UBS(US:UBS)2025-11-18 09:42Summary of Key Points from the Conference Call Industry Overview - Focus: Asian FX and Rates outlook for 2026, with emphasis on macroeconomic trends and investment strategies Core Themes and Arguments 1. Economic Growth Projections: - Asia's GDP growth is expected to moderate in 2026, with a forecasted real GDP growth of 4.5% y/y for China, which is below the historical average [13][12] - The growth differential between Asia and the US is narrowing, with US growth remaining near trend supported by investment and fiscal easing [13][12] 2. Currency Performance: - Asian currencies underperformed in 2025, gaining only about 2% against the USD, while missing out on significant tailwinds [13][12] - The USD/Asia exchange rate is projected to edge 2-3% higher in 2026, influenced by US AI-driven productivity gains and ongoing labor market weaknesses [3][12] 3. Investment Strategies: - Recommended trades include long positions in CNH against the CFETS basket, short IDR against INR, and buying USD/THB put spreads [9][16][35] - The strategy emphasizes opportunistic buying of dips in select USD/Asia longs and receiving 10-year KRW and THB swaps against JPY [9][44] 4. Market Risks: - Potential risks include an AI bubble scenario that could push USD/Asia 5-6% higher, and a setback in tech stocks that may negatively impact USD against peers [3][12] - The ongoing resident outflows from open capital account economies are a significant concern, with Asian equity flows recovering only half of the losses from Q1 [3][12] 5. Bond Market Outlook: - Asian bond yields are expected to decline at a slower pace, with an average 10-year bond yield drop of only 15bps anticipated over the next 12 months [13][12] - Thailand and Korea are expected to lead the decline in bond yields, while other regions may trade sideways [13][12] Additional Important Insights 1. China's Economic Position: - China's current account balance has surged to approximately 4% of GDP, the highest since 2009, driven by strong export growth [19][24] - The yuan is considered undervalued, screening as 7% cheap relative to its historical relationship with export shares [22][18] 2. Indonesia's Economic Challenges: - Indonesia faces significant headwinds, including a deteriorating current account balance and shrinking FX reserves, which could pressure the IDR [28][29][33] - The central bank's aggressive rate cuts have narrowed the ID/US rate differentials, further complicating the outlook for the rupiah [27][30] 3. Thailand's BoP Dynamics: - Thailand's balance of payments is strong, averaging around 4% of GDP, which supports the THB [35][40] - Seasonal tourism inflows are expected to bolster the baht, with historical trends indicating a tendency for the currency to appreciate during year-end [38][42] 4. Korea's Monetary Policy: - The Bank of Korea is expected to cut rates further in 2026, with market pricing for hikes seen as premature given the weak domestic demand [45][46] - Financial stability risks are being addressed through macroprudential policies, although the property market remains a concern [47][46] 5. Key Dates to Watch: - Important upcoming events include the G20 meeting, China Politburo meetings, and various central bank meetings that could influence market dynamics [8][12] This summary encapsulates the critical insights and strategic recommendations from the conference call, providing a comprehensive overview of the Asian FX and Rates landscape for 2026.