ab10 January 2024Global Research and Evidence LabGlobal StrategyAsia FX and Rates: 10 questions for 2024Top down & Bottom up: 10 key questions about Asia FX and rates in 20241) Fed rate cuts and USD/Asia: What can we learn and (un)learn from history?2) Which Asian central banks will cut after the Fed, and when?3) Would China economic recovery lift regional assets in '24?4) Which currencies are likely to outperform in ’24?5) How would regional elections impact markets?6) Will the tech cycle optimism lift KRW and TWD further in '24?7) How low can USD/CNH go with and without a recovery in domestic growth?8) How would IGBs' inclusion in EM bonds index impact bond markets and INR?9) Could KTBs extend their 4Q23 outperformance into '24?10) THB recorded 15+% intra-year swings in 2022-23. Will '24 be any different?This report has been prepared by UBS AG, Singapore Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 26. Global StrategyGlobalRohit AroraStrategist rohit-b.arora@ubs.com +65-6495 5232Teck Quan KohStrategist teck-quan.koh@ubs.com +65-6495 4416Manik NarainStrategist manik.narain@ubs.com +44-20-7568 3635Grace LimEconomist grace-k.lim@ubs.com +65-6495 5965Sunil TirumalaiStrategist sunil.tirumalai@ubs.com +91-22-6155 6080Joshua Tanja, CFAAnalyst joshua.tanja@ubs.com +62-21-2554 7030Ally ChenAnalyst ally.chen@ubs.com +886-2-8722 7347Yong-Suk Son, CFAAnalyst yongsuk.son@ubs.com +82-2-3702 8804 Global Strategy 10 January 2024ab 2Global StrategyUBS ResearchExecutive summary#1. Fed rate cuts and USD/Asia: What can we learn and (un)learn from history?1. Global growth backdrop matters as much as, if not more than, the Fed rate cutting cycle. 2. Tech cycle is a positive, but China recovery is a necessary condition for a steep rebound. 3. ‘Precautionary’ US fixed income help is running out of steam. 4. Disinflation reprieve is stretched, risk premia even more. 5. Asian currencies’ role as a funder in 2022-23 is a welcome tailwind in '24. Target 2-3% backloaded spot returns in average EM Asia FX vs. USD; Risk-reward unattractive in Q1.#2. Which Asian central banks will cut after the Fed, and when?UBS expects the average policy rate in EM Asia to decline by c.80bps, as Asian CBs follow the Fed amidst cooling CPI inflation, sub-trend growth. These cuts, which presume a mild US recession, are estimated to be largest in SK (150bps), ID (150bps) and PH (100bps), with 80-90% of forecast rate cuts materializing in 2H. Our analysis finds SG, HK front end rates stretched on the downside; about fair in IN/MY and marginally too high in SK.#3. Would China economic recovery lift regional assets in '24?China’s real estate sector, amidst only a measured/targeted policy easing, pulled economic growth lower in 2023 for the third consecutive year. This risk remains elevated into '24,...
