M IdeaEM Strategy | Asia PacificAsia Macro Strategy: Does China Have CNY 2 Trillion Offshore to Buy Onshore Stocks?Morgan Stanley Asia Limited+Min DaiStrategist Min.Dai@morganstanley.com +852 2239-7983 Gek Teng KhooStrategist Gek.Teng.Khoo@morganstanley.com +852 3963-0303 We remain cautious on Asia FX and rates by recommending long USD and paying the front end selectively. We examine the topic of China using its offshore assets to buy onshore stocks and its market implications. Our view for the next few months: Our cautious view on Asia FX and rates should remain until we get a signal that the Fed would consider a rate cut or US data surprise the market on the downside. We believe that this moment will probably come in late 1Q or early 2Q. This would be the time for us to consider positioning for a relief rally in Asia FX and rates, which could last for two to three months.However, beyond that, going into 2H24, we could become cautious again as the market is heading into the closing stages of the US election. Recent comments from Donald Trump have raised concerns about new tariffs on China, which could have a direct impact on CNY.Does China have CNY 2 trillion offshore to buy onshore stocks? We went through China's Net International Investment Position. There are three possible sources to fund the purchases – the sovereign wealth fund's foreign assets (US$350 billion), unexplained other assets (US$300 billion) and offshore deposits (US$465 billion). However, the plan still lacks details, and we are not able to identify a definitive source to fund such purchases. We also discuss the latest India budget and its impact on INR and G-Secs, our marketing feedback in Taiwan and the latest tradeable SGD NEER basket. In FX, we recommend:• Short TWD/INR (hold) • Short CNH/INR (hold)• Long USD/PHP 3m NDF (hold)• Long USD/THB (hold, adjust the stop)In rates, we suggest:• Receive 1-year CNY NDIRS (hold)• Long onshore CNY-hedged 1-year CGB (hold)• Pay 1-year INR NDOIS (hold)• Receive 2-year KRW NDIRS versus 2-year USD IRS without beta adjustment (hold)Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. February 6, 2024 12:07 AM ...
