j.p. morgan - emerging asia regional reference pack - nov 2011

8/3/2019 J.P. Morgan - Emerging Asia Regional Reference Pack - Nov 2011

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Emerging Asia Regional Reference Pack

Asia Economic and Markets Research

Topic Slides Analyst

EM Asia in perspective 2-4

EM Asia macro outlook 6-12

China 13-19 Haibin Zhu, Grace Ng

India 20-22 Jahangir Aziz, Sajjid ChinoyHong Kong 23 Lu Jiang

Indonesia 24-25 Sin Beng Ong

Korea 26-27 Jiwon Lim

Malaysia 28-29 Sin Beng Ong

Philippines 30-31 Matt Hildebrandt

See end pages for analyst certification and important disclosures, including investment banking relationships. J.P. Morgan does and seeks to dobusiness with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as a single factor in making their investment decision.

Dave Fernandez AC

+65 [email protected]

Singapore 32 Matt Hildebrandt

Sri Lanka 33 Sajjid Chinoy

Taiwan 34-35 Grace Ng

Thailand 36-37 Sin Beng Ong

Vietnam 38-39 Matt Hildebrandt

Regional forecasts 41-42

EM Asia team 43



Agenda

EM Asia in perspective 1

EM Asia: macro outlook 5

EM Asia country snapshots 12

JP Morgan forecasts 40

R E N C E

P A C K

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 1 E M E R G I N G

A S I A

R E G I O N A L

R E F E



Within Global Emerging Markets, Asia dominates; within EM Asia, China dominates

Global GDP (Emerging Markets)

Africa andMiddle EastEmerging

Europe

EM Asia GDP

EmergingAsia, ex-China

and India

India

Latin America

EmergingAsia

China

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 2 E M

A S I A

I N

P E R S P E C T I V E



China contributes more to global growth than the US + India + Brazil

China will contribute about 40% to 2011 global growth and that will go up again in 2012

Contribution to nominal GDP growthContribution to nominal global GDP growth

20

40

60

China

USIndia

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H

-20

0

02 04 06 08 10 12

3 E M

A S I A

I N




China & India tend to be less volatile; but rest of EM Asia is highly cyclical andsensitive to DM demand

Aggregate growth projected to be around 7% in late 2011/early 2012, but this masks intra-regional variations

-Real GDP

4

68

10

12

,

China

India


0

2

2010 2011 2012

EM Asiaex-China & India

4 E M

A S I A

I N




Agenda





R E N C E

P A C K

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 5 E M E R G I N

G

A S I A

R E G I O N A L

R E F E



EM Asia: Key Themes

GDP carries good momentum: Against a backdrop of poor DM growth, EM Asia GDP growthis holding at 7.1% in 2011 and 6.6% in 2012. Importantly, China & India leadership continues

Other cushions (CA and fiscal) remain: CA surpluses continue to winnow down, but stay highwith regional average about 3% of GDP in 2011 and roughly 2% in 2012 (China’s surplus to

drop to below 3% of GDP next year, India’s deficit less than -2%). Fiscal deficits still modest,giving policymakers in Asia flexibility that others lack

Inflation is rolling down, but still the priority: headline CPI rising to 5.5% in 2011, but rollingdown now and expected close to 4% in 2012. However, core is firm

Policymakers will continue to use a variety of tools – not just policy rates and FX – to managemacro risks, including fiscal subsidies and macro-prudential policies

FX to appreciate gradually: China will again be a moderating force (USD/CNY 6.3 end-2011).


,

Policy rates cuts are not in our forecast: Big picture is that EM Asia growth has outperformedother EM for years and, while post-Lehman rate normalization was faster than Latam andEMEA EM, it has still been gradual. Given other tools available, Asia slow to turn to rate cuts

Local bonds inflows relatively resilient even during severe bouts of global risk aversion andnot that far from record 2010 pace. Net government bond issuance almost flat (ex China)

6 E M

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M A C R O

O U T L O O K



Global growth, especially in DM, anemic into 2012, 2H in Asia and globally

Global real GDP forecasts

%q/q, saar

2010 2011 2012 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Global 3.9 2.6 2.1 2.6 1.7 3.0 2.1 1.5 1.7

Developedmarkets 2.7 1.4 1.0 0.9 0.7 2.4 1.3 0.3 0.4

Global GDP 2011 growth forecast cut to 2.6%, revised down to 2.1% next year

DM forecast only 1.4% in 2011 and 1.0% in 2012

US 3.0 1.8 1.7 0.4 1.3 2.5 2.5 0.5 1.5Euro 1.8 1.7 -0.3 3.1 0.7 1.5 -0.5 -1.0 -1.5Japan 4.0 -0.6 1.9 -3.7 -2.1 5.5 2.0 1.8 1.5

Emergingmarkets 7.3 5.7 4.9 7.2 4.5 4.6 4.2 4.8 5.4

EM Asia 9.1 7.1 6.6 9.0 5.7 5.9 5.8 7.0 6.8Latin America 6.0 4.2 3.2 5.6 4.1 3.1 2.5 1.6 4.4EM Europe 4.5 3.9 2.5 3.6 1.2 2.7 1.3 3.1 3.0


US growth averaging around 1.0% in 1H12; 40% chance of recession

Euro area even worse with negative growth beginning 4Q11; -1.5% by 2Q12

EM GDP growth at 5.7% in 2011, led again by Asia, even though region slows to 7.1% in 2011 and 6.6%in 2012

7 E M

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O U T L O O K



EM Asia’s growth likely to disappoint market, due to DM weakness, but region’s ownbuffers (CA surplus, FX reserves, fiscal policy headroom) remain in place

Market expectations for GDP growth are too high Fiscal deficits modest

2011 2012

JPM Consensus JPM Consensus

EM Asia 7.1 7.2 6.6 6.9

EM Asia ex CN, IN 4.4 4.6 3.5 4.30

Emerging Asia:fiscal deficit

% of GDP

Current account surpluses still comfortable Foreign reserves uniformly high

. . . .

Hong Kong 5.0 5.3 3.6 4.2India 7.6 7.5 8.5 7.9Indonesia 6.3 6.4 5.2 6.1Korea 3.8 3.8 4.0 3.8

Malaysia 4.0 4.5 1.5 4.3Philippines 4.1 4.4 4.0 4.6

Singapore 4.9 5.1 1.5 4.1Taiwan 4.6 4.5 3.0 3.8

Thailand 2.5 3.7 2.6 4.0

-6

-5

-4

-3

-2-1

EM Asia ex China and India China India

20112010 2012

Emerging Asia:current account balance

Emerging Asia: foreign reserves8 month change, eop, US$bnCountry Dec-10 Aug-11 Change


-4-3-2-10123456

EM Asia ex China and India China India

20112010 2012 EM Asia 4750 5351 601

EM Asia ex CN 1903 2088 186China 2847 3262 415Hong Kong 269 280 11India 297 322 25Indonesia 96 125 28Korea 292 312 21Malaysia 106 136 30Philippines 62 76 14Singapore 226 249 23

Taiwan 382 400 18Thailand 172 188 16

8 E M

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O U T L O O K



We stick with our long-standing call for headline inflation in EM Asia to peak in 3Q

Inflation to moderate after 3Q11

Consumer prices

3

45

6

7

,

China


1

2

2010 2011 2012

EM Asia, ex-China & India

9 E M

A S I A : M A C R O

O U T L O O K



Behind drop in headline inflation lie persistent core price pressures

10

% changeEmerging Asia ex CN&IN: core inflation

%3m/3m, saar 100 Food

EM Asia: inflation breakdown

% change in CPI index, Jan 2002 to latest

-5

0

5

2005 2006 2007 2008 2009 2010 2011 2012

ver-year-ago

0

20

40

60

80

Energy Others

ID IN PH KR TH CN SG MY HK TW

EM Asia: food and energy CPI weights% share of CPI

basket: Food %o a Ener %o aIndex, Jan 2009 = 100Agricultural prices: rice vs. overall foodstuffs


Food Energy Last '08 peak Last '08 peak

China 31.0 3.6 13.4 23.3 7.6 7.7India 46.2 6.4 8.8 15.2 14.1 9.9Indonesia 36.2 5.9 5.3 20.1 1.7 10.4Korea 15.0 5.4 4.5 8.2 13.4 35.5Malaysia 30.3 10.6 5.0 12.2 3.9 22.7Philippines 50.0 5.9 3.9 17.8 10.5 12.4Singapore 22.1 4.9 3.1 9.2 11.0 50.1Taiwan

26.1 6.9 1.9 13.6 4.9 15.8Thailand 33.0 9.9 8.8 15.6 4.8 32.2

70

90

110

130

150

170

Jan 09 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11

CRB foodstuffs

Rice

10 E M

A S I A : M A C R O

O U T L O O K



In context of massive post-Lehman policy easing, EM Asia central banks not yet

throwing in towel on normalization

Global central bank policy rate forecasts (%)

Change from Forecast Change in %

Official interest rate Current Sep '08 (bp) Mar 11 Jun 11 Sep 11 Dec 11 2010-2011 (bp) Reversal

Latin America GDP-weighted average 7.90 -306 7.85 8.24 8.14 7.53 141 29

EMEA EM GDP-wei hted avera e 4.40 -384 4.11 4.41 4.41 4.37 -28. . . . .

Emerging Asia GDP-weighted average 5.74 -108 5.19 5.50 5.76 5.77 149 59Emerging Markets GDP-weighted average 5.88 -204 5.50 5.82 5.94 5.81 105 34

United States Federal funds rate 0.125 -188 0.125 0.125 0.125 0.125 0 0

Euro area Refi rate 1.50 -275 1.00 1.25 1.00 1.00 0 0

Japan Overnight call rate 0.05 -45 0.05 0.05 0.05 0.05 -5 0

In DM, we still do not expect a change in Fed funds target until late 2013, while ECB now forecast toreverse its 50bp of hikes – in other words, 0% reversal of DM’s post-Lehman policy rate cuts

In EM, on average, central banks reverse 34% of emergency rate cuts by year-end, led by Asia


Latam and EMEA EM now going in reverse, with JPM expecting rate cuts in Brazil, Mexico, Chile, Peru,Israel, Poland, Romania, Turkey, and South Africa

In contrast, EM Asia slow to turn to rate cuts, given range of other tools available, including fiscal policyand “selective” easing. China and India still see inflation as uncomfortably high. Indonesia onlyexception and not a leading indicator for rest of region

11 E M

A S I A : M A C R O

O U T L O O K



Agenda





R E N C E

P A C K

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 12 E M E R G I N

G

A S I A

R E G I O N A L R

E F E



China: Longer-term, 12 th five-year plan turns focus to sustainable growth

Infrastructure spending still needed…

80

%oya, 3mma

China: public, private sector, and infrastructure FAI

Private sector Public

sector FAIInfrastructure andconstruction FAI 70

% shareChina: labor income as share of GDP

…but improving household income also a priority

%China: urbanization rate

-100

10203040506070

06 07 08 09 10 11 12

%oyaChina: real GDP growth vs government's growth target

Real GDP growth

45

50

55

6065

93 95 97 99 01 03 05 07 09


10

20

30

40

50

80 85 90 95 00 05 106

8

10

12

14

16

98 00 02 04 06 08 10

Government'sgrowth target

13 E M

A S I A

C O U N T R Y

S N A P S H O T S



China: No hard landing

GDP growth moderated in 2011 but remained strong Export growth likely to remain soft for coming months

2016

% change, both scalesChina: real GDP growth

JP Morganforecasts

% oya % q/q, saar 1560

%oya, both scales JPMorganforecast

Global IP and China merchandise exports

China merchandise exports

Resilient FAI growth supported by public investment Retail sales dragged by auto sector

0

5

10

15

6

8

10

12

14

2006 2007 2008 2009 2010 2011-20-15-10-505

-40

-20

0

20

40

04 06 08 10 12

Global IP

China: real fixed asset investment and bank loan growthFixed asset %oya

China: retail sa les value growth%3m/3m, saar


10

15

20

25

3035

0

10

20

30

4050

02 03 04 05 06 07 08 09 10 11 12

,investment

(adjusted by PPI)Bank loans

-5

5

15

25

35

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

%oya

%3m/3m, saar

14 E M

A S I A

C O U N T R Y

S N A P S H O T S



China: Credit still difficult to measure, let alone control

M2 money supply growth slowing Real estate loans still strong

%oya

China: money supply and loan growth

M1Loans

%oya % shareReal estate-related loans asshare of total loans

Mort a e

Mortgage loans and loans to property developers

0

10

20

30

2006 2007 2008 2009 2010 2011 2012

M2

16

17

18

19

0

10

20

30

4050

Loans toproperty developers

loans

2007 2008 2009 2010 2011

Sources of social financing

Yuan bn 2007 2008 2009 2010 1Q11 2Q11 3Q11 Trillion uan

Total social financing and bank's new loan creation


, , , , , , ,Loans in local currency 3,630 4,911 9,590 7,934 2,240 1,930 1,510

Loans in foreign currency 290 62 929 414 147 189 141Entrusted loans 338 426 676 1,127 320 382 367Trust loans 172 316 437 387 9 82 -7Bankers acceptance bills 669 110 465 2,326 761 569 -348Net corporate bond financin 231 556 1,296 1,199 455 204 181Nonfin enterprise equity 480 337 451 579 156 112 84Insurance compensation 107 151 169 186 . . .Insurance property invest. 6 7 14 14 . . .

Other financing 0 0 70 100 . . . 0

2468

10121416

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011ytd

Total socialfinancing

Bank's new loancreation

15 E M

A S I A

C O U N T R Y

S N A P S H O T S



China: Inflation an area of immediate concern…

Broader inflation worries beyond food Pork prices moderate in recent months

2.5

%m/m, sa

CPI for food and residence

FoodResidence

60

%oya

Major CPI food items

Vegetables Grain

Housing and subcomponent prices tick up PPI rose with global commodity prices

-1.0-0.50.00.51.01.52.0

09 10 11 12-40

-20

0

20

40

09 10 11 12

Pork

%oya

Major CPI residence items Utilities

Rentin %3m/3m

J.P. Morgan commodity price index and China PPI

%3m3/m, saar J.P. Morgan commodity


-20

-15

-10

-5

0

5

10

07 08 09 10 11 12

Private housing

-20-15-10-50510152025

-40

-30

-20

-10

0

10

20

08 09 10 11 12

price index

China PPI

16 E M

A S I A

C O U N T R Y

S N A P S H O T S



…but still managed with a basket of policy tools

Open market operations used to managed excess liquidity After July’s rate hike, no more projected for 2011

RMB bnPBOC weekly open market operation

Netsterilization

% per annum

China: benchmark lending and deposit ratesJP Morganforecasts

CNY appreciation most effective in containing import inflation RRR raised to withdraw liquidity

-300-200-100

0100200

Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11Maturing 1

234567

04 05 06 07 08 09 10 11

1-year lending rate

1-year deposit rate

%oyaCPI, PPI and CNY NEER

%oya, +=appreciation, reverse scale

China: reserve requirement ratios for financia l institutions


-25

-15

-5

5

15

25-10

-5

0

5

10

15

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

CPI PPI

CNY NEER (six-month lead)

6

10

14

18

22

03 04 05 06 07 08 09 10 11 12

RRR for large banks

RRR for mediumand small banks

17 E M

A S I A

C O U N T R Y

S N A P S H O T S



China’s administrative measures could turn more restrictive

Summary of policy changes since 4Q09

- -

The State Council issued an 11-point notice on Jan 10, re-iterating1. 40% down payment requirement on second-home mortgages2. require primary units with presale permits to be launched within a certain period in whole to prevent

Shanghai:Rmb12,765/sqm

Base lending rate(>5-year loan)

Primary pricesDate Policy change

hoarding of units3. Local governments are responsible for the increase of affordable housing supply to meet the housingdemand of the lower-income households

. Beijing:Rmb19,744/sqm

17-Apr-10

The State Council issued new 10-point notice1. 50% down payment requirement on second-home mortgage; strictly implementing 1.1X PBoC rate formortgage2. Banks may stop lending to buyers of 3rd homes3. 71% of 2010 planned land supply would be zoned for affordable housing; residential land supply isbudgeted to be at 180,000hectares, +135% Y/Y; to increase the supply of small/medium sized ordinaryhousing

5.94%

Shanghai:Rmb12,331/sqm

Beijing:Rmb20,952/sqm

29-Sep-10

The State Council issued a notice on policy measures to curb excessive price growth:1) Suspension of third-home mortgages or above and suspension of mortgages to non-local residents;2) Unify minimum downpayment for first-time homebuyers to 30% and 50% for second-homebuyers;3) Accelerate tax reform, mainly the implementation of real estate tax pilot scheme.

5.94%

Shanghai:12,341Rmb /sqm

Beijing:18,223Rmb/sqm


26-Jan-11

The State Council issued a notice on policy measures to curb excessive price growth:1) Increase downpayment requirement for the second mortgaged-home from 50% to 60%2) HPR should be implemented to all municipal cities and overheated cities (obvious new candidate wouldbe Chongqing)3) Business tax calculation unified to 5.5% on total sales amount (vs some cities/counties, tax can becalculated on 20% on profit instead)

6.40%

Shanghai:15,525Rmb/sqm

Beijing:19,658Rmb/sqm

Sources: Ministry of Finance, Centaline and JP Morgan estimates

18 E M

A S I A

C O U N T R Y

S N A P S H O T S



China macro highlights

China – Macro view

Key macro forecasts

3Q GDP data suggests economy continued moderate growth; real GDPgrew 9.1%oya (J.P.Morgan: 8.9%; consensus: 9.3%), following 9.5%oyagrowth in 2Q.

We estimate GDP grew 7.9% q/q, saar in 3Q, unchanged from 2Q, vs.9.0% q/q, saar growth in 1Q

2004-08 2009 2010 2011f 2012f

Real GDP, % change 11.5 9.2 10.4 9.0 8.3Consumption¹ 2.9 4.4 3.9 4.5 4.5Investment¹ 6.4 8.4 5.6 4.4 4.7Net trade¹ 2.2 -3.6 0.9 0.2 -0.9Consumer prices, % oya 3.5 -0.7 3.3 5.5 3.7

National Bureau of Statistics puts GDP at 9.5% q/q, saar in 3Q, 10.0% in2Q and 8.2% in 1Q

September major indicators suggest continued solid growth in domesticdemand is compensating for weak exports:

Decent gains in IP, up 1.2% m/m, sa, posting a solid 13.8% oya inSeptember (J.P.Morgan: 13.3%; consensus: 13.4%), compared to13.5%oya in August.

Retail sales beat expectations at 17.7%oya in September (J.P.Morgan:16.8%; consensus: 17.0%), compared to 17.0%oya in August, likelyreflecting the near-term recovery in auto sales, in addition to the supportfrom solid income growth.Fixed investment showed slightly slower growth in September at24.9%oya, year-to-date by September (J.P.Morgan: 24.7%; consensus:

% Dec/Dec 2.9 1.9 4.6 4.6 3.7Government balance, % of GDP -0.6 -3.3 -2.1 -1.9 -2.3

Merchandise trade balance (US$ bn) 216.5 244.6 247.3 257.7 215.8Exports 995.2 1198.8 1573.5 1875.8 1999.2Imports 778.6 954.3 1326.2 1618.2 1783.4

Current account balance 240.0 280.5 285.1 285.3 229.7% of GDP 8.1 5.6 4.8 4.0 2.8

International reserves, (US$ bn) 1199.1 2416.0 2884.8 3384.8 3734.8Total external debt, (US$ bn) 320.6 428.4 548.6 625.6 640.6

Short term 122.6 210.5 332.3 412.3 432.3Total external debt, % of GDP 10.3 8.1 8.3 8.3 7.6Total external debt, % of exports 25.6 27.2 25.8 26.6 27.0Interest payments, % of exports 0.6 0.5 0.6 0.6 0.61. Contribution to growth of GDP.


24.8%), after rising 25.0%oya in the first eight months

On the policy front, inflation remains the priority concern of policymakers.Headline CPI inflation figure is still much higher than the government’s year-end target of 4%, and negative deposit rates are still remarkable.

Downside risk from the external side is increasing, as evidenced in theweaker-than-expected September trade data.

We maintain our view that the People’s Bank of China will keep its policy

rate on hold for the rest of the year. In the near term, the Chinese authoritieswill continue to adopt a selective-easing strategy.

19 E M

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C O U N T R Y

S N A P S H O T S



India: grappling with the growth-inflation trade-off – (1)

Activity is slowing but not collapsing Rural Wages have surged over the last year...

15

% oya, 3mma

IP growth continues to moderate

30

Real rural wages have surged since 2010...

% oyaNomi nal wage growth

...and are likely to prop up consumption growth Inflation likely to moderate on favorable base effects

1012 ForecastHeadline% oya

0

5

10

Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11

IP-ex cap goods

-10

0

10

J u n - 9

9

J u n - 0

0

J u n - 0

1

J u n - 0

2

J u n - 0

3

J u n - 0

4

J u n - 0

5

J u n - 0

6

J u n - 0

7

J u n - 0

8

J u n - 0

9

J u n - 1

0

Real wage growth

1520

Real rural wage growth

% oya, 3mm a

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 20 E M

A S I A

C O U N T R Y

S N A P S H O

T S

0246

J a n - 1 0

M a r - 1 0

M a

y - 1 0

J u l - 1 0

S e p - 1 0

N o v - 1 0

J a n - 1 1

M a r - 1 1

M a

y - 1 1

J u l - 1 1

S e p - 1 1

N o v - 1 1

J a n - 1 2

M a r - 1 2

Core

-20-15-10

-50

5

J a n- 0 8

M a y - 0 8

S e p- 0 8

J a n- 0 9

M a y - 0 9

S e p- 0 9

J a n- 1 0

M a y - 1 0

S e p- 1 0

J a n- 1 1

M a y - 1 1

IP consumer non-durable



India: grappling with the growth-inflation trade-off – (2)

Inflationary expectations still high

897

% GDP

India: budget targets largest consolidation in decades

Defici t (bu dget definition) Deficit (incl off budget bonds,excl asset sales)

FY12 budget targets large consolidation

13

15

2.5

3percent ppt

…but inflationary expectations continue to stay high

01234567

-3

-1

1

3

5

FY99 FY01 FY03 FY05 FY07 FY09 FY11

Stimulus

Slippages likely but not as large as feared by the market

Rs bn

JPMe -106.25 $100 $110 $115FY12E

“High-beta” INR under-performs the region

% +=appreciation since August 2011

INR continues to under-perform the region

5

7

911

Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

00.511.5

21Y ahead inflation expectations

ppt increase over current


Auto fuels 465 322 550 664

Cooking fuels 470 418 501 542 TOTAL SUBSIDY 934741 1,051 1,206

Upstream share 421 333 473 543 Govt. share 434 327 498 583 Downstream share 80 80 80 80

21 E M

A S I A

C O U N T R Y

S N A P S H O

T S

-12

-7

-2

3

3 1

- O c t - 1 1

1 6

- O c t - 1 1

1 - O

c t - 1 1

1 6

- S e p - 1

1

1 - S

e p - 1

1

1 7

- A u g - 1

1

2 - A

u g - 1

1

INR

ADXY



Hong Kong macro highlights

Hong Kong – Macro view

Key macro forecasts

Economic growth moderated in 2Q11, declining 2.0%q/q, saar,following 1Q11’s strong print of 13.0%q/q

2Q GDP at 5.1%oya vs. 7.5%oya in 1Q. Growth largely supportedby real private consumption and fixed investment, while netex orts still a dra .

2004-08 2009 2010 2011 2012

Real GDP, % change 6.2 -2.7 7.0 5.0 3.6onsump on* . . .1 . .

nves men * 1. . . 1. .Net trade* 2. - .7 . - . - .onsumer pr ces, oy a 1. . . . .

We expect Hong Kong’s exports to remain on the soft side as themain drag for Hong Kong’s GDP growth.2011 GDP forecast at 5.0%oya vs. 2012F at 3.6%oya (previousforecast: 4.0%oya).Although steady improvements in the labor market and incomeconditions continue to support solid consumption and investmentgrowth, inflation and property prices likely to be drags on domestic

demand.

Headline CPI at 5.8%oya in September (J.P. Morgan: 6.0%consensus: 5.4%), compared to 5.7%oya in August.

Moderation in sequential figure driven by the government’sprovision of a two-month rental waiver for public housing tenants,

Hong Kong: Real GDP growth ratesJP M or an

ec ec . 1. . .1 . overnment balance, o DP 2.9 . -1.5 - .7 - .4

Ex change rate, units/ , eop 7.77 7.75 7.77 7. 7.erc an se ra e a ance .) -1 . - . - . - .1 - .xpor s 1 . 1. . . .1

Imports ( IF basis) .5 4 .7 4 7. 491. 5 2.oods and serv ices balance† 22. 1 . 1 .9 17.2 22.5

o 11. . . . .

n erna ona reserv es, .) 1 . . . . .

.


as well as an electricity charges subsidy.

Food prices continue to print on the strong side: 6.8%3m/3m inSeptember.

Despite soft external demand, consumer spending likely to remain ona steady growth trend with solid labor market conditions and strongtourism inflows.

The government’s HK$6,000 grant to its permanent residents ofage of 18 or older will boost domestic demand towards end of theyear and into early 2012.

-15

-10

-5

0

5

10

15

-10

-5

0

5

10

15

,

%oya

04 05 06 07 08 09 10 11

%q/q, saar

forecast

23 E M

A S I A

C O U N T R Y

S N A P S H O

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Indonesia – continued

Indonesia: capital inflows to lead to income outflows Balance of payments supported by capital account

Indonesia has experienced a surge of inflows into the republic,reflecting a combination of portfolio and foreign direct investmentflows . This has not only changed the composition of the balance ofpayments but has also increased the net international investmentliability of Indonesia, which has risen to US$289 bn at the end of 10.0

US$ bn, nsa

Balance of payments

Current accountOverall

Invisibles moving increasingly into deficit

2010 from US$169 bn in 2007

One by-product of this large NII liability stock is the rising incomeoutflow which has narrowed the current account despite the tradesurpluses.

For 2012, the current account is expected to shift to a deficitposition of around US$0.5-1.0 bn, reflecting the rising deficit in theincome balance which will mean that the overall balance ofpayments will have to lean increasingly on the capital account.

That said, the recent bout of risk aversion has shown theeffectiveness of the Crisis Management Protocol (CMP) inmitigating the impact of fixed income outflows and could well signala shift in the boom-bust c cle of the FX rate to external shocks

-4.0-2.00.02.04.06.0

8.0

04 05 06 07 08 09 10 11 12

api a accoun

US$ bn, BoP termsIncome payments


The structure of the NII and support from the CMP, the FX rateshould not much under-perform the rest of the region during boutsof risk aversion. This would mark a welcome change from its recenthistory.

-5

-4

-3

-2

-10

1

04 05 06 07 08 09 10 11 12

Others

Portfolio

Direct investment

25 E M

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C O U N T R Y

S N A P S H O

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Korea macro highlights

Korea–Macro view

Key macro forecasts

Real GDP growth slowed for two quarters as higher foodprices and financial market volatility dampened bothdomestic consumption and investment. We still expect amodest pace of reacceleration of growth in 4Q.

2004-08 2009 2010f 2011f 2012f

Real GDP, % change 4.2 0.3 6.2 3.9 4.0Consumption¹ 1.9 0.7 2.6 2.2 2.4Investment¹ 1.2 -3.2 3.5 1.4 1.4Net trade¹ 1.1 2.8 0.1 0.3 0.2Consumer prices, % oya 3.2 2.8 3.0 4.1 3.1

Exports outlook remains under cloud, but the shipmentsto China and other Asian countries are expected to stayfirm to offset the continued slowdown in the exports toEurope. Post Japan-quake substitution effect will alsowork in favor of Korea’s exports for some more quarters.

Domestic inflation appears to have peaked already, withfood prices having turned down as the weather conditionnormalizes. Prospective disinflation is expected to workfavorably for consumers’ purchasing power.

Fiscal policy is expected to turn supportive in 4Q, withspending progress having slowed in 2011, even when tax

% Dec/Dec 3.1 2.8 3.5 3.4 3.6

Producer prices, %oya 3.8 -0.2 3.8 6.2 3.5Government balance, % of GDP 1.5 -1.7 -0.5 0.5 1.5Merchandise trade balance (US$ bn) 29.3 37.9 41.9 24.9 17.5Exports 342.1 358.2 464.3 536.0 624.7Imports 312.9 320.3 422.4 511.1 607.2


International reserves, (US$ bn) 222.3 269.9 301.9 326.9 334.9Total external debt, (US$ bn) 237.6 345.4 373.4 380.4 365.4

Short term 109.2 149.2 153.2 155.2 154.2Total external debt, % of GDP 24 40 35 33 29Total external debt, % of exports 52 74 64 58 50Interest payments, % of exports 3.3 2.4 2.0 1.7 1.5. on r u on o grow o .


revenues outperformed the target. The full-year 2012budget plan itself would not be so expansionary, but thegovernment will fasten the pace of spending in the firsthalf, also with continued discretion for off-budgetactivities.

-20

-10

0

10

20

% change annualizedKorea: real GDP

2006 2007 2008 2009 2010 2011

%q/q, saar

%oya

26 E M

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Korea - continued

Manufacturers’ inventories stayed at relatively high-levels, butoutside of producers, inventory condition does not lookburdensome. In 3Q, overall inventories rose only modestly,suggesting that non-manufacturers have actually shed the

Korea macro highlights

1.3

140

150

Index, 2005=100, sa

Korea: manufacturing inventory and shipments

I-S ratio

Shipments Inventoryinventories quite aggressively.

Forward-looking indicators are not uniformly weak. Most of all,both business and consumer confidence has been slowlyimproving. Construction orders too have started picking up andwill play a relatively more important role in the comingquarters.

Policy makers’ focus will gradually shift away from inflation, butmore in terms of fiscal option, limiting their reliance onmonetary policy and fx tools until growth conditions at homeand abroad deteriorate much further.

We ex ect the Bank of Korea to sta at until mid-2012. An%oyaKorea: CPI

0.8

0.9

1.0

1.1

.

90

100

110

120130

2005 2006 2007 2008 2009 2010 2011 2012

I-S ratio


hints of a turn to an easing bias will require further

deterioration of growth condition at home and abroad, whileany action to hike further needs better confidence in themedium-term growth path of the Korea economy.

Korea’s external condition remains far healthier than in 2008,with banking sector’s short-term debt down while the BoK’s fxreserves moved up.

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011

Headline

Core

27 E M

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Malaysia – continued

Over the course of 2011, core inflation has been ticking up insequential terms even as food and energy prices have been morevolatile. This steady uptick in core prices may well reflect laggedeffects between core and supply-side prices or may reflect demand-side factors.

Malaysia macro highlights

0.6

%-pt contribution to m/m, nsa inflation

Malaysia: sources of inflation

Ex food and energy

Nonetheless, it suggests that monetary policy will remain on holduntil there is further evidence of a sustained easing in underlyingdomestic prices. Until then, the policy rate is expected to remain at3% indefinitely.

Unlike the recent easing in nominal monetary conditions, fiscalpolicy remains on a tightening bias with overall expenditureexpected to contract 2.0%-pts of GDP from 2011 and the primarydeficit expected to narrow by 0.7%-pt of GDP. While the budget hasincluded some transfers to households, its impact is expected to bemodest relative to the broader consolidation. The resultingnarrowing in the deficit will also reduce the financing requirements,with total net domestic debt financing expected to decline to 4.8% of

-0.10.00.10.20.30.4

0.5

Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11

Food

- -

Malaysia: government bond ownership


. on rom . n .

Of note, since 2009, foreign participation in the local fixed incomemarkets has dwarfed that of local institutions, which have, bycontrast, been reducing overall exposures to government securities

Local financial institutions, which were large net buyers in 2009,became net sellers in 2010 and are expected to continue trimming,especially in the face of rising loan deposit ratios, which climbed to0.83 in August from 0.78 at the end of 2009. -20

-100

1020304050

05 06 07 08 09 10 11 12

,

ForeignFinancial institutions

Pension and insurance

29 E M

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Philippines macro highlights

Philippines – Macro view

Key macro forecasts

Sentiment has improved dramatically since Aquino took office.Aquino’s popularity has fallen slightly since winning the electionin mid 2010 but remains high.

Appointment of competent technocrats and positive signals to

2004-08 2009 2010 2011f 2012f

Real GDP, % change 5.5 1.1 7.6 4.1 4.0Consumption¹ 4.1 2.7 2.8 3.6 3.6Investment¹ -1.5 -1.6 5.4 0.7 1.6Net trade¹ 2.8 0.1 -0.6 -0.2 -1.1Consumer prices, %oya 6.2 4.2 3.8 4.7 3.5

market has been encouraging. Achievements so far includeindictments of tax evaders, narrowing of fiscal deficit, andrestructuring of government liabilities. However, challenges suchas improving the investment climate, alleviating poverty, andreducing poverty remain.

Fiscal progress has been greatest success; 2010 deficitnarrowed to 3.7% of GDP from 3.9% in 2009 but is forecast at1.5% of GDP this year. Revenue generation is occurring butmore progress is needed for sustained fiscal consolidation.Difficulty in spending this year is partly responsible for narrowingof deficit, which is good for debt metrics but limits badly neededinvestment in infrastructure and social services

. . . . .Wholesale prices, % oya 7.1 -1.4 -5.0 4.0 4.5Government balance, % of GDP -1.8 -3.9 -3.7 -1.5 -2.5Merchandise trade balance (US$ bn) -8.2 -8.9 -10.4 -13.6 -15.4Exports 44.7 37.6 50.7 58.6 66.3Imports 52.9 46.5 61.1 72.3 81.7


International reserves, (US$ bn) 22.5 37.9 55.4 70.4 82.4Total external debt, (US$ bn) 63.5 64.9 73.7 74.4 77.4Short term 10.5 9.5 13.7 12.7 12.7

Total external debt, % of GDP 51 39 35 32 29Total external debt, % of exports 92 92 80 75 69Interest payments, % of exports 4 4 3 3 3. n r u n r w .


Medium term fiscal plan is for 2% of GDP deficit by 2013. Debt toGDP to decline from 55% to 45% over 5 years if targets are met.

Since Aquino’s inauguration, all three ratings agencies haveupgraded the Philippines. More upgrades to follow if BoPremains solid, growth strong, and fiscal improvement, particularlyrevenue generation, persists

-350-300-250-200-150-100

-500

50

Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10

Philippines: gove rnment budget deficits

2010

2009

2011

Year-to-date, PH P bn

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Philippines – continued

Philippines macro highlights

Current account structurally in large surplus (3-5% of GDP) fromremittances and rise of BPO sector. The Philippines overtook Indiaas the largest voice-only service provider and was named top BPOdestination by IBM. BPO exports in 2010 are estimated at US$7.5 100

Component receipts as % of current account receipts

Philippines: current account components

.

BSP has stayed pat at recent meetings following 50bp of rate hikesand 200bp of reserve requirements (RRR) increase earlier in theyear. BSP has completely reversed the easing in the RRR duringthe last recession but the policy rate is still 50bp lower. Outlook ison hold but with inflation likely to slow to bottom end of 3-5%inflation target range BSP could ease in 2012 if growth falters

The economy expanded only 2.5%q/q, saar in 2Q but this still leftgrowth lower than expected at 4.9%oya. The economy should bemore resilient than most in the region to the global slowdown aslong as remittances are resilient and underpin consumer spending,and because overnment s endin is likel to ick u

0

20

40

60

80

60 65 70 75 80 85 90 95 00 05

Services and income

Current transfers

%oya

Philippines: CPI inflation


Due to the lack of meaningful subsidies in the Philippines thesqueeze to consumer spending from higher inflation was apparentin 2Q private consumption. Inflation is expected to slow in comingquarters, which should also provide a boost to consumer spending.A big risk to the inflation outlook reflects weather-related flooding inthe Philippines and in Thailand, which could lift food prices.

02468

101214 Upper and lower bounds of

inflation target range

orecas s

02 04 06 08 10

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Singapore macro highlights

Singapore – Macro view

Key macro forecasts3Q GDP print suggested that the economy expanded 1.3%q/q,saar last quarter (or 5.9%oya) due almost exclusively to growthin the biomedical sector

Given softening across global PMIs and other activity indicators,

2004-08 2009 2010 2011f 2012f

Real GDP, % change 7.1 -0.8 14.5 4.9 1.5

Consumption¹ 1.7 0.4 2.8 2.5 2.2

Investment¹ 4.9 -5.8 1.2 1.4 0.0

Net trade¹ 0.5 4.6 10.5 1.0 -0.7we ave rev se own our u orecas o .

(previously 5.1%) and to 1.5% for 2012 (previously 4.0%).Inflation in Singapore has risen of late after having slowedbetween January and May. Inflation rose 5.5%oya in Septemberfrom 4.5% in May. Supply side pressures from COEs andhousing are the main drivers of the pickup in inflation.

CPI was flat on the month (sa), leaving it up 5.5%oya inSeptember.Housing prices continue to push higher despite strictermacroprudential controls.Core inflation (ex accommodation and private transport) haseased in recent months by a few tenths of a percentage pointbut has been stick in a ran e of 2.1% to 2.3%o a since A ril

Consumer prices, % oya 2.3 0.6 2.8 5.3 3.5

% Dec/Dec 2.5 -0.5 4.6 5.2 2.8Producer prices, %oya 5.5 -13.9 4.7 3.0 3.0

Government balance, % of GDP 8.8 1.1 3.5 5.0 5.0

Merchandise trade balance (US$ bn) 36.7 29.2 46.7 49.5 50.0

Exports 270.4 273.0 358.0 417.3 478.9

Imports 233.7 243.8 311.4 367.8 428.8

Current account balance 32.3 34.9 49.5 53.6 55.5

% of GDP 21.5 19.0 22.2 20.4 19.4

International reserves, (US$ bn) 140.4 187.5 219.5 247.5 272.5

1. Contribution to growth of GDP.

Singapore: real GDP levels


The MAS reduced the slope of the SGD NEER at its Octoberpolicy meeting, citing increased uncertainty in the externaloutlook. However, given the recent rise in CPI inflation andstickiness of core inflation the MAS maintained a less aggressivesteepening slope of the band.

90

100

110

120

n ex, =

GDP

Ex pharmaceuticals

2008 2009 2010 2011

32 E M

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Sri Lanka macro highlights

Sri Lanka–Macro view

Key macro forecastsGDP growth is expected to remain strong and print close to 8% in2011 as the economy benefits from significantly increased resourceutilization, post conflict. 2Q growth printed at 8.2 % -- up from 7.9 %in 1Q – driven by higher investment growth

After remainin elevated and stick over the last few months,

2003-07 2008 2009 2010f 2011f

Real GDP, % change 6.4 6.0 3.5 7.8 7.8

Consumer prices %oya 11.5 22.6 3.5 5.9 6.5

Government balance, % GDP -7.1 -7.0 -9.8 -8.0 -7.0

Exchange rate, units/$, eop 106 113 114 111 110 headline and core inflation have begun to moderate over the last twomonths, allaying fears that the economy is overheating.

The 2011 budget starts the process of structural tax reform eventhough it falls slightly short of some key tax-base broadeningmeasures; the targeted reduction of the fiscal deficit from 8% of GDPto 7.0% is, however, broadly expected to be achieved on account ofbuoyant GDP growth.

FX appreciation is likely to be muted again in 2011 as the currentaccount deficit widens and the BoP surplus shrinks and the CBSLcontinues its policy of intervening in the FX market

Recognizing the improved growth and fiscal consolidation prospects,Fitch upgraded Sri Lanka’s sovereign ratings to BB- from B+ whileMoody’s and S&P maintained their rating at B1 and B+ but upgraded

Merchandise trade balance ($ bil.) -2.7 -6.0 -3.1 -5.7 -7.1

Exports 6.4 8.1 7.1 8.0 8.8Imports 9.0 14.1 10.2 13.7 15.9

Current account ($ bil) -0.9 -3.9 -0.2 -2.0 -2.3

International reserves, eop ($ bil) 3.1 1.8 4.9 6.6 7.0

Total external debt, eop ($bil) 16.5 17.8 20.9 24.0 23.0

Total external debt, % of GDP 51.0 44.9 49.6 49.9 48.8


their outlook

These improved credit assessments contributed to the islandeconomy’s most recent $1 billion dollar bond issuance being over-subscribed 7 times. The debt was sold to yield 6.25% or 332 bp overUS treasuries, lower than the 373 bp spread over US treasuriesimplicit in the previous issuance

-202468

1012

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Sri Lanka: GDP growth by sector

%oyay AgricultureIndustryServices

33 E M

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Taiwan macro highlights

Taiwan – Macro view

Key macro forecastsTaiwan’s export orders weakened again in September, up2.7%oya (J.P.Morgan: 4.1%; consensus: 3.5%), compared to5.3%oya growth in August. Weakening was broad-based, ledby significant fall in tech exports and in exports to the US andJapan.

Average-

Real GDP, % change 4.6 -1.9 10.9 4.6 3.0onsumpt on . . . . .

nv estment . - . . . .et trade . . . . .

onsumer pr ces, oy a . - . . . .ec/ ec . - . . . .

September IP weaker-than-expected at 1.6%oya (J.P.Morgan:5.2%, consensus: 6.1%), compared to the upwardly-revised4.0%oya in August (before revision: 3.9%oya).

Looking ahead, export sector and manufacturing industry willcontinue to face external headwinds, with J.P.Morgan globalmanufacturing PMI falling in August to the lowest level sinceJune 2009.

The fall in new export orders to inventory ratio in the globalmanufacturing PMI sends a negative signal about near-term production growth in the coming months.As such, on-going external headwinds will drag Taiwan’sexport sector and industrial activity going ahead.

. . . . .roducer pr ces, oy a . - . . . .

Gov ernment balance, % of GDP -0.9 -3.6 -1.5 -1.8 -2.0x c ange rate, un ts/ , eop . . . . .

Merchandise trade balance ($ bil.) 22.0 30.6 26.9 32.6 34.9x ports . . . . .

mports . . . . .urrent account a ance . . . . .% of GDP 6.7 11.4 9.2 8.6 8.2

nternat ona reserv es, . . . . . .Total ex ternal debt, ($ bil.) 85.9 79.1 89.7 91.8 93.9

ort term† . . . . .

Total ex ternal debt, % of GDP 22 22 20 18 17ota externa de t, o ex ports‡

nterest paym ents, o ex ports‡

ontr uton to growt o .


We have recently revised down Taiwan’s 3Q11 real GDP

growth forecast to 1.5%q/q saar, with the forecast for 4Q11GDP at 3.8% q/q, sa.

-20

-10

0

10

20

-10

-5

0

5

10

15

% change, both scales

Taiwan: real GDP growth

J.P.Morganforecasts

2006 2007 2008 2009 2010 2011

%oya %q/q, saar

34 E M

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Taiwan – continued

Taiwan macro highlightsWe continue to look for a broadening base of domestic demandgrowth in Taiwan this year.

ECFA benefits extend across manufacturing and serviceindustries.

406065

Index, sa

Global manufacturing PMI and Taiwan real export growth

%3m/3m, saar Global manufacturing

PMI - output

confidence support consumer demand growth.

Taiwan’s CPI inflation figures have been modest in this round ofgrowth recovery, especially compared against a number of othereconomies in the region. Given the recent easing in commodity pricesand the steady easing in Taiwan’s import price index and WPI,inflation pressure is expected to be manageable.

Taiwan’s September headline CPI inflation rate came in at a steady1.35% over-year-ago (J.P.Morgan: 1.5%; consensus: 1.4%),compared to 1.34%oya rise in August.

The Directorate-General of Budget, Accounting and Statistics(DGBAS) recently revised down the official forecast for 2011 CPIinflation rate to a moderate 1.59%o a com ared to the revious

-80-60-40-200

20

25

35

45

55

03 04 05 06 07 08 09 10 11 12

Taiwan export volume(adjusted by export prices)

%3m/3m , s aar, both scales

China IP and Taiwan's exports to China/ Hong Kong

Taiwan expo rts


forecast of 1.89%oya), while the 2012 CPI inflation rate is

expected to ease to 1.21%oya.As expected, the Taiwan central bank raised its discount rate from1.75% to 1.875%, effective July 1. This was the fifth 12.5bp hike sinceJune last year.

On monetary policy, growing uncertainty on global economic outlook,reinforces the likelihood that the Taiwan central bank may halt its

modest rate hike cycle during the upcoming quarterly monetary policymeetings to be held at the end of this month and in December.

-100

-50

0

50100

150

-10

0

10

20

30

05 06 07 08 09 10 11 12

China IP to China/HK

35 E M

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Thailand – continued

With the near-term policy focus on the floods, fiscal policy ratherthan monetary policy will likely be the key channel for alleviatingthe impact of the floods. Part of this owes to the upside risk fromthe raft of measures to lift agricultural and minimum wages in 4Q11

Thailand macro highlights

800

THB bn, over-year-ago change

Thailand: commercial bank liabilities

BorrowingsDeposits.

With core inflation expected to drift higher with the implementationof the government’s pro-growth policies, core prices are biased up.However, government pressure on the BoT has been explicit indemanding no further rate hikes and even preferring cuts. Our ownforecast is for a steady policy rate through year-end and into 2012and reflects the risks around the inflation outlook

Also in the policy pipeline will be the shift in the inflation target thatshould be implemented in 2012, if approved by the Minister ofFinance and ratified by parliament. This move will also likely beaccompanied by a wider target band for headline inflation. How thisevolves could lead to further tweaks to the forecast for the policyrate in 2012.

-200

0

200

400

600

05 06 07 08 09 10 11 12

Money market

6

%p.a.Thailand: policy ra te and THFIX6m


Since 2H10, bank credit had been expanding strongly, with the

bulk of the funding coming from mobilizing deposits andborrowings, mainly via Bills of The concern resides with the strongexpansion in BEs, which are short-dated, not, and are assumed tobe the credit risk of the issuing bank. One measure would be toimpose reserve requirements on funds raised through BEs—andthis seems to be under review for implementation driven byconcerns over prudential issues for savers—rather than to curtail

lending per se.

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012

Policy rate

THFIX6m

37 E M

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Vietnam macro highlights

Vietnam – continued

Vietnam’s structural balance of payment (BoP) strengths andweaknesses are fairly straightforward. The country runspersistent trade deficits that are easily offset by stickyremittance and FDI inflows. The reason for concern stems

Vietnam: balance of paymentsUSD mn 2006 2007 2008 2009 2010F 2011FCurrent Account -164 -6953 -10787 -6116 -4934 -4850(% of GDP) -0.3 -9.8 -11.9 -6.6 -4.6 -4.1

Trade Balance -2776 -10438 -12782 -8307 -7507 -7050Net Services -8 -755 -915 -1230 -1056 -800

fickle due to the country’s history of high inflation and largeand highly dollarized economy. In short, when inflation spikesor devaluation expectations rise, short term capital, largelyfrom local residents, flows from VND assets into gold andUSD. When inflation slows, the reverse process occurs and FXreserves rise.

FX reserves reportedly have risen $4-$5 billion in recentquarters and are estimated at $12-$14 billion, or 1.5 monthsworth of imports.

Default on sovereign debt is very unlikely given that 90% ofexternal debt is concessional. External a ments until 2016

Net Investment Income -1429 -2190 -4401 -3028 -4427 -4500Services and Income -1437 -2945 -5316 -4258 -5483 -5300

Net Transfers 4049 6430 7311 6448 8056 7500Capital Account 3088 17730 12341 11869 17135 7400(% of GDP) 5.1 24.9 13.7 12.8 16.1 6.3

Net FDI 2315 6516 9279 6900 10200 10500Portfolio investment 1313 6243 -578 128 2040 -5600Other -540 4971 3640 4841 4895 2500

Errors and Omissions 1400 -565 -1080 -13509 -14281 0(% of GDP) 2.3 -0.8 -1.2 -14.6 -13.4 0.0

Overall Balance 4324 10212 474 -7756 -2080 2550(% of GDP) 7.1 14.3 0.5 -8.4 -2.0 2.2FX reserve level 13384 23479 23890 16447 11761 14311


are around only $100 million per year

Vinashin’s financial troubles and greater concern aboutcontingent liabilities exacerbated other macro issues. Not clearif Vinashin is extreme situation or “tip of the iceberg.” Vinashindefault was major contributor to Moody’s (B1) and S&P’s (BB-)downgrades last Dec. Both have negative outlooks

January election of Dung to serve a second term as PM seenas a positive given his relatively reformist credentials

-4

-2

0

2

0

10

20

30

%oya

Vie tnam: errors a nd omissions (BoP) and inflation

US$ bn, 2qma, 1q lag

2007 2008 2009 2010 2011

Inflation

E&O

39 E M

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C O U N T R Y

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Agenda





R E N C E

P A C K

A S I A E C O N O M I C A N D M A R K E T S R E S E A R C H 40 E M E R G I N G

A S I A

R E G I O N A L

R E F E



Regional economic outlook

Regional economic outlook in summary

2010 2011 2012 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12Real GDP, %-ch over 1 quarter, saar Japan 4.0 -0.6 1.9 -2.4 -3.7 -2.1 5.5 2.0 1.8 1.5 1.3 1.3 Australia 2.7 1.4 3.5 3.3 -3.4 4.8 2.1 2.2 4.1 3.4 4.8 4.6New Zealand 1.7 2.0 3.8 2.5 3.5 0.4 2.8 4.1 3.9 3.9 5.6 4.8

. . . . . . . . . . . .ex China and India 7.7 4.4 3.5 3.9 9.3 2.0 2.6 2.3 4.7 3.9 4.1 4.1

China 10.4 9.0 8.3 11.6 9.0 7.9 7.9 8.0 8.2 8.2 8.9 8.9Hong Kong 7.0 5.0 3.6 6.1 13.0 -2.0 1.0 2.5 4.0 5.5 5.5 6.0Taiwan 10.9 4.6 3.0 1.2 14.6 0.9 -0.5 2.5 3.5 4.0 4.6 5.0Korea 6.2 3.8 4.0 2.0 5.4 3.6 3.0 4.2 4.0 4.0 4.0 4.5India 8.5 7.6 8.5 5.8 8.3 7.6 7.5 7.1 8.6 9.0 9.5 10.0Indonesia 6.1 6.3 5.2 7.2 6.8 5.4 6.2 5.5 5.0 4.5 5.0 5.0Malaysia 7.2 4.0 1.5 9.2 5.5 3.2 1.0 1.0 1.5 1.5 1.5 1.5Philippines 7.6 4.1 4.0 2.0 7.8 2.4 4.1 2.4 2.4 7.4 5.3 4.1

Singapore 14.5 4.9 1.5 3.9 27.2 -6.5 1.6 -3.9 2.0 6.1 6.1 1.6Thailand 7.8 2.5 2.6 5.3 8.1 -0.8 1.8 -6.0 15.0 -1.0 1.3 1.5

Consumer prices, %oya, averageJapan -0.7 -0.2 -0.6 -0.3 -0.5 -0.4 0.2 -0.1 -0.3 -0.7 -0.6 -0.5 Australia 2.8 3.6 3.3 2.7 3.3 3.6 3.5 3.8 3.3 3.2 3.4 3.3New Zealand 2.3 4.5 2.4 4.0 4.5 5.3 4.9 3.2 2.9 2.4 2.3 2.1


. . . . . . . . . . . .ex China and India 2.9 4.0 3.4 3.5 4.1 4.2 4.4 3.8 3.1 3.5 3.4 3.6China 3.3 5.5 3.7 4.7 5.1 5.7 6.3 4.9 4.3 3.8 3.2 3.5Hong Kong 2.3 5.2 4.6 2.7 3.8 5.2 6.4 5.2 4.6 4.3 4.9 4.5Taiwan 1.0 1.6 1.7 1.1 1.3 1.6 2.2 2.2 1.3 2.0 2.2 2.4Korea 3.0 4.1 3.1 3.6 4.5 4.2 4.8 3.7 2.8 3.1 2.8 3.5India 12.0 8.9 7.8 9.2 9.0 9.1 9.2 8.7 8.5 7.8 7.5 7.8Indonesia 5.1 5.5 5.2 6.3 6.8 5.9 4.8 4.5 4.2 5.6 5.5 5.4Malaysia 1.7 3.0 3.0 2.0 2.8 3.3 3.1 2.8 3.0 2.4 2.4 2.5Philippines 3.8 4.7 3.5 3.5 4.5 5.0 4.9 4.6 3.3 3.3 3.8 3.8Singapore 2.8 5.3 3.5 4.0 5.2 4.7 5.7 5.6 4.0 4.0 3.1 2.8

Thailand 3.3 3.7 3.6 2.9 3.0 4.1 3.9 3.7 3.1 3.6 3.9 3.7

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Regional outlook: Policy rate and exchange rate forecasts

2010 2011 2012 4Q10 1Q11 2Q11 3Q11 Current 4Q11 1Q12 2Q12 3Q12Official interest rates, % p.a., end-periodUnited States Federal funds rate 0.13 0.13 0.13 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Australia Cash rate 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75

ew ea an as ra e . . . . . . . . . . . .China 1-year working capital 5.81 6.56 6.81 5.81 6.06 6.31 6.56 6.56 6.56 6.56 6.56 6.56Hong Kong Discount window base 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Taiwan Official discount rate 1.625 1.875 1.875 1.625 1.750 1.875 1.875 1.875 1.875 1.875 1.875 1.875Korea Base rate 2.50 3.25 3.75 2.50 3.00 3.25 3.25 3.25 3.25 3.25 3.25 3.50India Repo rate 6.25 8.50 8.50 6.25 6.75 7.50 8.25 8.50 8.50 8.50 8.50 8.50Indonesia BI rate 6.50 6.25 6.00 6.50 6.75 6.75 6.75 6.50 6.25 6.00 6.00 6.00Malaysia Overnight policy rate 2.75 3.00 3.00 2.75 2.75 3.00 3.00 3.00 3.00 3.00 3.00 3.00Philippines Reverse repo rate 4.00 4.50 4.50 4.00 4.25 4.50 4.50 4.50 4.50 4.50 4.50 4.50Thailand 1-day repo rate 2.00 3.50 3.50 2.00 2.50 3.00 3.50 3.50 3.50 3.50 3.50 3.50

Exchange rates, end-periodJapan USD/JPY 81 75 n.a. 81.1 82.8 80.7 77.0 75.8 75.0 74.0 73.0 72.0 Australia AUD/USD 1.02 1.05 n.a. 1.02 1.04 1.07 0.97 1.07 1.05 1.06 1.08 1.10New Zealand NZD/USD 0.78 0.84 n.a. 0.78 0.76 0.83 0.77 0.82 0.84 0.85 0.86 0.88China USD/CNY 6.59 6.30 n.a. 6.59 6.55 6.46 6.38 6.36 6.30 6.20 6.10 6.00Hon Kon USD/HKD 7.77 7.76 n.a. 7.77 7.78 7.78 7.78 7.77 7.76 7.76 7.76 7.76


Taiwan USD/TWD 29.2 28.0 n.a. 29.17 29.41 28.80 30.47 30.05 28.00 28.00 27.75 27.50Korea USD/KRW 1135 1070 n.a. 1135 1097 1068 1181 1108 1070 1050 1020 1010

India USD/INR 44.7 45.5 n.a. 44.71 44.56 44.60 49.06 49.01 45.50 44.50 44.00 44.50Indonesia USD/IDR 9010 8400 n.a. 9010 8708 8577 8790 8865 8400 8350 8300 8250Malaysia USD/MYR 3.08 2.93 n.a. 3.08 3.03 3.02 3.19 3.10 2.93 2.91 2.88 2.86Philippines USD/PHP 43.88 41.00 n.a. 43.88 43.43 43.49 43.72 42.85 41.00 40.75 40.25 40.00Singapore USD/SGD 1.28 1.18 n.a. 1.28 1.26 1.23 1.30 1.25 1.18 1.17 1.16 1.15Thailand USD/THB 30.04 29.00 n.a. 30.04 30.25 30.71 31.17 30.50 29.00 28.75 28.50 28.25

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JP Morgan EM Asia Research

Dave Fernandez MD, Head of EM Asia Research (65) 6882-2461 [email protected]

Jahangir Aziz ED, EM Asia Economics (1) 202-585-1254 [email protected]

Sajjid Chinoy VP, India and South Asia Economics (91-22) 6157-3386 [email protected]

Won Tai Cho Analyst, Korea Strategy (82-2) 758-5509 [email protected]

Bert Gochet ED, Head of EM Asia Strategy (852) 2800-8325 [email protected]

Ying Gu Assoc, China Strategy (86-21) 5200-2833 [email protected]

Matt Hildebrandt VP, ASEAN Economics (65) 6882-2253 [email protected]

Yen Ping Ho ED, EM Asia FX Strategy (65) 6882-2216 [email protected]

Lu Jiang Analyst, Greater China Economics (852) 2800-7053 [email protected]

Jiwon Lim MD, Korea Economics (82-2) 758-5509 [email protected]

Grace Ng ED, Greater China Economics (852) 2800-7002 [email protected]


, - . .

Abhishek Panda Assoc, India Strategy (91-22) 6157-3387 [email protected]

Benjamin Shatil Analyst, EM Asia Economics (65) 6882-2311 [email protected]

Haibin Zhu ED, Chief China Economics (852) 2800-7039 [email protected]

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j.p. morgan - emerging asia regional reference pack - nov 2011

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