing the 

number of currencies against which the CNY can trade onshore. 

Furthermore, the CNY will increasingly be managed against it’s tradeweighted 

basket of currencies rather than largely versus the USD. 

Once the European crisis subsides, we also expect a widening of the 

USD/CNY daily trading band. 



Investors have embraced the FX CNH market as a way to express 

their bets on the Chinese currency. The market is growing fast, with 

daily turnover approaching USD5-10bn for spot and forward 

transactions, and quickly rising option trading activity. By now, the 

CNH FX market is larger than the CNY NDF market. 

We believe that the CNH will continue to trade close to the CNY, 

although volatility of the CNH/CNY basis has increased. The CNH is 

likely to maintain a small discount versus the CNY as long as risk 

aversion dominates in global markets, as it is a way for investors to 

express negative views on China. However, tightness of liquidity in the 

CNH market will limit the discount, and implies that the CNH will 

continue to trade at a large discount in the forward market versus its 

spot rate. 

China’s ascent on the global stage will continue, and currently its 

economy already accounts for about 10% of global GDP, up from 4% 

ten years ago, and about 20% of global growth. Internationalisation of 

the CNY will proceed through the channels of trade, direct investments 

and portfolio flows. While the share of CNY in China’s trade declined 

in Q311 and possibly Q4, and the offshore pool of the CNY in Hong 

Kong stabilised, we expect a modest rebound in 2012. We also expect 

that China will establish new CNY clearing centres, and perhaps 

markets, to accelerate the internationalisation process. Moreover, the 

PBoC will continue to increase CNY swaps with central banks across 

the globe. 

At the same time, direct investments denominated in the CNY – 

currently very small but quickly rising – will be a key area of policy 

push for internationalisation. We also expect a further, albeit gradual, 

opening of the capital account in the portfolio flow area, mostly via 

bonds but also in case of equities. It will be done through the ‘mini 

QFII’ programme available to investors in the CNH market, and 

through more investment into Mainland bonds by foreign central banks 

and commercial banks involved in the CNY trade settlement 

programme. We also expect more foreign central banks to include the 

CNY into their FX reserves and expect a further push by China to 

increase the global clout of the CNY via the IMF by including it in the 

SDR. 

Growth slowing to an 11 year low 

We expect GDP growth to 

decelerate to 8.0% on trade 

and housing investment 

16 

12 

ppt 

GDP grow th and contributions 

Net exports 

Gross capital formation 

Consumption 

GDP grow th (RHS) 

Forecast 

% 

16 

12 

8 

8 

4 

4 

0 

0 

-4 

98 99 00 01 02 03 04 05 06 07 08 09 10 11 

12 13 

-4 

Sources for the above chart: CEIC, Crédit Agricole CIB 



Growth may dip sharply intra-year 

We expect YoY growth to 

bottom in Q3, at around 

7.5% YoY, and sequential 

QoQ growth at 7% 

annualised during H1 

18 

15 

12 

GDP grow th 

%, QoQ annualised 

%, QoQ 

%, YoY Forecast 

9 

6 

3 

0 

Q108 Q308 Q109 Q309 Q110 Q310 Q111 Q311 Q121 Q312 Q131 Q313 

Output decelerating 

Industrial output is slowing 

and manufacturing PMI 

points to a further 

deceleration 

70 

60 

pt 

China manufacturing PMI and industrial production 

%, YoY 

20 

15 

50 

10 

40 

5 

Manufacturing PMI 

30 

Industrial Production (RHS) 


0 

Weaker exports and trade surplus 

Export growth has slowed, 

leading to a narrowing of 

trade surplus 

90 

60 

% YoY 

China foreign trade 

Forecast 

USD bn 

320 

260 

Trade is likely to subtract 

about 1ppt from 2012 GDP 

growth 

30 

0 

200 

140 

-30 

80 

-60 

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 

20 

12M rolling trade surplus (RHS) 

Nominal export grow th 

Nominal import grow th 




House prices in decline 

House prices have begun 

to fall 

16 

12 

% 

House price changes* 

% 

2.0 

1.5 

8 

1.0 

4 

0.5 

0 

MoM (RHS) 

-4 

YoY 

-0.5 


*Starting in January 2011, M oM data is estimated as arithmetic average of M oM changes for existing 

and new homes for 70 biggest cities 

0.0 

Fundamentals point to a further fall 

Valuations are so high that 

when prices begin to 

decline, only policy action 

can avert a sharp drop 

250 

200 

USD '000 GDP per capita versus average home sales price USD '000 

50 

40 

150 

100 

US median sales price 

China average selling price 

US per capita GDP (RHS) 

China per capita GDP (RHS) 

30 

20 

50 

10 

0 

'06 '07 '08 '09 '10 '11 

0 

Sales and construction are down 

We estimate housing sales 

to already be down in YoY 

terms, while construction 

activity is already slowing 

100 

80 

60 

40 

% YoY 

Residential building floor space 

under construction 

sold 

20 

0 

-20 

-40 

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 




Government depends on land sales 

If land prices fall 

government revenues will 

suffer, especially at a local 

level 

240 

220 

200 

180 

160 

Chinese land, prices and contribution to government revenues 

Share of 'use of land' in Chinese 

government revenues, 2006-2010 (RHS) 

Japanese land prices 1982 = 100, 1982- 

1991 

Chinese land prices 2000 = 100 

% 

40 

30 

20 

140 

10 

120 

100 

01 02 03 04 05 06 07 08 09 

10 

0 

Banks exposed to real estate 

Real estate loans account 

for a significant share of 

bank assets 

20% 

16% 

Real estate loans 

30% 

24% 

12% 

18% 

8% 

12% 

4% 

6% 

0% 

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 

Housing mortgages / total loans 

Loans to real estate developers / total loans 

All real estate loans / GDP (12M rolling) (RHS) 

0% 

Inflation is falling sharply 

A steep drop in inflation will 

allow monetary easing 

9 

% 

Inflation 

Forecast 

% 

1.5 

6 

1.0 

3 

0.5 

0 

0.0 

-3 

-0.5 

-6 

PPI, MoM (RHS) 

CPI, MoM (RHS) 

CPI ex. food, YoY 

-9 

CPI, YoY 

sharp drop 

Jan-09 Jan-10 Jan-11 Jan-12 

-1.0 

-1.5 

Sources for the above charts: CEIC, Crédit Agricole CIB 



Rate cuts on the horizon 

Real rates will move to 

positive territory as inflation 

falls, allowing reductions in 

nominal policy rates 

9 

6 

% 

Policy rates (nominal and real) 

Forecast 

% 

15 

10 

We expect 50bp in policy 

rate cuts in 2012 

3 

5 

0 

0 

-3 


-5 

1Y real lending rate (RHS) 

1Y deposit rate 

CPI inf lation (RHS) 

1Y real deposit rate (RHS) 

1Y lending rate 

RRR to be lowered further 

We expect 200bp in RRR 

cuts in 2012 

22 

% 

RRR 

Forecast 

20 

18 

16 

14 

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 

Policy to aim at lower 7D repo 

7D repo needs to fall to 

2.3% by Q2 to be 

consistent with the inflation 

outlook 

6 

3 

% 

7-day repo rate (nominal and real) 

7-day real repo rate* (RHS) 

7-day repo rate 

CPI inf lation 

Forecast** 

% 

12 

6 

0 

0 

*assumes stable 7D repo rate 

-3 

** forecast for CPI inflation only 


-6 




CNY IRS to fall, expect steeper curve 

We expect 2Y CNY IRS to 

decline in line with growth / 

inflation / rates / 7D repo 

It should reach 2.3% in Q2 

10Y benchmark seen at 

2.8% in Q2 

7 

6 

5 

4 

% 

CNY IRS 

Forecast 

2Y IRS 

10Y IRS 

7D repo (30D average) 

3 

2 

Jan-11 Jul-11 Jan-12 Jul-12 

Onshore and offshore curves 

Offshore and onshore 

curves converging 

3.6 

% 

CNY rates / sovereign yields 

3.0 

2.4 

1.8 

1.2 

MM / IRS CGB Dim sum CGB ND IRS 

7D 1Y 2Y 5Y 10Y 

Current account surplus to fall 

We expect a decline to 

1.4% of GDP in 2012 

500 

400 

300 

Current account 

USD bn 

Current account in USD bn 

Current account as % of 

GDP (RHS) 

% 

Forecast 

10 

8 

6 

200 

4 

100 

2 

0 

0 

00 01 02 03 04 05 06 07 08 09 10 11 12 13 




External position more balanced 

Balance of banks’ FX 

transactions with clients 

close to zero 

90 

75 

60 

45 

USD bn 

Smallest net 

purchases from 

clients in a decade 

Balance of banks' FX transactions w ith clients 

30 

15 

0 

01 02 03 04 05 06 07 08 09 10 

CNY: re-pegged to the USD? 

In the last months of 2011, 

CNY spot and fixing rates 

stabilised in narrow ranges, 

resembling re-pegging in 

2008 

The jury is still out as to 

whether this will continue, 

but range trading is a 

possibility until the 

European fiscal crisis is 

resolved 

Our main call remains 

gradual appreciation in 

2012 

CNY spot w ithin daily trading band 

6.28 

6.32 

6.36 

band 

6.40 

fixing 

spot 

30-Sep 10-Oct 20-Oct 30-Oct 9-Nov 19-Nov 29-Nov 9-Dec 

CNY: onshore vs offshore 

Three FX CNY curves (in 

mid-December): onshore, 

offshore deliverable (CNH) 

and offshore nondeliverable 

(NDF) show 

divergent valuations 

6.49 

6.45 

6.41 

USD-CNY 

CNY NDF CNH 

6.37 

6.33 

spot 1M 3M 6M 12M 

Sources for the above charts: Bloomberg, CEIC Crédit Agricole CIB 



NDFs imply depreciation 

Offshore NDF market bets 

on depreciation of CNY 

spot 

4.0% 

3.0% 

2.0% 

1.0% 

CNY NDFs vs onshore spot 

discount 

vs spot reflects 

reduced appetite for 

China exposure 

0.0% 

12M USD/CNY 

-1.0% 

6M USD/CNY 

3M USD/CNY 

-2.0% 

Jan-11 Apr-11 Jul-11 Oct-11 

CNH – CNY spot basis 

CNH spot usually trades 

close to CNY spot but basis 

has become more volatile 

since September 

6.52 

6.47 

CNH vs CNY (spot) 

premium / discount - RHS 

USD/CNY 

USD/CNH 

1% 

0% 

6.42 

-1% 

6.37 

-2% 

6.32 

Jun-11 Jul-11 Aug-11 Oct-11 Nov-11 Dec-11 

-3% 

Setback in CNY internationalisation 

Share of China’s trade 

denominated in CNY 

declined in Q3 and, 

possibly, Q4 of 2011 

600 

CNY bn 

Current account transactions 

settled in CNY 

first decline 

In history 

400 

200 

Other current account items 

Trade - goods 

0 

Q1 '10 Q3 '10 Q1 '11 

Q3 '11 

Sources for the above charts: Bloomberg, PBoC, Crédit Agricole CIB 





Hong Kong 

External headwinds 

2011 growth should have been almost entirely supported by 

consumption and investment, while net exports were a negative 

contributor at least for Q2 and Q311. We expect this trend to continue 

in H112, with net exports providing minimal support to growth. Total 

exports of goods amount to 167% of GDP. However, 98% of exports 

are re-exports, where what matters more is the re-export margin. We 

estimate that domestic export and re-export margins amount to 38% of 

GDP. So the overall impact on growth would be much less than the 

headline number suggests. 

Consumption should still be holding up reasonably well amidst a stilltight 

labour market. That said, there are signs of setbacks in 

employers’ hiring plans, and pockets of redundancy news. As such, it 

would not be realistic to expect consumption to be at full throttle. The 

continued inventory drawdown, in view of the pessimistic export 

outlook, is another drag to growth. We expect economic growth to 

slow to a below-trend 3.8% in 2012. 

Interest rate outlook. HKD bases (Hi-Li) were paid up in Q411 with 

front-end Hi-Li going above zero, a situation that has not been seen 

for more than two years. Firstly, issuance of foreign-currency bonds by 

Hong Kong corporates and the subsequent flows to swap the 

proceeds into HKD could be one of the reasons for the relatively tight 

HKD liquidity. Secondly, the accumulation of HKD deposits has been 

slowing, due partly to the shift to CNH deposits. CNH deposits as a 

percentage of total deposits rose from 1.6% in July 2010 (upon the 

start of the offshore CNH market) to the latest 10.1% as at October 

2011. From the contribution to overall deposit growth in the past two 

years, we reckon that CNH deposits increased at the expense of HKD 

deposits. The tight HKD liquidity may ultimately translate into higher 

HIBORs, especially if banks are under cost pressures for some of their 

loan portfolios, despite the low USD rates. 

CNH CCS was paid up as well, initially due to heightened riskaversion 

that led to bets on CNY depreciation in August/September 

2011. However, even after the market stabilised somewhat, CNH CCS 

continued to go up towards end-2011, reflecting an interest rate play. 

Investors can sell/buy USD/CNH via FX swap or CCS to borrow CNH 

funds. They can then invest these CNH funds into some CNH 

products, the yields of which have been rising. We expect dim sum 

bond yields – increasingly a major CNY product offshore – to grind 

higher still, on more offshore supply and competition from onshore 

bonds. As such, CNH CCS is to be supported. 

HKD outlook. The USD-HKD peg is likely to stay, with no appealing 

alternative, especially given our view that the USD will rebound and 

inflation in the region will trend lower, removing the price pressure 

argument for a de-peg. 



Contributions to GDP growth 

• Net exports will provide 

minimal support for overall 

growth, while inventory 

drawdown will be a drag 

• Growth to depend on 

domestic demand 

14 

12 

10 

8 

6 

4 

2 

0 

-2 

-4 

-6 

PCE+GCE 

GFCF 

ppt 

Change in inventory Net exports 

Q310 Q410 Q111 Q211F Q311 

Exports by destinations 

• Exports to China could be a 

buffer, but only partially… 

• …as some of China’s 

imports are ultimately 

shipped to major 

economies after processing 

60% 

50% 

40% 

30% 

share 

EU US Other Asia China 

20% 

10% 

0% 

04 05 06 07 08 09 10 11 

Sources of deposit growth 

• During 2009, HKD deposits 

accounted for all (and more 

with other FCY deposits 

shrinking) of the overall 

deposits growth 

• From July 2010 to Oct 

2011, HKD deposits 

accounted for less than 

one-third of the growth, 

with RMB deposits 

contributing 64% 

120 

100 

80 

60 

40 

20 

0 

-20 

% share 

during 2009 

HKD deposit 

Rmb deposits 

other FCY deposits 

Jul 2010 to current 

Sources for the above charts: Bloomberg, CEIC, HKMA, Crédit Agricole CIB 





India 

Battling to regain macro stability 

Growth slowed quite sharply in 2011, likely to below 7.5%, and in 

Q3 fell to a two-year low of 6.9% YoY. The deceleration primarily 

reflects softer fixed asset investment, hurt by the impact of political 

scandals and lower confidence. Private sector consumption also came 

under pressure, as evidenced by very weak car sales data. Not 

surprisingly, industrial output growth plunged. Tighter monetary policy 

is partly to blame as well, as the RBI has battled to bring down 

stubbornly high inflation and opted to sacrifice growth in order to 

regain price stability. 

However, overall economic performance in 2011 raises concerns 

over macroeconomic stability. Inflation is likely to average 9.3%, 

sharply above policy targets, the budget gap had widened to 6.3% of 

GDP by September 2011, the current account deficit probably 

exceeded 5% of GDP and growth slowed noticeably. 2012 will be a 

year when policy needs to restore macroeconomic stability, which is a 

tall order given shaken investor confidence and an unfavourable 

external environment. 

We believe that Indian policymakers will succeed in this task, but at 

the expense of even slower GDP growth, which is set to fall to a 10- 

year low of 6.5%. The slowdown will reflect soft consumption and 

investment, and fiscal consolidation. It will allow it to bringing WPI 

inflation down, from 9.3% in 2011 to 5.7% in 2012, as well as narrow 

the current account gap, to around 4% of GDP, and the fiscal deficit 

will be reduced. 

Interest rate outlook. We expect the RBI, which raised its main 

policy rate very sharply, by 225bp, in 2011, to lower its interest rate 

outlook. We see a total of 100bp in cuts, starting in Q1, given that WPI 

inflation had likely begun to fall convincingly already in December 

2011. This will help cushion the slowdown in consumption and 

investment. We also see a cut in the cash reserve ratio (CRR) given 

the tight conditions in the money market. Swap rates and bond yields 

should decline rapidly, especially at the short end. 

INR outlook. The INR is among the most fragile currencies in 

emerging Asia, because – unlike most of its regional peers – it is not 

backed by a current account surplus. However, its sharp depreciation 

in 2011, to record lows, makes the downside relatively limited. We 

expect that the 53 level versus the USD is unlikely to be broken in a 

lasting way, with policymakers using administrative measures if need 

be. When the external environment stabilises beyond Q1, the INR is 

likely to see one of the strongest recoveries in Asia. It will rally on the 

back of still superior growth and interest rate differentials, as well as 

inflows into equity and bond markets once inflation comes down to a 

more acceptable level. USD/INR is likely to end 2012 at 49. 



Current account and fiscal deficits 

Fixed asset investment 

growth turned negative in 

Q3, which – combined with 

softer household 

consumption and exports – 

has lead to a deceleration 

of industrial output growth 

0% 

-2% 

-4% 

C/A / fiscal position (% of GDP)* 

-6% 

Current account (% GDP) 

Deficit to GDP 

-8% *Forecast for Q3 2011 (C/A), Q4 (C/A, fiscal) 

05 06 07 08 09 10 11 

Inflation and monetary policy 

The current account gap as 

a share of GDP ballooned 

on higher trade deficit and 

as plunging INR reduced 

the value of GDP in USD 

terms 

3 

2 

1 

% 

WPI Inflation and monetary policy 

Forecast 

% 

15 

10 

5 

Contracting government 

revenues pushed the 

budget gap higher 

0 

-1 

MoM 

YoY (RHS) 

0 

-5 

-2 

Repo yld (RHS) 

08 09 10 11 12 

-10 

Investment / industrial production 

Price pressures likely 

started to subside in 

December 

The RBI will cut rates by 

100bp in 2012 

30 

20 

% YoY 

Investment and industrial production 

Industrial production 

Investment 

10 

0 

-10 

Q107 Q307 Q108 Q308 Q109 Q309 Q110 Q310 

Q111 

Q311 






Indonesia 

Resilient 

Growth was strong and stable in 2011, with a reliable contribution 

from all segments of the economy. Private sector consumption, 

government spending and fixed asset investment all showed solid 

growth, highlighting the steady performance of domestic demand. 

Exports did very well as well, showing double-digit growth for the 

second consecutive year, allowing trade to a make significant positive 

contribution to GDP growth. The results have solidified the improved 

perception of macroeconomic policy management. 

One of the best performers in the region last year, Indonesia, is 

likely to repeat that feat in 2012 despite a weaker external 

environment. We see solid growth of household and government 

spending. Investment is likely to slow but the outlook is that it should 

be supported by Chinese demand for commodities – a factor that will 

boost mining and infrastructure spending in the long run. Indeed, 

Chinese plans to invest tens of billions of USD in the two sectors in the 

years to come will be a key factor stabilising economic performance. 

Still, trade may subtract from growth as foreign demand is set to 

weaken while domestic demand will continue to be solid. On balance, 

we expect GDP growth to slow from 6.4% in 2011 to 5.5% in 2012 and 

then to rebound to 6.0% in 2013. 

Interest rate and fiscal outlook. We expect the Bank of Indonesia 

(BI), which cut its main policy rate quite sharply – by 75bp in 2011, to 

lower it once more by 25bp to 5.75%. This will be needed to support 

consumption and investment in the face of a global slowdown and, in 

particular, a weaker outlook for Chinese growth. Slowing CPI inflation 

will make the easing possible. We expect inflation to fall to 3.5% YoY 

in Q1. It should average 4.3% YoY in 2012, down from 5.4% in 2011 

and near the midpoint of the central bank target band. 

We also expect government spending to pick up. Indonesia has one of 

the lowest ratios of budget deficit and debt to GDP, making it easy to 

finance increased public spending. This will help sustain aggregate 

demand. Swap rates and bond yields should decline, especially at the 

short end, but downsides are limited by their fall in 2011 and the fact 

that much of the rate cuts have already occurred. 

IDR outlook. The IDR came under pressure in the last four months 

of 2011 and we expect the pressure to continue as risk aversion is 

likely to dominate in the coming months. We expect depreciation in 

Q1, towards 9,300, on global risk aversion. However, the downside 

will be limited by BI interventions, with higher FX reserves at its 

disposal, and outperformance of the Indonesian economy, as well as 

attractive government bond yields. Beyond Q1, we see a recovery in 

line with a likely improvement of sentiment in the global markets, 

towards 8,700 by the end of 2012. 



Steady growth of domestic demand 

All components of final 

domestic demand are 

doing well 

% 

9 

GDP grow th and contributions (quarterly) 

Private consumption 

Government consumption 

Investments 

Net exports 

Change in inventories 

GDP (RHS) 

% YoY 

9 

6 

6 

3 

3 

0 

0 

-3 

Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 

-3 

More room for cutting rates 

Sharp drop in CPI inflation 

leaves more room for 

monetary easing 

3% 

2% 

CPI Inf lation 

MoM 

YoY (RHS) 

BI rate (RHS) 

Policy target (RHS) 

Forecast 

15% 

10% 

1% 

5% 

0% 

0% 

-1% 

08 09 10 11 12 

-5% 

Improved trade position 

Strong exports have 

boosted trade surplus 

60 

45 

% YoY 

Trade (12M anualized) 

USD bn 

40 

30 

30 

20 

15 

10 

0 

Trade balance (RHS) 

-15 

Exports grow th 

Imports grow th 

-30 

Jan-10 Jul-10 Jan-11 Jul-11 

0 

-10 

-20 






Korea 

Better positioned but still volatile 

The slowdown in the Korean economy from H111 to H211 was 

broad-based, with consumption, facilities investment and exports all 

registering lower growth. Net exports were a major contributor to 

growth in 2011, but we expect export growth to slow considerably in 

2012, on base effects and weak external demand – especially for 

electronic products. Consumption should hold up reasonably well 

amidst a tight labour market, albeit still affected indirectly by the soft 

exports via production activity. 2012 GDP growth should be at a 

below-trend 3.6%, versus an estimated 3.7% in 2011. 

Household loans extended by commercial & specialised banks (CSB), 

and non-bank depository corporations slowed in Q3, but loans 

extended via other financial corporations almost doubled compared 

with Q2. While the average lending rate for total outstanding loans at 

CSB edged down in Q3, the lending rate for household loans actually 

edged up. This could reflect tighter liquidity for households, which 

might have faced difficulty borrowing from banks. The household 

credit to GDP ratio remained stable, and easier liquidity is needed to 

insulate households from the worsening economic environment. 

Interest rate outlook. While the Bank of Korea is still trying to 

manage inflation expectations, the focus has clearly shifted to the 

growth slowdown from inflation pressures. We expect CPI inflation to 

ease to 3.5% in 2012, as economic activity slows and oil prices drop. 

The KRW IRS curve is likely to steepen, especially across the 1/5Y 

segment with 1/2Y inverted, given scope for the BoK to ease – we 

expect a 25bp cut in the policy rate in each of Q2 and Q312. On the 

other hand, the flat IRS curve appears to price in zero growth/shallow 

recession for the Korean economy, which is not our core call. When 

the Korean economy proves its resilience, despite the growth 

slowdown, the curve should normalise and steepen from the current 

level. While there could be downside to KRW basis on and off, the 

much improved short-term foreign debt position (from a high of 79.1% 

of GDP in Q308 to 45.7% now) and better prepared policies such as 

FX swap lines are likely to mitigate the impact, preventing the bases 

from reaching the extremes seen in the last credit crisis in 2008-09. 

On the bond side, Thai investors have been leaving the MSB/KTB 

market as expected. The slack is made up for by other investors, 

notably those from China, the US and Malaysia. On balance, KTBs 

still offer relative value but, with lowered yields and heightened risk 

aversion, we would expect foreign investors to shorten duration. This 

would add to upward pressures on long-end yields and rates, 

underpinning our call for curves to steepen. 

KRW outlook. The KRW has been relatively volatile compared with 

its regional peers between risk-off and risk-on trading sessions. 

USD/KRW could be testing 1,200 during the early part of 2012 as 

external uncertainty remains. Thereafter, as global sentiment is 

expected to stabilise gradually, the KRW should be able to regain 

strength based on resilient fundamentals – we expect Korea to 

maintain a current account surplus at 1.9% of GDP in 2012 and to 

avoid a recession. Expected net bond inflows are supportive as well. 



Weak demand for electronics 

The share of exports of 

electrical and electronic 

products to total exports 

have fallen from 40% in 

2004 to the current 30% 

Still, the share is 

significantly high 

90 

60 

30 

0 

% YoY 

-30 

Total exports 

Exports of electrical and electronic products 

-60 

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 

Household credit creation, sources 

Household credit creation 

has slowed of late, 

especially loans from 

CSBs, which are charging 

household borrowers 

marginally higher rates 

25,000 

20,000 

15,000 

KRW bn 

Other financial corporations 

Depository corporations: non-bank depository corporations 

Depository corporations: commercial and specialized banks (CSBs) 

10,000 

5,000 

0 

Dec-10 Mar-11 Jun-11 

Sep-11 

China and the US are investing 

Chinese and US investors 

are investing in KRW 

bonds 

Thai investors may also 

return if KRW bases get 

negative enough 

Current account surplus 

and expected bond inflows 

are supporting the KRW, 

but only when the market 

stabilises 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

-1,000 

-2,000 

-3,000 

-4,000 

-5,000 

KRW bn 

Korea: net flow s in LCY bonds: KRW 11 trn 

Jan-Nov 2011 

TH FR UK GE SG Lux. CN US 

MA 




Anthony Lam 

anthony.lam@ca-cib.com 

Malaysia 

Prepared to act on slowdown 

In 2011, the Malaysian economy held up better than expected. 

Domestic consumption was solid, contributing 3.6 percentage 

points to GDP growth in the first three quarters, while the external 

sector resumed its positive contribution to GDP, adding 1.3 

percentage points in both Q211 and Q311 after five straight 

quarters of negative contribution. An additional 2.6 percentage 

point boost to GDP was provided by the government in Q311, 

which is likely to enable the economy to grow by about 5% over 

the whole year. 

Going forward, the worsening economic outlook in Europe and 

the uncertainties in the presidential election year in the United 

States will inevitably affect the Malaysian economy given its 

reliance on exports, which – behind Hong Kong and Singapore – 

are the highest in the region. The dent to exports will, however, be 

tempered by the relatively low exposure to Europe and the United 

States, as 70% of Malaysian exports are destined for Asia. 

The domestic political environment may turn out to be no less 

challenging than the slowing external demand. As required by 

Malaysian law, the next general election has to be held by 2013. 

Speculation is rife that it will be held in 2012. Until the election, 

political uncertainties may affect the confidence of foreign 

investors and trigger capital outflows. On a more positive note, the 

planned increase of 10% in government budget expenditure to 

MYR233bn in 2012 can provide a further buffer for the domestic 

economy. 

Interest rate outlook. If fiscal policy alone is unable to maintain 

growth momentum, the Bank Negara Malaysia can ease monetary 

policy to support the economy. Although inflation has stayed above 

3% since March 2011, we expect it to come down below 3% early 

in 2012, which allows a 50bp rate cut to 2.5% by H112, a reversal 

of half of the 100bp in hikes seen since 2010. This can put 

downward pressure on yields, especially at the front end. 

FX outlook. With the ongoing European sovereign debt crisis, 

the MYR, similar to other emerging market currencies, is expected 

to experience continual headwinds into Q112 before rebounding 

on strong economic fundamentals (including relatively low inflation 

and trade surplus). We forecast the MYR to weaken to 3.30 

against the USD, before strengthening to 3.00 by the end of 2012. 

The rebound can, nevertheless, be checked by possible capital 

outflows caused by political developments and a bumpy ride is 

likely for the MYR in the coming year. 



Declining exports to the US / Europe 

Malaysian exports should 

suffer less than they did 

during the Lehman crisis 

given the reduced 

exposure to the US and 

Europe 

80 

60 

40 

% 

Malaysian exports - share of GDP and destinations 

Exports - share of GDP (RHS) Exports to Asia 

Exports to EU 

Exports to the US 

% 

100 

95 

90 

20 

85 

0 

Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 

80 

Sep-11 

Lower inflation 

Moderating inflation will 

provide room for Bank 

Negara Malaysia to make a 

likely 50bp rate cut by 

H112 

4% 

3% 

2% 

CPI Inf lation 

MoM 

YoY (RHS) 

BNM rate (RHS) 

Forecast 

12% 

9% 

6% 

1% 

3% 

0% 

0% 

-1% 

08 09 10 11 12 

-3% 

Trade surplus 

Continuous trade surplus 

will provide some support 

for the MYR 

60 

40 

% YoY 

Trade 

USD bn 

9 

6 

20 

3 

0 

0 

-20 




-40 

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 

Jul-11 

-3 

-6 





mitul.kotecha@ca-cib.com 

Cheung Kin Tai 

kintai.cheung@ca-cib.com 

New Zealand 

Rebuilding boosts activity 

New Zealand’s economy has recovered at a steady pace from the 

Canterbury earthquake in February 2011. The economy is facing 

another challenge from its trading partners’ woes as global growth and 

trade slows. PMI data signals shrinking activity over the coming 

months in NZ but the activity outlook indicator had rebounded smartly. 

Moreover, the momentum in retail sales had remained firm, reflecting 

stimulus from the Rugby World Cup. Like Australia, New Zealand’s 

economy will not be able to escape from the deterioration in the 

external environment, with the impact already felt on business 

confidence and investment spending. 

Looking ahead, favourable climate conditions signal strong 

agricultural production. At the same time, still high commodity prices 

and rebuilding activity (estimated +1% on growth in 2012-13) will likely 

keep growth supported. Encouragingly, the economy has maintained 

its trade surplus on the back of high export prices and resilient 

demand. We expect the trade surplus to be sustained over 2012 

despite a weaker external trade environment, with the recent 

weakness in the NZD helping to provide a cushion against weakness 

overseas. Domestic growth will continue to be supported by 

reconstruction activity. Overall, we look for 3.5% and 3.0% growth for 

2012 and 2013. 

Interest rate outlook. The RBNZ cut its policy rate 50bp to 2.5% as a 

pre-emptive measure to prevent recession following the earthquake. 

Against the background of elevated uncertainty, the RBNZ shows no 

urgency for rate hikes soon but has reiterated that ”the likelihood that 

increases (OCR) would be necessary” if domestic activity is resilient to 

Eurozone woes. At the same time, inflationary pressures will likely 

increase when reconstruction uses up spare capacity, with a further 

hike in the tobacco tax in 2012. Although the RBNZ estimate that 

inflation has returned to within the 1-3% target band we expect CPI 

inflation to move above 3% next year. As a result the RBNZ will likely 

hike its rates if our no-recession scenario proves correct. 

NZD outlook. The Kiwi alongside the AUD has lost ground over 

recent months as the crisis in the Eurozone has intensified. It has 

been an underperformer over the year but unlike the AUD it has not 

been particularly influenced by gyrations in risk aversion. NZD is a 

cyclical currency, suggesting that its upside potential will be limited 

over the near term. Nonetheless, we do not expect the NZD to 

weaken much further, and look for appreciation against the USD after 

a rocky path in Q1 next year to 0.84 by end 2012. The market is not 

pricing in any monetary easing over coming months, and interest rate 

futures differentials have seen a renewed widening versus the US 

over recent weeks. This is significant given that the NZ-US interest 

rate differentials have a very strong correlation with the performance 

of NZD/USD. If this widening is sustained it will point to upside 

potential for the Kiwi. Given that the Fed has committed to keeping 

monetary policy accommodative it is highly likely that the yield 

differential will widen further in NZ’s favour. 



Growth to pick up on reconstruction 

Rebuilding activity will likely 

keep growth supported 

over 2012 to 2013 

But the growth outlook will 

hinge on developments in 

the Eurozone 

2.0 % 

New Zealand GDP 

forecast % 

1.5 

1.0 

0.5 

0.0 

-0.5 

QoQ 

QoQ F 

-1.0 

YoY (RHS) 

YoY F (RHS) 

-1.5 

01 02 03 04 05 06 07 08 09 10 11 12 13 

6 

5 

4 

3 

2 

1 

0 

-1 

-2 

-3 

-4 

New Zealand maintains its 

trade surplus on strong 

external demand and high 

commodity prices 

Buoyant trade sector will 

likely support growth 

Trade surplus maintained 

2 (12M NZDbn) 

1 

0 

-1 

-2 

-3 

-4 

-5 

-6 

-7 New Zealand Trade Balance 

-8 

01 02 03 04 05 06 07 08 09 10 11 

Based on yield differentials, 

Kiwi looks oversold against 

USD 

Kiwi looks oversold 

2.9 

2.7 

2.5 

2.3 

2.1 

1.9 

NZD/USD, rhs 

1.7 

NZ-US interest rate differential, % 

1.5 

Apr Jun Aug 

2011 

Oct Dec 

0.88 

0.83 

0.78 

0.73 

0.68 

Sources for the above charts: Bloomberg, Reuters, USDA, Crédit Agricole CIB 





Philippines 

Ready to weather global storms 

The economy slowed in 2011 on the poor performance of exports, 

which were a significant drag on growth, and challenging base effects. 

In Q2 and Q3 the pace of GDP expansion slowed to around 3% YoY 

as export growth plunged deeply into negative territory on weakening 

external demand for agricultural products and electronics. 

Consolidation of public finances played their part as well. Q4 likely 

brought further deceleration. 

2012 will be a challenging year. First, weakening external demand 

will pressure the external position. Second, fixed asset investment 

growth is unlikely to be strong in an environment of global uncertainty, 

weakness in Europe, continued fragility in the US and a slowdown in 

China. Third, the accumulation of inventories in 2011 makes their 

contribution to growth likely to be negative. 

Under such circumstances, it will be necessary for policymakers to 

stimulate the economy. Fortunately, having tightened both monetary 

and fiscal policy last year, they are in a position to loosen both. 

Moreover, consumption is likely to be supported by continued solid 

growth in remittances. We expect them to increase by about 5%, less 

than last year but enough to sustain household spending. On balance, 

we see GDP growth slowing from 4.4% last year to 3.5% in 2012, 

before rebounding to 4.5% in 2013. 

Interest rate and fiscal outlook. We expect the BSP – which hiked its 

main policy rate by 50bp in 2011 – to cut interest rates twice, by 25bp 

each time, to 4.00% to support consumption and investment. Rate 

cuts will be driven by growth concerns, made possible by slowing CPI 

inflation. It peaked in October 2011 and we see a decline to 3.5% YoY 

in Q1. It should average 3.5% in 2012, down from 4.7% in 2011, and 

be in the lower half of the central bank target band. The BSP is also 

likely to reduce the required reserve ratio. 

We also expect government spending to rebound. Policymakers can 

afford a wider budget gap after they narrowed it to 1.1% of GDP by Q3 

2011 from 4.0% in mid-2010, and debt-GDP ratio to 56.1% from 

62.4% at the end of 2009. This will prevent aggregate demand from 

slowing excessively. Swap rates and bond yields should decline, 

especially at the short-end, but the downside for longer tenors will be 

limited by bond issuance to the fund widening fiscal gap. 

PHP outlook. It will be a challenging year for the PHP. We expect 

depreciation in Q1, towards 45.3, on global risk aversion. It will also be 

pressured by a wider trade deficit and narrower current account 

surplus, and declining support from interest rates and growth 

differentials, as the economy slows and the BSP cuts rates. Beyond 

Q1, we see a recovery in line with a likely improvement of sentiment in 

global markets, towards 42.5 by the end of 2012. 



Weak exports widened trade gap 

A drop in exports of 

agricultural and electronic 

products pushed the trade 

position deeper into 

negative territory 

60 

40 

20 

% YoY 

Trade 

USD bn 

3 

2 

1 

0 

0 

-20 

-40 



-60 


Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 

Jul-11 

-1 

-2 

-3 

Remittances to sustain consumption 

Growth of remittances will 

slow to 5% in 2012 but this 

will be enough to support 

household spending 

2,000 

1,600 

USD m 

Volume 

Remittances 

Grow th (RHS) 

% YoY 

20 

15 

1,200 

10 

800 

400 

5 

0 

Jan-09 Jan-10 Jan-11 

0 

Rates to be cut amid lower inflation 

The BSP will cut rates by 

50bp as slowing inflation 

will allow the focus to shift 

to supporting growth 

6% 

4% 

CPI Inflation 

Forecast 

15% 

10% 

2% 

5% 

3% 

0% 

MoM 

YoY (RHS) 

Policy target (RHS) 

-2% 

Overnight reverse repo rate 

08 09 10 11 12 

0% 

-5% 






Singapore 

Sailing through the IT turbulence 

Exports have suffered greatly from lacklustre demand for electronic 

products, subtracting from GDP growth in Q2 and Q311. Pockets of 

strength were observed in non-electronic sectors such as chemicals 

and pharmaceuticals, which have been highly volatile and can be 

unsustainable. Semiconductor book-to-bill ratio, global semiconductor 

inventories, global chip sales, and recent performance of Asian 

exports all suggest sluggish demand for IT products for the months 

ahead. Overall trade and production are to be affected by the downcycle 

in the electronic sector, given its big-ticket nature. 

Other economic activity, including domestic activity, is likely to be 

affected and slow as well, especially in the electronics-related 

manufacturing and trade-related services sectors. Even the tourism 

sector is showing some softening due to the general weak external 

demand. The Singaporean economy was among the hardest hit during 

the last credit crisis, due to its high dependence on exports. Exports of 

goods and services amount to 233% of GDP. We expect an obvious 

slowdown in GDP growth, to 3.4% in 2012 with further risk to the 

downside. 

Headline CPI could remain sticky downwards in Q112 due to the 

high costs of accommodation amidst a temporary shortage of 

completed dwellings. That said, MAS core inflation, which excludes 

the costs of accommodation and private road transport, should be 

much tamer, hovering around 2.0% YoY in H112 – prices of oil and 

other items such as services are expected to drop along with softer 

global demand and slower domestic economic activity. 

Interest rate outlook. 6M SOR – an implied rate from FX swaps – 

turned negative transiently in Q311, as FX forward was sold off due to 

tight USD liquidity and/or expectations for SGD appreciation. In theory, 

there could be no limit on the downside for 6M SOR and thus frontend 

SGD IRS. Under interest rate parity, with the SGD appreciating in 

the forward market, SGD rates are forced to trade below the already 

near-zero USD rates. However, we see the chance of SGD rates 

going into negative territory again as slim. Appreciation potential for 

the SGD is perceived to be much lower now than months ago, which 

is likely to prevent forward points from falling dramatically. That said, if 

USD liquidity turns extremely tight due to market jitters, buy/sell 

USD/SGD flows will again pressure down forward points and thus 

SGD SOR. 

SGD outlook. SGD weakness is likely to extend into Q112, 

consistent with our expectation for risk aversion to remain high then. 

We see scope for the Monetary Authority of Singapore (MAS) to 

further reduce the slope of its SGD NEER at its April 2012 meeting, 

given that most other central banks will have or will soon cut rates by 

then, and given the economy’s high external exposure. Overall MAS’s 

stance might still be for a mild appreciation in the SGD NEER, adding 

to the currency’s recovery beyond Q112, which we expect for other 

Asian FX as well. 



Lacklustre demand for IT products 

Global chip sales 

contracted, semiconductor 

inventories are at elevated 

levels 

These all weigh on 

electronic exports 

80 

60 

40 

20 

0 

% YoY 

NODX - electronics 

Global chip sales 

-20 

-40 

-60 

07 08 09 10 

11 


Overall growth is affected a 

lot by manufacturing 

activity, which carries a 

sluggish outlook on weak 

demand for electronic 

products 

7 

6 

5 

4 

3 

2 

1 

0 

ppt 

Q410 

Q211 

Q111 

Q311 

-1 

-2 

Manufacturing Wholesale & 

Retail 

Transport & 

Storage 

Hotels & 

Restaurants 

Financial 

services 

Scope for MAS to reduce the slope 

If the SGD NEER continues 

to hover around the central 

target, then the MAS will 

probably keep the band 

width and central target 

unchanged while reducing 

the slope at its April MPC 

meeting 

120 

116 

112 

108 

104 

100 

Upper Policy Band 

Central target 

96 

SGD Nominal Effective Excha nge Rate 

92 Low er Policy Band 

01 02 03 04 05 06 07 08 09 10 11 






Taiwan 

Consumers versus manufacturers 

While exports still contributed significantly to Q3 GDP growth, the 

contraction in fixed asset investment and drawdown in inventories 

suggest that manufacturers are pessimistic over the exports outlook. 

Indeed, November exports grew by a meagre 1.3% YoY, the slowest 

in two years. The external sector is still facing headwinds in the 

months ahead, as demand continues to soften, especially for 

electronic products. Meanwhile, we expect continued drawdown in 

inventory and subdued investment activity. On a more positive note, 

69% of Taiwanese exports go to other Asian markets. Admittedly, a 

bulk of Asian imports are ultimately shipped to advanced economies 

after processing, but there would still be retained imports – which 

represent end-user demand by Asian consumers – which acts as a 

buffer. 

The support from consumption has weakened markedly since Q211. 

Shortening overtime worked in the manufacturing and service sectors 

may suggest less pent-up demand for permanent workers, putting a 

floor under the jobless rate. On balance, we still expect consumption 

to contribute positively to GDP growth as the overall labour market 

conditions remains tight. The jobless rate remains near the post-crisis 

low of 4.27%. 

Interest rate outlook. Inflation has been very subdued, providing 

room for the central bank to cut rates if needed. The central bank 

keeps issuing NCDs to mop up liquidity from the banking system, with 

excess reserves at financial institutions shrinking to TWD11.9trn as at 

Oct-2011 from a high of TWD154trn in April 2009. That said, in the 

364-day NCD auction on 12 December 2011, the auction yield fell by 

6bp, hinting at the room for a gradual change in monetary policy 

stance. We expect a 12.5bp cut in the policy rate in each of Q2 and 

Q312. On top of that, the central bank could decide to loosen on the 

liquidity side, pointing to downside to front-end TWD rates. 

The presence of staunch investors in TGBs is seen as one prominent 

reason for low long-term TGB yields and TWD rates. Some major 

investors appear to be searching for higher yields via investment 

alternatives, which could potentially divert flows away from the local 

markets. This could be a factor driving up long-term TWD rates, and 

underline our expectation for the TWD IRS curve to steepen. 

TWD outlook. Q1 is likely to be tough for the TWD, as it suffers from 

continued risk aversion. Thereafter, if market sentiment stabilises, the 

TWD would be able to recover on sound fundamentals. We expect the 

Taiwanese economy to avoid a recession, and continue to register a 

current account surplus. However, with an expected narrowing in the 

current account surplus and the economy’s high reliance on exports, 

the scope for appreciation of the TWD would be relatively limited 

compared with regional peers. 



Headwinds ahead 

The sluggish electronic 

sector does not bode well 

for Taiwan’s exports 

outlook 

Industrial production, which 

is highly correlated with 

exports, is to suffer likewise 

30 

25 

20 

15 

% YoY 

1.4 

1.2 

1.0 

0.8 

0.6 

10 

5 

TW exports (smoothed) 

Book-to-bill (RHS) 

0.4 

0.2 

0 

07 08 09 10 

0.0 

Overtime worked in the 

manufacturing and service 

sectors is shortening, 

suggesting less pent-up 

demand for labour 

While the jobless rate is 

likely to be bottoming out, it 

starts from a low level 

Jobless rate bottoming out? 

7 

6 

5 

4 

% 

Jobless rate 

Overtime w orked (inverted, RHS) 

3 


hours 

Jul-11 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

Tightening versus lower rates? 

The central bank is still 

tightening liquidity via NCD 

issuance 

But the latest 6bp drop in 

the auction rate on 364-day 

NCDs provides a reason to 

expect a gradual change in 

stance 

180 

160 

140 

120 

100 

80 

60 

TWD bn 

Excess reserve at FIs 

Outstanding NCDs (RHS) 

TWD bn 

300 

250 

200 

150 

100 

40 

20 

50 

0 


0 

Sources for the above charts: Bloomberg, CEIC, CEPD, Crédit Agricole CIB 






Time to show resilience 

The impact from the floods has not yet been reflected in the 

numbers at the time of writing. Our preliminary estimates put the firstround 

negative impact at 2-3 percentage points of 2011 growth, mainly 

via a reduction in agricultural and production activity – these two 

sectors account for 51% of nominal GDP. There has been an indirect 

impact through supply-chain disruptions, consumer confidence and 

tourism spending as well, while the financial sector appears to have 

sailed through the floods relatively unscathed. 

That said, as in the case of many other natural disasters, 

reconstruction work is expected to boost economic activity after the 

initial period of destruction. Thailand has proved resilient during past 

difficult periods. We expect most production capacity to be restored by 

mid-2012, yet 2012 is still going to be a tough year with very sluggish 

external demand. On balance, we forecast 2012 GDP at 3.8% – tame, 

but representing a strong rebound from 2011. 

Upside to inflation is likely to arise from reconstruction spending and 

government stimulus measures. However, these pressures should be 

well acknowledged to be temporary. Meanwhile, the expected easing 

in prices of oil and general items alongside softer global demand is 

likely to bring inflation down eventually – more obvious after Q212 in 

the case of Thailand. 

Interest rate outlook. The Bank of Thailand sounded dovish 

following the November 25bp policy rate cut, seeing monetary policy 

playing “a greater role in supporting economic recovery”. We expect 

the BoT to cut rates further, by 25bp each in Q1 and Q212. There 

could be even more cuts should the external environment deteriorate 

further. 

There is downside to 6M THBFIX, on prospects for policy easing, and 

also on possible tight USD liquidity when risk aversion hits. 6M 

THBFIX had been supported by returning USD via liquidation of 

foreign investments. Our estimates suggest that these liquidation flows 

are coming to an end. As such, front-end THB rates turn more 

sensitive to changes in USD liquidity situation. Meanwhile, 

reconstruction works and government projects could potentially trigger 

liability hedging flows to pay up THB IRS across the 5-10Y sector. In 

sum, we expect the THB IRS curve to steepen. 

THB outlook. The THB, like other Asian currencies, is likely to suffer 

in the near term upon heightened risk aversion. Any flood-related 

repatriation of funds does not appear to provide enough support to 

counteract the downtrend, but could mitigate the negative factors. 

Entering into the latter part of 2012, THB could recover when global 

sentiment stabilises. A rebound in economic growth on reconstruction 

work and continued current account surplus is supportive for the THB. 

However, the fact that THB has strengthened on a REER basis from 

pre-crisis levels could lead to underperformance of the THB compared 

with its regional peers. 




Just when manufacturing 

recovered in Q311 from the 

supply-chain disruptions 

caused by the Japan 

earthquake… 

5 

4 

3 

ppt 

Mining/construction/utility 

Services 

Manufacturing 

Agriculture 

…the sector suffers from 

the local floods 

2 

1 

0 

-1 

Q410 Q111 Q211 

Q311 

CPI inflation 

Price pressures are coming 

from everywhere near term 

But they will finally ease as 

global demand softens 

6 

4 

2 

% YoY 

0 

-2 

Raw f ood Energy Core CPI 

-4 

May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 

Sep-11 

Exports by destinations 

Thailand is shipping 

increasingly more to other 

Asian economies 

70 

60 

% 

Thailand exports by destinations 

But the shifts in shares 

over the years have been 

very gradual 

50 

40 

Asia EU US 

30 

20 

10 

0 

04 05 06 07 08 09 10 

11 






Vietnam 

Dong under downward pressure 

GDP growth likely slowed below 6% in 2011 from 6.8% in 2010 on 

the back of policy tightening, aimed at combating both inflation and as 

weaker foreign investment. Foreign investors were held back by 

concerns over macroeconomic stability as high price pressures raised 

worries over export competitiveness and the low levels of FX reserves 

that weighed on the currency. 

By Q4 policymakers had begun to see some signs of success in 

restoring macroeconomic stability. CPI inflation peaked in August, 

retail sales seemed to have bottomed out over the summer, along with 

industrial production. Strong export growth, helped by a sharp VND 

devaluation in November, helped bring down the trade deficit, 

although it remained large at around USD10bn. GDP growth bottomed 

out in Q1 and the rest of 2011 saw a gradual pick up in overall activity. 

However, challenges remain, given that export growth is slowing 

amid weakening external demand and weakness in Europe as well as 

China bodes ill for the outlook. Moreover, very high inflation for much 

of 2011 eroded the competitiveness of Vietnamese exporters. As a 

result we expect GDP growth to resume its slowdown in 2012 and it 

will average 4.5% for the year. 

Interest rate outlook. As a result, the central bank is likely to try to 

stimulate growth through monetary easing. CPI inflation fell below 

20% YoY in November for the first time since May, and is well below 

the August peak of 23% YoY. We expect it to average 13% in 2012, 

well down from about 19% in 2011, and to fall to around 10% YoY by 

year end. Given that the key refinancing rate was raised by 600bp last 

year, to 15%, we see significant room for cuts. We expect 400bp in 

easing during 2012. 

FX outlook. The most challenging problem Vietnam is facing is its 

vulnerable external position. The country has the largest trade and 

current account deficits as a share of GDP in emerging Asia. The 

latter likely remained above 5% of GDP last year, and we expect it to 

widen to at least 6% of GDP in 2012. The improvement in FX reserves 

seen earlier last year seems insufficient and they would suffice to 

cover only several weeks of imports, making the VND very vulnerable. 

At the same time, high inflation last year means that the currency 

appreciated in real effective terms. 

To sustain external liquidity, and restore the competitiveness of 

exports lost through elevated inflation, the State Bank of Vietnam is 

likely to devalue the VND further this year. The NDF market is pricing 

in relatively large drop in a year’s time (about 11%). We expect 

USD/VND to end 2012 at 22,400 and 2013 at 23,400. 



Inflation and rates to fall 

CPI inflation has peaked 

and is set to fall sharply, 

opening the door for rate 

cuts 

5 

4 

3 

% 

MoM 

YoY (RHS) 

CPI Inflation 

Refinance rate (RHS) 

Forecast 

% 

30 

24 

18 

2 

12 

1 

6 

0 

0 

-1 

08 09 10 11 12 

-6 

Trade gap may rebound 

Trade deficit narrowed to 

about USD10bn but is likely 

to rebound as real 

appreciation of the VND 

weighs on export 

competitiveness 

80 

60 

40 

20 

% YoY 

Trade 

USD bn 

4 

3 

2 

1 

0 

0 

-20 

-1 

-40 



-60 



-2 

-3 

Markets expect further devaluation 

The NDF market is pricing 

in a further devaluation of 

the VND 

25,000 

23,000 

VND - spot, NDF and implied depreciation 

Implied VND depreciation in 1 year - RHS 

USD/VND 1Y NDF 

USD/VND spot 

24% 

16% 

21,000 

8% 

19,000 

0% 

17,000 

-8% 

15,000 

Jan-10 Jul-10 Dec-10 Jul-11 

-16% 




Main macroeconomic forecasts 

Real GDP (YoY, %) CPI (YoY %) Cur. account (% of GDP) 

11 12F 13F 11 12F 13F 11 12F 13F 

U.S. 1.8 1.9 1.9 3.2 2.1 1.6 -3.3 -3.3 -3.3 

Japan -0.8 2.5 1.3 -0.3 0.1 0.2 2.1 2.3 2.5 

Euro Zone 1.6 0.0 1.2 2.7 1.9 1.8 -0.7 -0.5 -0.3 

Australia 2.5 3.1 3.2 3.5 3.3 2.8 -3.0 -3.1 -2.6 

New Zealand 2.0 3.5 3.0 3.9 3.3 2.5 -2.9 -3.3 -2.5 

Asia 7.5 6.5 7.4 6.1 4.0 4.7 1.7 0.9 1.1 

China 9.3 8.0 8.5 5.5 3.4 4.0 2.9 1.4 1.1 

Hong Kong 5.3 3.8 5.0 5.2 3.2 4.0 6.6 6.0 8.0 

India* 7.2 6.5 7.7 9.3 5.7 7.4 -5.3 -4.2 -3.4 

Indonesia 6.4 5.5 6.0 5.4 4.3 5.0 1.1 0.7 1.1 

Korea 3.7 3.6 5.0 4.4 3.5 4.2 2.4 1.9 2.8 

Malaysia 4.9 2.5 4.0 3.2 2.5 2.8 12.2 11.8 11.2 

Philippines 4.4 3.5 4.5 4.7 3.5 4.3 3.8 3.0 3.5 

Singapore 5.2 3.4 5.5 5.3 3.6 4.5 21.8 18.0 20.0 

Taiwan 4.9 3.4 5.0 1.4 1.2 1.5 7.2 5.8 6.5 

Thailand 2.0 3.8 4.5 3.8 3.2 3.8 3.5 3.0 4.2 

Vietnam 5.8 4.5 6.0 18.8 13.0 10.5 -5.7 -6.4 -5.8 

Interest rates forecasts 

*India: inflation is the WPI YoY change (not the CPI). Source: Credit Agricole 

(%) Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 

China (1-y lending rate) 6.56 6.31 6.06 6.06 6.06 6.31 

Hong Kong (Base rate) 0.50 0.50 0.50 0.50 0.50 0.50 

India (Repo rate) 8.25 7.75 7.50 7.50 7.50 7.75 

Indonesia (BI rate) 5.75 5.75 5.75 5.75 5.75 6.00 

Korea (Base rate) 3.25 3.00 2.75 2.75 2.75 3.00 

Malaysia (OPR) 2.75 2.50 2.50 2.50 2.75 2.75 

Philippines (Reverse repo rate) 4.25 4.00 4.00 4.00 4.00 4.25 

Singapore (6M SOR) 0.42 0.48 0.72 1.05 1.65 2.15 

Taiwan (Rediscount rate) 1.88 1.75 1.63 1.63 1.63 1.63 

Thailand (o/n repo rate) 3.00 2.75 2.75 2.75 2.75 3.00 

Vietnam (Prime rate) 14.00 13.00 12.00 11.00 11.00 11.00 

U.S. (fed funds) 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 

U.S. (3-month) 0.40 0.40 0.40 0.40 0.50 0.55 

U.S. (10-year) 2.70 3.30 3.50 3.75 4.00 4.00 

Japan (call) 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 

Japan (3-month) 0.20 0.20 0.20 0.20 0.20 0.20 

Japan (10-year) 1.10 1.30 1.35 1.40 1.45 1.50 

Euro Zone (repo) 0.50 0.50 0.50 0.50 0.50 0.50 

Euro Zone (3-month) 0.75 0.75 0.75 0.75 0.75 0.90 

Euro Zone (10-year) 2.25 2.50 2.60 2.75 3.00 3.25 

Australia (cash target) 4.25 4.00 4.00 4.00 4.00 4.25 

New Zealand (OCR) 2.75 3.00 3.00 3.00 3.25 3.25 

Source: Crédit Agricole CIB 



FX forecasts 

Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 

USD/CNY 6.33 6.28 6.24 6.20 6.16 6.13 

USD/HKD 7.77 7.77 7.77 7.77 7.77 7.77 

USD/IDR 9300 9100 8933 8700 8600 8500 

USD/INR 53.00 51.67 50.49 49.00 48.13 47.25 

USD/KRW 1225 1183 1150 1100 1083 1065 

USD/MYR 3.30 3.20 3.12 3.00 2.96 2.93 

USD/PHP 45.3 44.4 43.6 42.5 42.1 41.8 

USD/SGD 1.35 1.32 1.29 1.25 1.24 1.23 

USD/TWD 31.1 30.6 30.1 29.5 29.3 29.0 

USD/THB 31.9 31.4 30.9 30.3 30.1 29.8 

USD/VND 21800 21800 22400 22400 22900 22900 

USD/JPY 77 81 83 85 86 87 

EUR/USD 1.31 1.28 1.27 1.26 1.26 1.25 

AUD/USD 1.03 1.06 1.09 1.10 1.08 1.06 

NZD/USD 0.79 0.81 0.84 0.84 0.82 0.80 


Commodity price forecasts 

Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 

Aluminium (US$/t) 2,250 2,450 2,400 2,600 2,600 2,700 

Copper (US$/t) 8,500 9,500 10,000 9,500 9,000 9,200 

Nickel (US$/t) 20,000 21,000 22,000 23,000 22,500 23,000 

Zinc (US$/t) 2,100 2,200 2,300 2,500 2,500 2,550 

Lead (US$/t) 2,400 2,600 2,425 2,500 2,500 2,450 

Tin (US$/t) 23,000 25,000 28,000 30,000 30,000 31,000 

Gold (US$/oz) 1,750 1,550 1,350 1,150 1,100 1,050 

Silver (US$/oz) 40.0 34.0 32.0 30.0 28.0 26.0 

Platinum (US$/oz) 1,925 1,950 2,000 2,045 2,000 2,200 

Palladium (US$/oz) 900 950 1,000 1,050 1,100 1,150 

WTI (USD/b - average) 97 86 80 80 91 88 




Sovereign ratings 

Investment grade 

Non-investment grade 

China HK India Indonesia Malaysia Philippines Singapore Sth Korea Taiwan Thailand Vietnam 

M’s/S&P-F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F M’s S&P F 

Aaa/AAA = = == 

Aa1/AA+ = 

Aa2/AA 

 

Aa3/AA- = == 

A1/A+ = = = 

A2/A = 

A3/A- = = = 

Baa1/BBB+ = = 

Baa2/BBB = 

Baa3/BBB- == = = 

Ba1/BB+ = = 

Ba2/BB = 

Ba3/BB- 

B1/B+ = 

B2/B 

B3/B- 

Caa1/CCC+ 

Caa2/CCC 

Caa3/CCC- 

Ca/CC 

C/C 

Where the rating is today (Positive outlook) Where the rating was in early 1997, before the Asian crisis 

= Where the rating is today (Stable outlook) Sovereign ratings for long-term debt in foreign currency 

Where the rating is today (Negative outlook) Sources: M’s: Moody’s; S&P: Standard and Poor’s; F: Fitch 

Sources: Bloomberg, Crédit Agricole CIB 



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receive any compensation for providing a specific recommendation or view in this report. 

Mitul Kotecha, Frances Cheung, Dariusz Kowalczyk, Kintai Cheung, Anthony Lam 

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21/F, Kyobo Bldg. 

1-1, Chongro, Chongro-Ku 

Seoul 110-714 

Tel: (822) 3700 9500 

Crédit Agricole CIB Bangkok 

Indosuez House 

Patumwan – Lumpini 

152 Wireless Road 

10330 Bangkok 

Tel: (66) 2624 8000 

Crédit Agricole CIB Ho Chi Minh City 

4/F, 21-23 Nguyen Thi Minh Khai 

District 1, Ho Chi Minh City 

Tel: (848) 3829 5048 

GLOBAL 

Crédit Agricole CIB London 

Broadwalk House 

5 Appold Street 

London EC2A 2DA 

Tel: (44 20) 7214 5000 

Crédit Agricole CIB Milan 

Via Brera, 21 

20121 Milano 

Tel: (39 02) 72 303 1 

Crédit Agricole CIB Johannesburg 

23 Melrose Boulevard 

2076 Johannesburg 

South Africa 

Tel: (27 11) 448 3300 

Crédit Agricole CIB Singapore 

168 Robinson Road 

#22-01 Capital Tower 

Singapore 068912 

Tel: (65) 6535 4988 

Crédit Agricole CIB Taipei 

Hong Kuo Building, 16/F 

167 Tun Hua North Road 

Taipei 105, Taiwan R. O. C. 

Tel: (8862) 2717 5252 

Crédit Agricole CIB Shanghai 

33/F Shanghai World Financial Center 

100 Century Avenue, 

Pudong New Area 

Shanghai 200120 

Tel: (86 21) 3856 6888 

Crédit Agricole CIB Manila 

14/F, Tower1 

The Enterprise Center, 

6766 Ayala Avenue conrner 

Paseo de Roxas, Makati City 

Manila 1200 

Tel: (632) 844 4330 

Crédit Agricole Securities New York 

1301 Avenue of the Americas 

NY 10019 New York 

Tel: (1 212) 261 7000 

Crédit Agricole CIB Madrid 

Paseo de la Castellana, 1 

28046 Madrid 

Tel: (34 91) 432 72 00 

Crédit Agricole CIB Bahrain 

Addax Tower United Bank Building 

14/F, Al Seef District 

Manama, Bahrain 

Tel: (973) 1756 2700 

CRÉDIT AGRICOLE CIB FIXED INCOME MARKETS RESEARCH 

Bloomberg: CAMR 

https://catalystresearch.ca-cib.com 


catalystresearch.ca-cib.com 

27th Floor, Two Pacific Place, 88 Queensway, Hong Kong 

Tel: +852 2826 7333 Fax: +852 2826 1270 

www.ca-cib.com

Asia Outlook and Strategy 2012 Toughing it out - Crédit Agricole CIB

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