Singapore Forum - October 22, 2013
EMTA FORUM IN SINGAPORE
Tuesday, October 22, 2013
Sponsored by 
Fullerton Hotel
The Straits Room, Level 4
1 Fullerton Square
Singapore
12:00 noon - Registration
12:15 p.m. - Luncheon and Panels Begin
Luncheon will be served with the compliments of ING Commercial Bank.
Assessing Risk and Reward in Asia Local Markets
Tim Condon (ING Bank) – Moderator
Claudio Piron (Bank of America Merrill Lynch)
Igor Arsenin (Barclays)
Sin Beng Ong (JP Morgan)
Will Oswald (Standard Chartered)
Asia Local Markets: Prospects and Challenges for the Investor
Don Hanna (Fortress Investment Management) – Moderator
Tung Siew Hoong (GIC Private Limited)
Goetz Eggelhoefer (The Rohatyn Group)
Rajeev DeMello (Schroders)
Stephen Jen (SLJ Macro Partners)
The event will conclude at approximately 2:30 p.m.
Additional support provided by MarketAxess.
Attendance is complimentary for EMTA Members. The registration fee for non-members is US$495.
EMTA Singapore Panelists Focus on Tapering Reprieve, Third Plenum and Third Arrow
EMTA’s 8th Annual Forum in Singapore was held on Tuesday, October 22, 2013. ING hosted the event at the city’s Fullerton Hotel. 150 market participants attended, as both the global economic outlook and its effects on the Asian markets were discussed.
Moderator Tim Condon (ING) opened the session with a review of the G-3 economic backdrop. Will Oswald (Standard Chartered) observed that the market sell-off in May 2013 was exacerbated by investors’ panic at not being able to find the other side of trades. “The absorptive capacity of the market has changed,” he stated. Barclay’s Igor Arsenin expected a difficult adjustment when the long-expected Fed tapering finally did occur, and “we are more bearish going forward.” Claudio Piron (Bank of America Merrill Lynch) reminded participants that the Fed’s QE policy was “keeping the lid on deteriorating current account surpluses in the region that are undermining Asia FX appreciation.” Sin Beng Ong agreed that the 2014 outlook for Fixed Income was “less benign.”
Condon polled speakers for their house estimates on 10-year UST rates, and the likely timing for Fed tapering. There was consensus among panel speakers that US 10-year Treasury rates would rise to 3.6% -3.7% next year, and most speakers believed that Fed tapering was not likely before March 2014, a view that appeared vindicated by the release of US unemployment data later that day.
On Japan, Bank of America’s Claudio Piron argued that lower Japanese unemployment was a prerequisite for increased capital outflows from risk-averse investors. The consumption tax was likely to be enacted as planned, with Igor Arsenin (Barclays) believing that a technical recession would result.
A pick-up in the Euro area was predicted by Ong, among others. Panelists’ forecasts of the EUR-USD exchange rate varied from Bank of America’s 1.22 to JPMorgan’s 1.32. “It’s not that we are looking at a robust recovery in Europe; we aren’t jumping for joy, and there will be a long, tough road ahead,” Oswald commented.
Moving from the DM background to EMs, the importance of the Third Plenum in China was stressed, with speakers expecting it would give some insight as to the future of the Chinese economy. Condon argued that the Shanghai Free Trade Zone was just the latest in a series of Chinese reforms that “have been slow, modest, controlled and easy to roll back.”
Views on full convertibility of the Chinese currency varied. Ong argued that corporate indebtedness would have to be resolved before convertibility occurred; while Piron predicted convertibility by 2018/2019 (“it will be full convertibility with socialist characteristics!”). For Arsenin, full convertibility was not a priority for Beijing, and Piron believed that the Chinese government was more interested in interest rate liberalization.
Arsenin and Condon differed on their outlooks for Indonesia. Arsenin took a neutral view, expecting weakening in the Indonesian export sector and recommending that domestic demand be slowed down. On the other hand, Condon acknowledged that he was a “government bond bull.” that he was a “government bond bull.”
The event also featured an investor panel. Don Hanna (Fortress Investment Management) invited participants to comment on how the recent political battles in the US had affected the global and Asian markets. Tung Siew Hoong (GIC Private Limited) cautioned that the lack of a dramatic market response to the crisis might serve to “embolden politicians to act more irresponsibly in the future.” The Rohatyn Group’s Goetz Eggelhoefer suggested that the relevance of US politicians was decreasing, and voiced his optimism on the American economic outlook where “land, labor and capital are super-cheap, and energy is getting cheaper.” He concluded that “fiscal issues will be taken out by growth.” Rajeev De Mello (Schroeders) expressed some concern that the US political battles could have an impact on Asian growth. SLJ Macroeconomics’ Stephen Jen believed that domestic tensions are increasing in many countries, with the US part of a larger trend.
Chinese growth will inevitably slow, according to Jen, as the economy transitions to a service economy, citing the smaller output of service sector workers compared to their industrial and manufacturing sector counterparts. He also cautioned that infrastructure in many non-first tier Chinese cities was not equivalent to the major metropolises most visited by investors.
Tung predicted medium-term Chinese growth of 6% and recommended that Chinese leaders focus on income distribution issues. Eggelhoefer expressed greater optimism (7% growth in 2014 and 6.5% in 2015). “Nothing causes me major concerns, but in the next couple of years, there will be more of a headwind for the Asian economies than there has been,” he stated.
“I’m optimistic about Japan, after 23 years,” stated Tung, a point echoed by other speakers. Eggelhoefer believed that Prime Minster Abe would not be able to deliver all of his “Third Arrow” strategies for growth, but expressed confidence that some progress would be made. He added that distribution of wealth was a key issue, with a need for younger Japanese to “get it and spend it.” De Mello agreed that “real change” was in the making, although it would take time for structural reforms to bear fruit.