Asian FX：Back to square one，Move from UW to MW Asia FX in GBI~EM； lower USD/ CNY target

Investment Rating - The report has moved from Underweight (UW) to Marketweight (MW) for Asia FX in GBI-EM [3] Core Views - Rate differentials have been a significant factor in low-yielding Asia FX, with short-term valuations correcting in funders like JPY, CNH, and THB, while MYR appears tactically rich [3] - The recent decline in USD/CNH is attributed to relative rate momentum, with Chinese corporates holding up to $300-600 billion in unsold dollars, posing a risk for further CNY strength [3][10] - The Federal Reserve is expected to cut rates more aggressively, leading to a lower year-end USD/CNY target of 7.15, down from 7.30 previously [3][17] - Geopolitical risks are highlighted as a significant factor affecting CNY FX, leading to a cautious outlook on the long-term forecast for USD/CNH [3][17] Summary by Sections Asia FX Dynamics - Asian currencies perform best in the early stages of the business cycle, requiring firmer current accounts and easier financial conditions for a sustained rally [3] - The report remains constructive on domestically oriented high yielders like INR and PHP, awaiting fairer valuations before re-engaging [3] Malaysia's Economic Outlook - Malaysia is experiencing a resurgence, driven by prudent fiscal reforms and stable politics, although significant FX hoarding remains a concern [3][40] - The MYR has rallied 6% against the USD recently, but longer-term valuations are misaligned with fundamentals due to shifts in market psychology [3][41] USD/CNH Projections - The fair value range for USD/CNH has been lowered to 6.95-7.15 from 7.18-7.25, preserving room for further downside [3][17] - The report emphasizes that the path for USD/CNY may not be linear due to geopolitical headwinds, suggesting a more cautious approach to positioning [3][17] Tactical Considerations - The report suggests that paying CNH points may be a better strategy for narrowing the US-CN yield gap in the medium term [3][17] - The report notes that increased hedging demand from corporates could pressure CNH points on the lower side, indicating a need for caution [3][17]