Asia Cyclical Dashboard 130214

7/29/2019 Asia Cyclical Dashboard 130214

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Asia: cyclical dashboardDBS Group Research 14 February 2013

Economics

As discussed regularly over the past two months, we expect GDP growth in theAsia-10 to accelerate to 7.3% in 2013 from 6.2% in 2012 [1]. How are the dataprogressing are things on track?

The two big gauges that always dominate the Asia dashboard are exports andindustrial production (below left and right). Cyclically, they look very much ontrack and very much in synch. The first thing to notice about exports (belowleft), is that they havent fared anywhere nearly as badly as the media have portrayedthings over the past year. Not only did the slowdown start way back in 1Q11(i.e., not in 2012) but exports have grown at a fairly steady 10% clip ever since(chart below left). All the way up until January 2013, that is. Then, (based ondata from China, Korea and Taiwan) they took a sharp turn northward.

David Carbon (65) 6878 9548 [email protected]

We expect Asia-10 growth to accelerate to 7.3% this year from 6.2% in2012

How is the forecast tracking?

Quite well. Exports are picking up. Industrial production has beensurging for five months

Faster investment growth in China this year will be the key driver, wethink. A surge in January loan growth supports that plank

Rising capital inflows and lower interest rates will help push fastergrowth too

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Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Jan08=100, sa, simple avg for Asia

Asia 9US

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Asia 9 and US industrial production

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Asia 9 - exportsUS$ bn/mth, sa

Exports have grown at a 10%clip ever since 1Q11. Jan13 hints

at acceleration, but ChineseNew Year is always a problem.

Jan13

Jan11

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Asia: cyclical dashboard 14 February 2013

Exports are off to avery strong start in2013,notwithstanding theChinese New Yeareffect

IP has been surgingfor 5 months

The trouble with January (and February) data in Asia, as most are aware, is thatChinese New Year wreaks havoc with it. Sometimes its celebrated in January andsometimes in February. You need twice as much data to figure out whats trulygoing on as you do with, say, Christmas, which always falls in December. Thisyear, a lot of Greater China exports were pushed into January and February islikely to show some payback.That said, the Jan/Feb reverberations havent been all that large in recent yearsand if they are proportional this year, then Asia is off to a roaring start on theexport front. Keep your fingers crossed. Well have the true story only in March.

Industrial production

The other big gauge on the dashboard is industrial production (IP; chart on p1right). Its still the best single indicator of the cycle in Asia (and most othercountries too for that matter). What is it saying? About the same thing thatexports are.

Asias slowdown came way back in early-2011 (or before in the case of IP) and

growth has run fairly steadily ever since. IP has been more volatile than exportsover the past two years, to be sure, but the growth trend has been strong andclear.

And, like exports, things are picking up on the margin. Production has beensurging for the past five months (taking the Chinese New Year effect out of theequation) and is now pushing the upper bounds of the range it has travelled forthe past two years. January and February data will likely be inconclusive whenthey arrive. But as of December, production is on a tear and augurs very wellindeed for a faster 2013.

The drivers

The dashboard offers a reassuring check from the data. But theyre not the drivers,per se, of the stronger 2013. We think there are three main things that will beresponsible for the faster growth this year and its worth mentioning them brieflyhere (for more detail, see [1]).

The biggest driver, we think, will be a pick-up in investment growth in China.Last year growth was extraordinarily low much lower than would follow froma simple/gradual shift to consumption-led growth (chart below) Other factorsthat kept investment low were the leadership transition, high profile criminaltrials and international disputes over offshore island territories. Few invest until

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2005 2006 2007 2008 2009 2010 2011 2012

China fixed asset investment% YoY

GFC:+5%

Today-6%


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Chinas Jan loangrowth was thestrongest in threeyears

they know the score and the plan and investment should look much strongeronce that is made public.

Judging from the January loan growth data, the master plan may already beleaking out all over. Loan growth jumped by some 1.1 trillion yuan, the biggest

one month surge in three years. Whether it lasts or not remains to be seen. Butit certainly looks like the new leadership wants to put its stamp on the countryand as they say in the West, theres no time like the present.

Is this enough to kick Chinas and Asias GDP growth up a notch in 2013? Absolutely.Investment growth accounted for two-thirds of Chinas GDP growth in 2011 [2].Moreover, in dollar (or yuan) terms, investment growth in China alone in 2011was 30% greater than all the GDP growth in all the other Asian countries combined.So yes, investment and loan growth is enough to drive the overall picture. Thisis the main reason we look for 9% GDP growth in China this year and for Asia-10GDP growth to rise to 7.3% from 6.2% last year.

Smaller impacts

Faster Asian growth is not all about China. Interest rates in the Asia-10 have beencut 18 times over the past 5 quarters and they had never got back to normalheights to begin with in the aftermath of the global financial crisis. They areperhaps two-thirds their normal height at present and this will provide some ofthe fuel to kick growth up to 7.3% in 2013.

Inflows will provide the rest. Over the past two quarters, capital has flowed inAsia to the tune of $1bn per day. Thats not like the heydays late-2010 and early-2011 but its a lot more than zero inflow average that prevailed for the fourquarters from 3Q11 to 2Q12. Stronger inflows will ease liquidity and relax constraintson growth that would otherwise come from deteriorating external balances. Thiswill provide the third boost to Asia-10 GDP growth that we anticipate this year.

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Asia 10 rise in foreign reservesUS$bn per quarter, includes fwd ccy

3Q, 4Qavgrise:

$80bn/ qtr

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China loan growthRMB bn, nsa

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SourcesData for all charts and graphs come from CEIC and Bloomberg. Estimates are DBSGroup Research.

Notes

[1] See Asia: towards a better 2013, 18Jan13.[2] Data for 2012 are not yet available.


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GDP & inflation forecasts

Policy & exchange rate forecasts

Market prices

GDP growth, % YoY CPI inflation, % YoY

2009 2010 2011 2012e 2013f 2009 2010 2011 2012e 2013fUS -3.5 3.0 1.8 2.3 2.0 -0.3 1.6 3.1 2.1 1.9Japan -5.5 4.5 -0.6 1.6 1.0 -1.3 -0.7 -0.3 0.0 0.0Eurozone -4.4 1.9 1.6 -0.4 -0.3 0.3 1.6 2.7 2.6 2.5Indonesia 4.6 6.1 6.5 6.2 6.3 4.8 5.1 5.4 4.3 4.9Malaysia -1.6 7.2 5.1 5.2 5.0 0.6 1.7 3.2 1.7 2.8Philippines 1.0 7.3 3.9 6.6 6.0 4.2 3.8 4.8 3.1 4.1Singapore -1.0 14.8 5.0 1.6 3.2 0.6 2.8 5.2 4.6 4.0Thailand -2.3 7.8 0.1 5.5 5.0 -0.8 3.3 3.8 3.0 3.6Vietnam 5.3 6.8 5.9 5.1 5.6 7.0 9.2 18.6 9.3 7.3China 9.2 10.3 9.3 7.8 9.0 -0.7 3.3 5.4 2.6 3.5Hong Kong -2.7 7.0 4.9 1.5 5.0 0.5 2.4 5.3 4.0 3.5Taiwan -1.8 10.7 4.1 1.3 4.2 -0.9 1.0 1.4 1.9 1.3Korea 0.3 6.2 3.6 2.0 3.5 2.8 2.9 4.0 2.2 2.5India* 8.3 8.4 6.5 5.5 6.5 3.6 9.6 8.9 8.0 7.4

* India data & forecasts refer to fiscal years beginning April; inflation is WPISource: CEIC and DBS Research

Policy interest rates, eop Exchange rates, eopcurrent 1Q13 2Q13 3Q13 4Q13 current 1Q13 2Q13 3Q13 4Q13

US 0.25 0.25 0.25 0.25 0.25 Japan 0.10 0.10 0.10 0.10 0.10 93.5 93 96 99 102Eurozone 0.75 0.50 0.50 0.50 0.50 1.339 1.32 1.33 1.35 1.36

Indonesia 5.75 5.75 5.75 5.75 5.75 9,667 9,400 9,300 9,200 9,100Malaysia 3.00 3.00 3.00 3.00 3.00 3.09 3.00 2.97 2.93 2.90Philippines 3.50 3.50 3.50 3.50 3.75 40.6 40.4 40.1 39.7 39.3

Singapore n.a. n.a. n.a. n.a. n.a. 1.24 1.22 1.21 1.20 1.19Thailand 2.75 2.75 2.75 2.75 3.00 29.8 30.3 30.0 29.8 29.5Vietnam^ 9.00 10.00 10.00 9.00 9.00 20,840 20,750 20,750 20,750 20,750

China* 6.00 6.00 6.00 6.00 6.25 6.23 6.19 6.15 6.11 6.07Hong Kong n.a. n.a. n.a. n.a. n.a. 7.76 7.76 7.78 7.79 7.80Taiwan 1.88 1.88 1.88 1.88 2.00 29.6 29.3 29.1 28.8 28.6Korea 2.75 2.75 2.75 2.75 3.00 1084 1060 1050 1040 1030

India 7.75 7.75 7.50 7.25 7.00 53.9 54.5 54.0 53.5 53.0

^ prime rate; * 1-yr lending rate

Policy rate 10Y bond yield FX EquitiesCurrent Current 1wk chg Current 1wk chg Index Current 1wk chg

(%) (%) (bps) (%) (%)US 0.25 2.05 10 80.3 0.2 S&P 500 1,520 0.5Japan 0.10 0.77 0 93.5 0.1 Topix 955 -1.4Eurozone 0.75 1.67 7 1.339 -0.1 Eurostoxx 2,633 1.1Indonesia 5.75 5.25 -1 9667 0.1 JCI 4,595 2.0Malaysia 3.00 3.47 -5 3.09 0.0 KLCI 1,632 -0.1Philippines 3.50 3.99 -17 40.6 0.0 PCI 6,513 0.8Singapore Ccy policy 1.56 2 1.237 0.2 FSSTI 3,295 0.7Thailand 2.75 3.59 -1 29.8 -0.1 SET 1,523 1.6China 6.00 6.23 0.0 S'hai Comp 2,432 0.6Hong Kong Ccy policy 1.28 4 7.76 0.0 HSI 23,389 -1.2Taiwan 1.88 1.19 119 29.7 -0.4 TWSE 7,907 #DIV/0!Korea 2.75 3.09 2 1084 0.4 Kospi 1,980 2.2India 7.75 7.82 -3 53.9 -1.3 Sensex 19,575 0.0Source: Bloomberg


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Asia Cyclical Dashboard 130214