Get set for a liquidity rally - the DBS Vickers Securities Equities ...

Regional ETF Focus
Get set for a liquidity rally
More flexible CNY is also USD – sensitive
Voting power in IMF – SDR vs BRIC economies
90
6.84
25
% of total votes
88
86
84
82
DXY (USD) index
(lhs)
USD/CNY (rhs)
6.83
6.82
6.81
6.80
6.79
6.78
20
15
10
19.55
16.77
SDR: EUR, USD, JPY, GBP
BRIC: CNY, RUB, INR, BRL
80
78
76
Jan-10 Mar-10 May-10 Jul-10 Sep-10
6.77
6.76
6.75
6.74
5
0
6.02
4.86
3.66
2.69
1.89
1.33
EU US Japan UK China Russia India Brazil
The yuan is, however, unlikely to be included in the
Special Drawing Right (SDR) for this IMF review. The
yuan needs to be closer to the SDR basket of currencies
(US dollar, euro, British pound and the Japanese yen) in
two regards. The yuan needs to be more marketdetermined
and more convertible on the capital account.
4Q 2010 – a tough transition towards a sustainable
global recovery
In summary, the final quarter is likely to comprise two halves.
Until economic data improves, especially for the US, global
slowdown worries should dominate and support the US
dollar as a safe haven currency.
China’s foreign reserves breakdown
November should be closely watched as a potential turning
point for the US dollar to depreciate again. Hopefully by
then, most economies would have exhibited signs of
returning to a more sustainable moderate growth path,
preferably with China allowing more yuan appreciation. If so,
this should set the stage for risk appetite to return on the
back of a broad-based depreciation in the US dollar.
If 2009/10 was about emerging from the (US/EU) global
crisis, 2011 and the next few years will be about moving
towards a more sustainable global recovery. When this
happens, expect more diversification out of US dollars.
Weights of basket currencies in SDR
GBP, 5%
JPY, 3%
JPY, 15%
EUR, 26%
GBP, 10%
USD, 45%
USD, 65%
EUR, 29%
Sources:
Sources for all charts and tables are Bloomberg . Forecasts are DBS Group Research.
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