Forex Investment and Currency Trading

China – Policy challenge to ensure domestic soft-landing and cushion against external hard-landing. The Chinese authorities play a more crucial role than ever in ensuring at least 8% GDP in 2009, via moderately loose monetary policy and active fiscal policy.

Another key challenge for the PBoC is to prevent deflation and at the same time be wary of risks that its aggressive monetary loosening efforts will re-ignite inflation. Analysts expect any signs of deflation via yoy contraction in headline CPI to be temporary and unlikely to destabilize current FX policy of maintaining stable and gradual CNY appreciation.

Short-term macro risks will likely lead to volatility and two way risks in the short run, restricting the pace of CNY appreciation in 1H 2009. However, the pace will likely pick up in 2H 2009 in the event that the macro picture stabilizes.

Hong Kong – Hong Kong’s economy will likely register almost zero growth in 2009 and display the typical traits of a small and open economy facing global recession. Already, there were signs of similarities to the 2001 recession, when exports contracted for three out of four quarters and eventually depressed domestic consumption performance in late 2001.

India – Growth slowdown to enter a more acute phase in 1Q09, but improvement in terms of trade should provide support for real income. Lagged effects from aggressive policy ease and rapidly declining inflation should see domestic demand recovering in 2H09. State of global capital markets poses risk to the recovery process in view of the savings-investment imbalances.

The scope for steep rate cuts has been reduced considerably with past easing showing some positive results. The RBI may have to start worrying about anti-inflation credibility when inflation starts to rise in 2H09.

Improvement in risk appetite and gradual resumption of capital flows should provide scope for the currency to partially retrace steep losses in 2H 2008.

Indonesia – Indonesia’s overall economic performance is relatively less affected by the global financial turmoil and its low dependence on the external sector as a main engine of growth also provided some buffer against global demand slowdown.

Nonetheless, Indonesia is not totally impervious to further growth slowdown, given the prospect of inward investment stalling, slower export growth and also risk premium placed on Indonesian assets during periods of global risk aversion. GDP is expected to slow to 4.5% in 2009 from near 6% in 2008.
Korea – External led slowdown accentuated by financial contagion, and the prospect of a strong consumption stimulus is limited by high household debt levels. Aggressive policy easing should stabilize the economy after 1Q09. Decline in inflation may lag the rest of EM Asia but should return to target by mid-year.