財經觀察 1927 --- Global risk appetite is back with a vengeance

Global risk appetite is back with a vengeance. Or is it? Following the Federal Reserve’s surprise transition to outright quantitative easing and expansion of its mortgage- and agency-debt purchases in mid-March, global equity markets have soared. Improved risk appetite has been given more shots in the arm over the past week by the US Financial Accounting Standards Board’s decision to relax mark-to-market regulations, comments from Fed Chairman Bernanke that measures to restore the flow of credit are “having the intended effect” so far, and the larger-than-expected global policy response at the G20 summit. Yet questions remain. With the boost to consumer spending from lower energy prices beginning to fade, unemployment continuing to rise and credit conditions remaining tight, the global consumer will remain under pressure for some time. Investors may soon lambaste the lack of fresh global fiscal stimulus achieved at the G20, while the so-called common approach to address banks’ toxic assets is yet to be clarified. Moreover, the Fed’s and other major central banks’ exit strategy from huge balance sheet expansion is yet to be detailed.

That is not to say that global market sentiment has not turned an important corner: the G20’s summit’s achievements send a clear message that scope for global policy coordination should not be underestimated and we expect that global economic expectations will bottom in Q2. We forecast that the US dollar (USD), which has benefited from investor repatriation and negative surprises outside of the US, has now peaked. This in itself is supportive for high-yielding currencies denominated against the USD. But USD weakness is likely to be most apparent against currencies where quantitative easing is unlikely to be pursued such as the Australian dollar (AUD) and New Zealand dollar (NZD). We thus retain a cautious view on Asian FX for now: it is simply too early to tell whether the last two weeks constitute a bear market rally or a fundamental shift in market perceptions. We prefer to adopt a cautious stance to small open economy currencies that are clearly exposed to the decline in global trade, such as the Taiwan dollar (TWD), Thai baht (THB) and Singapore dollar (SGD), preferring to position for strength in commodity-related currencies such as the Indonesian rupiah (IDR). The start of the US corporate earnings season today and a decision at the US Securities and Exchange Commission on Wednesday on whether to implement new restrictions on short-selling (namely the uptick rule) could either prolong or cut short the recent rally. We recommend clients to focus on currencies which are supported by relatively strong fundamentals such as the AUD, NZD and IDR.

Asia

Table 1: Foreign portfolio investment in Asian equities

Country	Day(USD mn)	WTD net(USD mn)	MTD net(USD mn)	YTD net(USD mn)	Date as of
India	58.2	-188.7	58.2	-1,595.3	01 Apr
Indonesia	27.3	27.3	90.3	87.6	05 Apr
Japan	n.a.	-1938.5	-17,341.4	-41,607.0	27 Mar
Philippines	-8.6	-49.4	-40.4	-197.0	03 Apr
South Korea	204.6	204.6	883.3	645.0	04 Apr
Taiwan	219.4	219.4	579.4	-1,027.4	04 Apr
Thailand	55.2	65.0	74.0	-83.4	03 Apr
Vietnam	1.1	2.9	2.9	2.9	03 Apr
Sources: Bloomberg (WFII), national stock exchanges