Morgan Stanley(US:MS)2025-11-28 01:46Summary of the 2026 Asia Macro Strategy Outlook Industry Overview - Focus: Asia Ex-Japan (AXJ) currencies and rates outlook for 2026 - Key Themes: Trade recovery, monetary policy changes, and economic rebalancing in China Key Points Currency Outlook 1. Improved Trade Outlook: Non-tech exports are expected to recover, benefiting AXJ currencies, particularly SGD, THB, MYR, and KRW, which have significant non-tech export shares in GDP [13][14][31] 2. Projected Currency Appreciation: AXJ currencies are anticipated to appreciate by approximately 3% in 1H26, driven by USD weakness and export recovery [9][31] 3. Performance Variance: KRW, MYR, and SGD are expected to outperform, while PHP is projected to underperform due to weaker domestic fundamentals [7][31] 4. China's Limited Impact: The economic rebalancing in China is expected to have a limited positive effect on AXJ currencies, with a stable exchange rate policy from the PBOC [19][20][64] Rate Outlook 1. End of Easing Cycles: Most AXJ central banks are nearing the end of their easing cycles, with the potential for rate hikes in 2026, particularly in Indonesia and the Philippines [46][49][130] 2. Rising Yields: AXJ yields are expected to rise in 2026 as growth improves and disinflationary pressures abate, particularly in 2H26 [38][53] 3. Divergence from US Rates: The influence of US rates on AXJ local rates has decreased, allowing for local yields to rise independently [40][49] Economic Factors 1. Disinflationary Pressures: Disinflationary pressures are expected to ease, supporting higher yields, with India and the Philippines seeing the most significant increases in inflation [53][55] 2. Fiscal Policy Stability: Most AXJ economies are expected to maintain stable budget balances, with some countries like China and Singapore potentially adopting more expansionary fiscal policies [55][56] Trade Ideas 1. Short TWD/KRW: A trade idea suggesting shorting TWD against KRW, targeting a rate of 45.40 with a stop at 47.70 [35][63] 2. Receive 5-year CNY NDIRS: This trade idea is based on the muted growth and inflation outlook for China [58][63] 3. Receive 5-year THB NDTHOR: Targeting a yield of 1.12% with a stop at 1.42% due to softer inflation and GDP [59][63] Additional Insights 1. Korea's Growth Potential: Korea is expected to see significant foreign equity inflows and benefits from both non-tech and tech exports [89][90] 2. Malaysia's Strong Fundamentals: Despite rich valuations, Malaysia's economic fundamentals remain robust, with a strong export recovery expected [127][130] 3. Thailand's Uncertainty: The upcoming elections and the central bank's efforts to manage currency valuation could moderate THB's appreciation potential [120][121] Conclusion - The AXJ region is poised for a modest recovery in both currency appreciation and yield increases in 2026, driven by improved trade dynamics and the conclusion of easing cycles across central banks. However, individual country performances will vary based on domestic economic conditions and external factors such as USD movements and geopolitical developments.