WEBVTT - Asian Currencies Navigate Global Challenges 0:00:02.320 --> 0:00:06.880 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.960 --> 0:00:10.080 that pulls back the curtain non global business so you 0:00:10.240 --> 0:00:14.360 can invest better across the Pacific rim. I'm Tom Corbett 0:00:14.400 --> 0:00:15.480 in Hong Kong. 0:00:15.480 --> 0:00:19.600 And I'm John Lee. China's economy is sputtering. As COVID 0:00:19.720 --> 0:00:24.439 zero restrictions fell away. Global investors held their breath expecting 0:00:24.440 --> 0:00:28.520 a powerpacked economic rebound, but so far China's come back 0:00:28.560 --> 0:00:30.760 from COVID hasn't lived up to the hype. 0:00:30.880 --> 0:00:33.800 It's a different story in the US, where the economy 0:00:33.880 --> 0:00:38.320 shows surprising resilience, leaving the door open for higher rates, 0:00:38.560 --> 0:00:42.120 but that's not stopping investors from getting excited over the 0:00:42.240 --> 0:00:45.879 promise of productivity from artificial intelligence. 0:00:46.120 --> 0:00:48.479 What does this mean for the dollar, the women Bee 0:00:48.680 --> 0:00:52.520 and other Asian currencies and what risks lurk in South 0:00:52.640 --> 0:00:54.000 Korea's financial sector. 0:00:54.440 --> 0:00:58.920 Let's bring in Alvin Tan, head of Asia Currency Strategy 0:00:59.000 --> 0:01:02.600 with RB's Capital Markets. 0:01:01.800 --> 0:01:05.840 And Rina Quark Asia Financials credit analysts with Bloomberg Intelligence. 0:01:06.080 --> 0:01:07.800 Both join us from Singapore. 0:01:09.160 --> 0:01:12.279 Hi Alvin. In June, we had the Federal Reserve Chairman 0:01:12.400 --> 0:01:15.640 Jerome Powell state that the fight with inflation has a 0:01:15.640 --> 0:01:18.640 long way to go and indicated two more rate hikes. 0:01:18.880 --> 0:01:21.360 On the other hand, China just cut interest rates by 0:01:21.400 --> 0:01:25.000 ten basis points. How do these actions frame your currency view? 0:01:25.920 --> 0:01:28.840 Well, on the one hand, of course, that implies that 0:01:28.959 --> 0:01:33.680 the interest rate differential between China and the US is widening. 0:01:33.720 --> 0:01:37.319 Of course, that is a fundamental contributor to the women 0:01:37.400 --> 0:01:41.840 beatz continued appreciation. On the other hand, we also know 0:01:42.120 --> 0:01:44.200 I mean, of course it's lengthened, but we also know 0:01:44.280 --> 0:01:48.440 that that is approaching the end of its heightening cycle. 0:01:48.960 --> 0:01:53.480 But at this point, the interest rate differential widening between 0:01:53.560 --> 0:01:57.000 China and the US is still the primary factor, I think, 0:01:57.440 --> 0:01:59.040 driving dollacy and more higher. 0:02:00.000 --> 0:02:02.400 What's your view of the US dollar going forward versus 0:02:02.400 --> 0:02:03.400 the Asian currencies. 0:02:04.400 --> 0:02:09.200 Well, we do think that the US dollar is peaking 0:02:09.400 --> 0:02:12.360 on a cyclical basis, but this this is quite a 0:02:12.440 --> 0:02:15.040 drawn out process. I mean, we look at historically the 0:02:15.080 --> 0:02:17.320 peaks in the dollar tends to be drawn out for 0:02:17.960 --> 0:02:21.079 many months up sometimes even years in fact, and indeedtail 0:02:21.880 --> 0:02:26.280 euro dollar at ninety five cents last autumn probably marked 0:02:26.360 --> 0:02:29.840 the absolute peak the usl for this cycle. But of 0:02:29.880 --> 0:02:32.880 course the US dollar has not plunged from that, so 0:02:33.040 --> 0:02:34.840 again it is a peaking process. It's going to be 0:02:34.840 --> 0:02:38.839 a drawn out process, and we do think there's still 0:02:38.919 --> 0:02:41.200 room for the US dollar to gain some ground at 0:02:41.280 --> 0:02:44.960 least towards your end, particularly against the likes of the 0:02:45.040 --> 0:02:48.440 Japanese and also against you know, the Romain bit. But 0:02:48.560 --> 0:02:51.960 it is a peaking process, and we we do foresee 0:02:52.080 --> 0:02:56.280 that the US dollar will likely commence a more steady 0:02:56.320 --> 0:02:58.040 decline probably next year. 0:02:59.160 --> 0:03:02.600 Alvin as we speak, we are at the doorstep of 0:03:02.639 --> 0:03:05.560 the second half of twenty twenty three. Let's take a 0:03:05.639 --> 0:03:09.400 look forward if we can. Lots of factors influencing the market. 0:03:09.440 --> 0:03:13.240 We've got interest rates, we've got recession risk, We've got 0:03:13.280 --> 0:03:17.400 this productivity leap that's being promised by AI, or at 0:03:17.480 --> 0:03:20.000 least you know, that's the general sense. What are going 0:03:20.080 --> 0:03:23.239 to be the dominant themes, the prevailing narratives going into 0:03:23.280 --> 0:03:25.840 the second half of twenty twenty three For. 0:03:25.840 --> 0:03:29.040 Some of the Asian currencies, this AI narrative is quite important, 0:03:29.200 --> 0:03:31.400 particularly for the likes of the Korean one and to 0:03:31.440 --> 0:03:34.200 a less extent time onan dollar. In fact, we've already seen, 0:03:34.480 --> 0:03:38.600 for example, Samsung and the Chronics Heinex share prices at 0:03:38.600 --> 0:03:41.560 the highest level since spring of last year, and that 0:03:41.640 --> 0:03:45.760 has actually helped the Korean one diverge from the rooman 0:03:45.760 --> 0:03:48.760 Beza depreciation trend. Over the past two months or so, 0:03:49.200 --> 0:03:51.920 the Korean one has done relatively well actually quoted date, 0:03:52.360 --> 0:03:54.560 So I think this will be a contributor to some 0:03:54.680 --> 0:03:58.280 of the Asian currencies are performing within the Asian currency conflict. 0:03:58.840 --> 0:04:00.920 Now at the broader level, I think we're also begin 0:04:01.040 --> 0:04:04.920 to see that the exports slump in Asia is bottoming out. 0:04:04.920 --> 0:04:07.960 You can see that in the VAT Trade Satistics Advanced 0:04:08.160 --> 0:04:12.160 statistics our career. No doubt the trade is still negative 0:04:12.160 --> 0:04:14.800 on a year on your basis, exports growth in particular 0:04:14.880 --> 0:04:17.520 still negative in the year on your basis, But I 0:04:17.560 --> 0:04:21.040 think the bottoming process is happening, and so going forward, 0:04:21.120 --> 0:04:24.920 I think this AI and at the broader level, the 0:04:24.960 --> 0:04:27.640 gradual ending of the exports slump can support such an 0:04:27.640 --> 0:04:30.640 Asian currency is going forward. I think what's quite interesting 0:04:30.640 --> 0:04:34.799 also is that although of course China's growth rate growth 0:04:34.839 --> 0:04:38.320 momentum has disappointed as recently, I think though that as 0:04:38.360 --> 0:04:42.640 the disappointment piles up on China's part, the chances of 0:04:42.720 --> 0:04:45.800 more stimulus measures, particularly from the physical side, is actually growing. 0:04:46.400 --> 0:04:50.839 So this possibility of further stimulus are China, particularly from 0:04:50.839 --> 0:04:53.520 the physical side, is going to help end the room 0:04:53.520 --> 0:04:56.400 in based depreciation trend, particularly gainst the US dollar at 0:04:56.400 --> 0:04:58.800 some point in the second half of the year, But 0:04:58.800 --> 0:05:00.800 at this point not yet, because we're still seeing that 0:05:00.839 --> 0:05:04.480 the government and Bating appears reluctant to really roll out 0:05:04.520 --> 0:05:08.160 any decisive stimulus measures, particularly on the fiscal side. 0:05:08.760 --> 0:05:12.919 Alvin, what decisive measures does the China authorities need to 0:05:12.960 --> 0:05:16.640 implement to appease global investors? You know, recently we had 0:05:16.640 --> 0:05:19.560 a ten basis point count that obviously was enough. Can 0:05:19.600 --> 0:05:20.880 you just give us some more details. 0:05:21.640 --> 0:05:26.000 Yes, I think that the LaNese economy currently is suffering 0:05:26.640 --> 0:05:29.760 from lack of demand and factly lack of confidence on 0:05:29.800 --> 0:05:33.839 the out of households and to suspend and so, you know, 0:05:33.960 --> 0:05:37.200 making the price of credit cheaper, perhaps it only helps 0:05:37.200 --> 0:05:39.599 in the margin, is not going to solve the underlying 0:05:39.680 --> 0:05:43.040 lack of demand problem. I think that we definitely need 0:05:43.360 --> 0:05:47.880 more decisive fiscal measures. For example, one reason why households 0:05:47.920 --> 0:05:50.400 have been so cautious in China because China actually never 0:05:50.520 --> 0:05:53.719 had the physcal handouts that was very common and developed 0:05:53.720 --> 0:05:56.920 countries during the pandemic at all, So households are basically 0:05:56.920 --> 0:06:00.680 trying to repair balance sheets currently, and so they cautious 0:06:00.680 --> 0:06:03.560 in the spending, cautious in the borrowing as a result, 0:06:03.920 --> 0:06:07.920 of course, that is certing internal demandment in common. So 0:06:07.960 --> 0:06:10.880 I think you need fiscal measure just as what happened 0:06:11.240 --> 0:06:14.120 in many the countries during the pandemic itself, like. 0:06:14.200 --> 0:06:16.560 Cash handouts basically, right, Yeah, well. 0:06:16.400 --> 0:06:20.359 That is one extreme of it. Of course, perhaps more 0:06:20.560 --> 0:06:25.080 moderate DISCO policies would be the likes of more government 0:06:25.120 --> 0:06:29.400 spending basically on infrastructure, perhaps on more government projects. 0:06:29.480 --> 0:06:33.599 Yes, let's take a deeper dive into China. When China 0:06:33.720 --> 0:06:36.480 emerged from COVID zero, there was a lot of, for 0:06:36.600 --> 0:06:40.880 lack of a better word, fanfare optimism over its growth prospects. 0:06:41.240 --> 0:06:44.000 That light appears to have dimmed a bit. What do 0:06:44.080 --> 0:06:47.760 you see going forward? And has China's shall we say, 0:06:47.839 --> 0:06:49.520 stumble out of the gate surprised you? 0:06:50.080 --> 0:06:53.240 First of all, yes, certainly the growth momentum has pieced 0:06:53.240 --> 0:06:55.200 it out a lot faster than I thought it would. 0:06:55.440 --> 0:06:58.800 But on the other hand, I know because in fact, 0:06:58.960 --> 0:07:01.760 if you tried to remember back to be called back 0:07:01.800 --> 0:07:03.800 to what happened in March when the government set its 0:07:03.800 --> 0:07:05.480 growth target. They at least had the growth target that 0:07:05.600 --> 0:07:08.360 quote around five percent, so actually it was quite a 0:07:08.480 --> 0:07:11.680 modest growth target. And again, if you look at China's 0:07:11.880 --> 0:07:15.800 economic policies just before the pivot away from COVID, at 0:07:15.800 --> 0:07:19.120 the beginning of reopening, there were no particularly very large 0:07:19.240 --> 0:07:22.080 stimulus measures have been put in place. So I think 0:07:22.120 --> 0:07:24.720 that another one. We're expecting China to grow something like 0:07:24.760 --> 0:07:27.280 six seven percent. I think that was definitely this guidet 0:07:27.320 --> 0:07:27.800 in that sense. 0:07:27.880 --> 0:07:31.200 Yes, what do you think the authorities can do regarding 0:07:31.280 --> 0:07:33.160 China's beleagate property sector. 0:07:34.080 --> 0:07:37.040 Well, that's the other part where in recent weeks, I 0:07:37.040 --> 0:07:39.520 would say there's been quite a bit of disappointment because 0:07:39.520 --> 0:07:42.080 there's a lot of news out and boom Will did 0:07:42.080 --> 0:07:45.320 the reporting about China was on the verge between the 0:07:45.320 --> 0:07:48.600 State Council the cabinets, on the verge of announcing various 0:07:48.640 --> 0:07:53.160 measures to support the property markets, of just reducing mortgage requirements, 0:07:53.240 --> 0:07:56.920 reducing limits and second home ownership. But so far it's 0:07:56.920 --> 0:08:00.320 means weeks now, we haven't gotten any details of any 0:08:00.400 --> 0:08:03.840 such policies that in particular, the State Council meeting just 0:08:03.880 --> 0:08:05.920 over two weeks ago, you know, he was expected that 0:08:06.040 --> 0:08:08.880 something with a murder of their meeting, but instead we 0:08:09.040 --> 0:08:12.560 just got more promises that more stimulus measures to particularly 0:08:12.640 --> 0:08:15.760 incite where the demand was forthcoming. So so far even 0:08:15.800 --> 0:08:20.760 now we haven't heard anything. And Premier lead he mentioned 0:08:20.800 --> 0:08:23.760 again that China was on course to meet five percent 0:08:23.880 --> 0:08:26.760 growth title, which is absolutely true, but that was because 0:08:26.760 --> 0:08:30.400 of base effects. The government appears to be continuing with 0:08:30.440 --> 0:08:34.680 a raatively modest growth pilate and their actions speak louder 0:08:34.720 --> 0:08:38.320 basically than there are words promising for the stimulus. I 0:08:38.320 --> 0:08:40.360 think that the market senses that there is a bit 0:08:40.360 --> 0:08:42.920 of foot dragging here in terms of rolling out more 0:08:42.960 --> 0:08:45.760 decisive stimulus measures, in turn the economy around. 0:08:46.160 --> 0:08:49.160 So for China's currency, the CNY or the CNH, are 0:08:49.200 --> 0:08:50.200 you a bull or bear? 0:08:51.120 --> 0:08:54.679 I would say from here, I'm largely positive on the CNY, 0:08:54.720 --> 0:08:56.760 but that's like, let's say, taking an eight and twenty 0:08:56.760 --> 0:09:00.400 four month deal. I think that in the near term, definitely, 0:09:00.880 --> 0:09:03.960 the depreciation trend is a clear one and it makes 0:09:03.960 --> 0:09:07.720 sense in fact, if you think about it, the CNY 0:09:07.840 --> 0:09:12.560 has retained much of its gains from mid twenty twenty, 0:09:12.760 --> 0:09:16.000 from the bottom of the pandemic turbulence that we saw 0:09:16.040 --> 0:09:19.280 it market. If you look at, for example, CNY against 0:09:19.320 --> 0:09:21.719 the Japanese end, it is much much higher, or even 0:09:21.800 --> 0:09:25.520 CNY against Korean war. This is no close neighbors. So 0:09:25.880 --> 0:09:29.400 there is a good argument that the trade weighted CNY 0:09:29.640 --> 0:09:33.040 can continue to move lower simply because the Chinese economy 0:09:33.080 --> 0:09:37.960 is definitely underperforming and a weaker currency is again another 0:09:38.040 --> 0:09:41.640 form of monetary easing. However, long of the term, I 0:09:41.720 --> 0:09:45.760 am a bit more bullish on the CNY because number one, 0:09:45.880 --> 0:09:49.960 China has a persistent current account surface. It's account surface 0:09:50.000 --> 0:09:52.600 currently is still not two percent of GDP, so that's 0:09:52.600 --> 0:09:56.480 a fundamental support for the currency in the longer term sets. 0:09:56.559 --> 0:10:01.640 And secondly, I think that with the depreciation that we've 0:10:01.679 --> 0:10:04.720 seen over the past year or so, I think it's 0:10:04.720 --> 0:10:08.040 hard to argue that the remin bee is expensive. Now 0:10:08.080 --> 0:10:10.160 I think what one could say that is falling into 0:10:10.640 --> 0:10:14.200 relatively cheap levels. So this is what makes me a 0:10:14.200 --> 0:10:17.200 bit more boollish over the medium belong term prospects. But 0:10:17.280 --> 0:10:22.840 certainly in the near term, the depreciation pressures are art clear, Alvin. 0:10:22.920 --> 0:10:27.960 Right now global investors are tiptoeing or treading cautiously around China. 0:10:28.040 --> 0:10:31.000 There are many reasons for that, what's it going to 0:10:31.040 --> 0:10:34.760 take for China to attract the attention and generate that 0:10:34.920 --> 0:10:38.600 global investor interest. Again, is it going to be infrastructure spending, 0:10:38.679 --> 0:10:40.520 Is it going to be support for the property market 0:10:40.880 --> 0:10:42.559 or is this something that we're not considering. 0:10:43.360 --> 0:10:46.520 I think certainly more the size of managers that support 0:10:46.520 --> 0:10:48.840 the economic particularly on the property sector, is going to 0:10:48.840 --> 0:10:51.640 be a part of it. And so to turn that around, 0:10:51.800 --> 0:10:54.839 essentially we need to see a lessening of the pressures 0:10:54.880 --> 0:10:58.320 on the property sector, on the property developers. In fact, 0:10:58.360 --> 0:11:01.640 part of it comes from government used to restrict credit 0:11:01.679 --> 0:11:05.560 provision to highly interested developers. So I think we definitely 0:11:05.640 --> 0:11:09.760 need some easing on those policies. And also beyond that, 0:11:09.920 --> 0:11:13.320 I think part of the reason why foreign investors have 0:11:13.360 --> 0:11:16.800 become a wary of China lately is, of course, you know, 0:11:16.880 --> 0:11:20.240 that stems from the regulatory crack now that of course 0:11:20.240 --> 0:11:22.880 started with ants one in two years ago, and you 0:11:22.920 --> 0:11:26.560 know engulf the education and the tutory sectors for example. 0:11:26.880 --> 0:11:31.120 So I think a clearer regulatory regime, a more transparent 0:11:31.200 --> 0:11:34.840 policy making regime in terms of how the government intends 0:11:34.880 --> 0:11:38.079 to deal particular sectors of the economy, and that it 0:11:38.280 --> 0:11:41.559 tends to ease this regular crack. Now, I think that's 0:11:41.600 --> 0:11:44.439 they will be important for foreign investors. 0:11:45.480 --> 0:11:47.960 Alvin, you're sitting in Singapore and I noticed that you 0:11:47.960 --> 0:11:51.800 haven't mentioned anything about Southeast Asian currencies. What's your view there. 0:11:52.920 --> 0:11:55.600 I've been quite positive on the Indonesian rupia, and I 0:11:55.679 --> 0:11:58.960 continue to be positive on the Indonesian mupia. And one 0:11:59.040 --> 0:12:01.960 reason is that, but partly it is a carry trait. 0:12:02.120 --> 0:12:05.480 I think we're seeing that volatility in actually EM bonds 0:12:05.520 --> 0:12:09.840 and EM currencies have fallen quite significantly the course of 0:12:09.880 --> 0:12:12.440 this year, So I think Indonesia is attractive from that 0:12:12.600 --> 0:12:15.640 point of view. I think that definitely botes well for 0:12:15.960 --> 0:12:19.720 Indonesia's growth and economic prospects. And the other one is 0:12:20.200 --> 0:12:23.679 I do think that the Singapore dollar, for example, has 0:12:23.720 --> 0:12:26.320 actually done quite well over the past two years or so, 0:12:27.000 --> 0:12:30.319 and that's because the Monetary authors Yere of Singapore has 0:12:30.520 --> 0:12:34.240 PYTHON policies quite significantly over the course of the past 0:12:34.440 --> 0:12:37.480 two years. Now that, of course, MAS has already stopped. 0:12:38.000 --> 0:12:43.040 I think it's definitely paused. Its tightening cycle is over. However, 0:12:43.800 --> 0:12:48.200 the appreciation settings on the Singapore dollar that were put 0:12:48.240 --> 0:12:51.440 in place during the course that pythoning remains in place. 0:12:51.800 --> 0:12:54.679 And so the Singapore dollar I think can continue to 0:12:54.760 --> 0:12:58.080 do well with those appreciation settings in place, driving it 0:12:58.120 --> 0:13:01.440 forward modestly, but nonetheless I think that will help with 0:13:01.520 --> 0:13:03.840 whole its gains of the past two years well. 0:13:04.559 --> 0:13:08.880 Alvin. Commercial real estate, especially the office segment, is a 0:13:08.920 --> 0:13:12.880 big player in developed economies, especially in Asia. Right now, 0:13:12.920 --> 0:13:16.600 there are some headwinds. Developers are finding it difficult to refinance, 0:13:16.600 --> 0:13:19.000 of course, due to the higher interest rates. We've got 0:13:19.080 --> 0:13:21.920 high vacancy rates. You're seeing it here in Hong Kong 0:13:22.360 --> 0:13:25.720 people working from home. Can you assess how big a 0:13:25.920 --> 0:13:29.440 risk is at stake here with commercial real estate and 0:13:29.559 --> 0:13:32.920 how does Asia's situation compare to the rest of the world. 0:13:33.880 --> 0:13:36.800 I think when you talk about this, it's important to 0:13:36.880 --> 0:13:41.400 differentiate between the various countries. Certainly in the commercial census 0:13:41.480 --> 0:13:44.679 of Hong Kong and Singapore, it is an issue that 0:13:44.760 --> 0:13:49.280 loans law. But in cases such as Indonesia to less extent, 0:13:49.360 --> 0:13:53.120 but still Malaysia or even India for that massive, I 0:13:53.160 --> 0:13:57.720 don't think it's particularly law problem on the macro level, 0:13:57.760 --> 0:14:00.000 at least for the economy, and I think the solid 0:14:00.040 --> 0:14:03.200 these Asian banks are actually quite relatively well capitalized in 0:14:03.200 --> 0:14:06.440 that sense, and which should help them whether these problems 0:14:06.440 --> 0:14:10.120 are in my view, but certainly in the more urban, 0:14:10.760 --> 0:14:15.319 commercial oriented centers of On Kong in particular and also Singapore, 0:14:15.559 --> 0:14:18.400 it is likely to be a big question mark going forward. 0:14:19.600 --> 0:14:21.360 I think it's a good time to bring in Rena 0:14:21.440 --> 0:14:24.560 into this discussion. Earlier this year we seem to be 0:14:24.600 --> 0:14:27.760 on the precipice of a global banking crisis. We had 0:14:28.080 --> 0:14:32.400 US regional banks fail, especially SVP. We also, you know, 0:14:32.480 --> 0:14:35.240 across the pond, we had credits with fail in Europe. 0:14:35.520 --> 0:14:38.480 Are you surprised at how well Asian banks have weathered 0:14:38.520 --> 0:14:39.840 the storm? Rena? 0:14:39.960 --> 0:14:43.040 Thanks for having me, John, Still, how we actually looked 0:14:43.040 --> 0:14:45.800 at why Asian banks seem to be better placed but 0:14:45.920 --> 0:14:49.360 not insulated from the global banking crisis that we have 0:14:49.480 --> 0:14:52.200 seen in March. Now, a couple of credit strengths that 0:14:52.240 --> 0:14:54.280 we see for the Asian banks. The first thing is 0:14:54.640 --> 0:14:57.640 most of the major Asian banks they have big capital 0:14:57.640 --> 0:15:01.280 cushions that allows them to actually what we call the 0:15:01.320 --> 0:15:04.600 credit losses potential credit losses in them books. Now. The 0:15:04.640 --> 0:15:08.200 second thing is that healthy liquidity. Most of the major 0:15:08.240 --> 0:15:11.880 banks liquidity profiles are likely to remain healthy this year, 0:15:11.960 --> 0:15:15.520 despite the elevated funding cause, and it seems unlikely to 0:15:15.600 --> 0:15:18.200 see the similar kind of deposit flight that we've seen 0:15:18.200 --> 0:15:21.360 in SVB as we see that for Asian banks. Now, 0:15:21.400 --> 0:15:23.680 the third thing is that as we look for most 0:15:23.720 --> 0:15:26.760 of the major Asian banks, they actually show up preemptive 0:15:26.840 --> 0:15:30.400 provisions since the pandemic to cushion their books. So that 0:15:30.520 --> 0:15:33.840 helps to actually cushion potential looms pages. Should you know 0:15:33.960 --> 0:15:35.360 Microhaatemin's person. 0:15:35.960 --> 0:15:39.840 Rina Quad, you've written quite a bit about Korean banks 0:15:40.000 --> 0:15:42.880 from your perch there in Singapore. When you stand out 0:15:43.080 --> 0:15:46.600 and you gaze across Asia, does Korea stand out in 0:15:46.680 --> 0:15:49.440 terms of risk to its financial center for better or 0:15:49.520 --> 0:15:49.960 for worse? 0:15:51.200 --> 0:15:53.920 As we turn our focus through the South Korean financial sector, 0:15:54.000 --> 0:15:56.680 a couple of risks to watch. You know, the whole 0:15:56.720 --> 0:16:00.160 economy has elevated household that and of course we are 0:16:00.200 --> 0:16:04.320 facing enterrising interest rate. So in terms of mortgage defrauds 0:16:04.320 --> 0:16:07.680 and credit card defaults, we believe they could be manageable 0:16:07.760 --> 0:16:10.280 for the financial sector and stuff career this year, just 0:16:10.320 --> 0:16:13.880 because the income and the employment conditions continue to be 0:16:13.920 --> 0:16:17.560 resilient despite the microhat wents that we see in self Korea. 0:16:17.640 --> 0:16:20.520 But what is more important is really the non bank 0:16:20.640 --> 0:16:25.800 financial institutions what we call the mbfies increasing liquidity risks 0:16:25.800 --> 0:16:28.680 amid the elevated interest rate as well as their riskier 0:16:28.720 --> 0:16:32.120 project financing exposures seems to be a bigger risk to 0:16:32.120 --> 0:16:32.560 watch this. 0:16:32.600 --> 0:16:36.640 Year, and where the Korean households are also amongst the 0:16:36.680 --> 0:16:38.040 most indebted in the world. 0:16:38.120 --> 0:16:40.880 Right, yes, so if I may just put in note, 0:16:41.040 --> 0:16:43.720 how do we think about the mortgages defraud and self career? 0:16:43.760 --> 0:16:46.680 Given that we have really elevated levels of household that 0:16:46.800 --> 0:16:50.280 and self career, we believe that the mortgages deferred amid 0:16:50.320 --> 0:16:53.280 the rising interest rate could be manageable as the most 0:16:53.440 --> 0:16:57.080 outstay one of the crucial factors, such as employment continues 0:16:57.120 --> 0:17:00.320 to be resiliant. The unemployment rate and STEFF career may 0:17:00.800 --> 0:17:03.800 was about two point seven percent. Now risks are also 0:17:04.080 --> 0:17:07.040 offset by the microprudential measures we have in place in 0:17:07.040 --> 0:17:09.800 self career to actually avoid a herd lending of the 0:17:09.840 --> 0:17:13.119 property market. And most of the major of Korean banks 0:17:13.080 --> 0:17:14.679 they've Empire provisions. 0:17:15.040 --> 0:17:17.400 So really can I draw analogies? It sounds like the 0:17:17.440 --> 0:17:20.600 big Korean banks are okay, but the and similar to 0:17:20.600 --> 0:17:22.560 the US banks, the big ones are okay, but the 0:17:22.720 --> 0:17:25.000 smaller ones in the US it's regional banks and create 0:17:25.080 --> 0:17:27.520 sounds like it's the MBFIS, they're the ones at risk. 0:17:27.880 --> 0:17:30.760 Yes, couple of items to watch for the mbf FI. 0:17:30.960 --> 0:17:35.680 Firstly as the liquidity risk, you know, especially the security companies, 0:17:35.840 --> 0:17:39.200 the credit specialized financial companies as well as the mutual 0:17:39.280 --> 0:17:43.440 saving banks as we enter into elevate third interestry, market 0:17:43.520 --> 0:17:47.400 volatility and a struggling property sector. Now, as of top 0:17:47.480 --> 0:17:51.159 quarter last year, what we call the regulatory liquidity courage 0:17:51.240 --> 0:17:55.560 ratio were well above their regulatory requirements. For the MBFIS, 0:17:55.680 --> 0:17:59.560 their ratios have actually fallen sharply versus the twenty ninety levels. 0:17:59.840 --> 0:18:03.280 And particularly if we look into the securities companies as 0:18:03.280 --> 0:18:06.919 well as the credit specialized financial companies that are actually 0:18:07.040 --> 0:18:10.200 very vulnerable to market jetas just because they's a huge 0:18:10.240 --> 0:18:14.160 reliance on short term hostale funding and rina quad. 0:18:14.200 --> 0:18:17.200 What about Korean banks credit default swaps? What are they 0:18:17.200 --> 0:18:18.680 doing now? What's your outlook? 0:18:19.520 --> 0:18:21.199 So if we take a look at the what we 0:18:21.280 --> 0:18:24.159 call the CDs performance of the big four STUF current 0:18:24.200 --> 0:18:27.520 banks for their five year dollars senior CDs, we believe 0:18:27.600 --> 0:18:30.720 they could actually remain modestly higher than the twenty twenty 0:18:30.760 --> 0:18:33.480 one level this year. And this is because you know, 0:18:33.520 --> 0:18:37.159 the economy and stock careers facing rising hugments. Right, the 0:18:37.200 --> 0:18:40.159 soft care economy could be hurt by the exports amid 0:18:40.160 --> 0:18:43.879 the slow in global growth, the accumulated transmission effects of 0:18:43.920 --> 0:18:46.720 the tightening by the Central bank last year, as well 0:18:46.760 --> 0:18:50.480 as the elevated household that as the growing fears of 0:18:50.560 --> 0:18:55.360 the financial institution's project financing exposures. Now, if we look 0:18:55.520 --> 0:18:59.680 closely into the major stuft current banks whoming banks five 0:18:59.760 --> 0:19:02.920 years seen as CDs might remain tight again its peers 0:19:03.000 --> 0:19:06.480 just due to a stronger capital position as the bigger 0:19:06.520 --> 0:19:07.440 system important. 0:19:08.440 --> 0:19:10.720 Alvan, I'd love to bring you back on what could 0:19:10.760 --> 0:19:13.359 go wrong with your faces? Is there any black swan 0:19:13.400 --> 0:19:14.479 events that you're looking out for. 0:19:15.520 --> 0:19:20.520 Well, I suppose the geopolitical as fact is one black 0:19:20.560 --> 0:19:25.360 swan that people are worried about. And beyond this as 0:19:25.440 --> 0:19:29.600 reala mentioned the financial sector is a concern in the 0:19:29.680 --> 0:19:32.000 case of Korea, as we've seen of course in the 0:19:32.080 --> 0:19:35.960 United States, when you have rising interest rates, you're rising 0:19:36.000 --> 0:19:40.680 from near zero levels, bad things can happen, Things can 0:19:40.760 --> 0:19:43.680 break in the economy. So that's something definitely watch about, 0:19:43.720 --> 0:19:47.440 and particularly when you have a situation where China is 0:19:47.480 --> 0:19:52.560 a big giant in the Asia Pacific region is slowing down. 0:19:53.359 --> 0:19:59.080 That's definitely the higher rates in the non Chinese economy somehow, 0:19:59.119 --> 0:20:02.200 you know, react with of a slowing demand from China 0:20:02.359 --> 0:20:05.920 to create a really really negative situation in the region. 0:20:06.560 --> 0:20:09.400 So definitely that's something that bears watching too. 0:20:09.520 --> 0:20:14.840 Yes, having your eye Alvin Tann on Asia's economy. Let's 0:20:14.840 --> 0:20:18.359 say you could pull over Jerome Powell and tell him 0:20:18.359 --> 0:20:21.280 a few words whisper something in his ear about interest rates. 0:20:21.320 --> 0:20:23.600 Maybe it's a piece of advice. What would you tell 0:20:23.720 --> 0:20:25.560 Jerome Powell, the US FED Chairman? 0:20:26.600 --> 0:20:30.480 I would say he has to be careful about moving 0:20:30.640 --> 0:20:33.080 rates a lot higher from here. But frankly, that's something 0:20:33.119 --> 0:20:35.760 that the Fed is very concerned about. They've been talking 0:20:35.800 --> 0:20:39.600 about the banking sector and the risk to the banking 0:20:39.640 --> 0:20:41.960 sector for a few months now. When you have situations 0:20:41.960 --> 0:20:45.439 where interest rates are high and rising, when US treasuries 0:20:45.440 --> 0:20:49.359 are offering over four percent risk free returns, that's going 0:20:49.400 --> 0:20:52.480 to cost pressure on the banking sector. It's just snails, 0:20:52.520 --> 0:20:55.159 it's quite straightforwards. Fundamentally, it will cause pressure on the 0:20:55.200 --> 0:20:59.240 mangu sector, so that's something the FED needs to keep 0:20:59.320 --> 0:21:00.480 him very close on. 0:21:01.440 --> 0:21:03.760 Sounds to me like you're convinced the FED is just 0:21:03.880 --> 0:21:06.240 about where it needs to be on rates. 0:21:07.160 --> 0:21:09.920 I think it definitely makes sense that the FED has 0:21:10.000 --> 0:21:13.560 to keep rates where they are, and I'll haul this 0:21:13.640 --> 0:21:15.680 in fact, that they'll have one more hike, but they'll 0:21:15.680 --> 0:21:18.679 go stop that, but they'll keep the rates that you 0:21:18.680 --> 0:21:20.920 know until well on the next year. But it makes 0:21:20.960 --> 0:21:23.919 sense because the US economy in fact is doing relatively well. 0:21:23.920 --> 0:21:26.600 If you look that the macro indicators, look at unemployment level, 0:21:26.640 --> 0:21:29.600 you look at various measures, particularly the housing market appears 0:21:29.600 --> 0:21:30.360 to be heating up again. 0:21:30.400 --> 0:21:32.200 It's showed a lot of resilience, hasn't it. 0:21:32.280 --> 0:21:35.760 Yes, absolutely, the housing market in the US has surprised 0:21:35.800 --> 0:21:39.160 a lot of people by resilience. And because of this 0:21:40.000 --> 0:21:43.679 and the fact that inflation remains an issue, so the 0:21:43.720 --> 0:21:47.439 FED has to keep rates where they are for a 0:21:47.440 --> 0:21:48.680 lot longer, I think. 0:21:48.840 --> 0:21:50.680 Mind, I probably just want to talk about how the 0:21:50.760 --> 0:21:53.680 liquidityly res compare. For Singapore, it was just the big 0:21:53.760 --> 0:21:56.639 form of current banks because the reason why I said this, 0:21:57.480 --> 0:22:01.000 the regulator recently revised the LBI required for their current 0:22:01.040 --> 0:22:03.280 banks to be ninety five percent from ninety two percent 0:22:03.480 --> 0:22:06.879 effective from July to end of December this year. So 0:22:06.920 --> 0:22:09.120 we just wanted to point it out what we think 0:22:09.160 --> 0:22:12.320 the big four current banks liquidity is still healthy. They 0:22:12.320 --> 0:22:16.080 are comparatively much weaker than similarated in upon banks. 0:22:16.280 --> 0:22:20.520 Okay, great, thanks Verna. Our guests have been Alvin Town 0:22:20.640 --> 0:22:25.639