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South Asia Daily Outlook and Strategy - November 28, 2007

Leslie Khoo, [email protected],

Ph: 65-6236-394

Vishnu Varathan, [email protected],

Ph: 65-6236-0396

Kwok Yung Chua, [email protected],

Ph: 65-6236-0385

* USD/SGD: Still rangebound

USD/SGD hit a low of 1.4402 as the STI pared back losses after news emerged that a white shining knight in the form of the Abu Dhabi Investment Authority (ADIA) was taking up a $7.5 bln stake in troubled financial giant Citigroup Inc. Equity markets were buoyed by the news which revived Cross/JPY buying for carry purpose and weighed the USD/SGD down. Risk aversion prompted it back up towards the 1.445 mark. Elsewhere, State investment agency Temasek Holdings unloaded part of its holdings worth $567 mln amid market worries over the lender's exposure to the US subprime mortgage crisis. Further out, we see continued risk averse behaviour in the equity markets which will likely shore the USD/SGD above the 1.4380 levels for now. The markets have been displaying a willingness to capitalise on good news which could see some volatility and result in further choppy trades. USD weakness is also expected to weigh on the pairing with USD/CNY likely to apply additional pressure with fresh lows set every other session. We expect prices to be range bound with near term resistance at the 1.4450 mark. Meanwhile, Taiwan and Singapore may cross-list their exchange-traded funds by February, the Commercial Times reported, citing Lu Daung-yen, chairman of Taiwan's GreTai over-the-counter securities market. Taiwan would list its Top-50 exchange-traded fund and Singapore its Straits Times Index ETF on each other's bourses under the arrangement, the newspaper said. The move is aimed at slowing the outflow of funds from each market and giving investors more choices.

* USD/PHP: Consolidating in a familiar range as equity cues are eyed

USD/PHP popped higher in opening trades as the retreat on Mon had left shorts exposed when US equity markets tumbled. The pairing kicked off the session firmly at 43.05, but found room to ease as bids were scarce at these levels. Downside momentum gathered pace when JPY crosses spiked on the Citigroup equity sale news. With $7.5 bln fuelling sentiments, the tremendous surge in USD/JPY saw USD/PHP hit troughs of 42.76. With little else to go on offers began to dwindle; in line with the profit-taking seen in Cross/JPY. USD/PHP hopped back up above 42.80 with some choppy price action before ending the session at 42.805. For now, the 42.67-43.11 is as the playing range for the USD/PHP. The central bank is seen smoothing volatility in the pairing that continues to draw direction from equity market movements. Bond yields were down across the curve. Acting Treasurer Roberto Tan said that the two remaining bond issues for the year in December - PHP6 bln of T-bills (Dec 3) and PHP7 bln worth of 4-yr bonds (Dec 11) - could likely be cancelled. This was on the grounds that the PNOC-EDC stake sale has buffered the government's need for cash.

* USD/THB: To likely stay in lower half of 33.80-33.90 range

USD/THB trades inched lower, tracking the fall in USD/JPY, in the onshore market in late dealings on Tuesday after drifting higher by rise in USD/JPY earlier. Dollar sales by exporters continued to weigh on the currency pair. However, market stayed cautious in pushing the pairing lower, as the central bank remained at the bottom to smooth volatility. In the run up to the end of the week, exporters' month-end requirements will likely continue to keep USD/THB under pressure in the onshore market. Meanwhile, sustained risk aversion will help cap losses in the currency pair. Given the present market environment surrounded by exporters who need to meet their month-end requirements, USD/THB will likely remain in the lower half of the 33.80-33.90 range. Elsewhere, Finance Ministry raised growth expectations for the year to 4.5% up from 4.0% projected previously and estimated that 2008 growth will be 5.0% as compared to its previous projection of 4.5%. Exports for the year are expected to rise 15.7%, moderating down to +10.7% next year.

* USD/IDR: Ebbing risk appetite continues to underpin

USD/IDR upside was established in opening sessions as the pairing advanced to levels above 9400 spooked by the tumble on Wall St. Spike in JPY crosses made room for the pairing to ease below 9400 as markets rejoiced news of Citigroup having a stake in it being acquired by the Abu Dhabi investment arm for $7.5 bln. Downside interest was still restrained; the Citi news, while a reprieve from risk aversion, did not eradicate underlying jitters. The lack of follow through sellers was accentuated by Cross/JPY slipping back. This sent the USD/IDR right back above 9400 as the local bourse closed in the red. For now, we expect that the USD/IDR will continue to be dealt in the 9335-9445 range in cautious sessions ahead. Elsewhere the Chief Econ Min said that this year's budget has been largely unaffected by high oil prices; the FinMin expects this year's deficit to be 1.3% of GDP. 2008 budget is seen at 1.8% of GDP if oil hits $100/barrel. The FinMin also said that the govt will make provision of IDR6 trln for high oil prices next year. Next year's inflation forecast was held at 5% for next year; growth was seen slowing to 6.4-6.7%.

* USD/MYR: Exposed to risk aversion

USD/MYR edged higher in late dealings, bouncing off from the low levels, as there were some selling in JPY crosses. The pairing came off in early trades amid buying in cross/JPY. However, the currency pair did not venture too far up north as the gain was limited by exporters who needed to unload dollar holding for their month-end requirements. On equity, the benchmark KLCI pared losses to end 0.05% up. In coming sessions, the expectation of sustained risk aversion in the global financial community will continue to cloud the Malaysian markets as well as their counterparts in the region. Present resistance is seen at 3.3750 and should USD/MYR extend gain will bring out the resistance barriers at the 3.3800-3.3850 region. Meanwhile, on the downside, current support is seen at 3.36 and further losses will put the next support at 3.3480 on the radar screen. On news front, Malaysian Institute of Economic Research said that it is maintaining growth forecast for the year at 5.7%. Growth pace is seen moderating to 5.4% next year and bouncing back to 5.7% in 2009. Inflation forecast for this year is at 1.9%; 2008 inflation seen rising to 3.2% before coming off to 2.8% in 2009.

The Malaysian economy in Q3 is seen upping its pace a touch to advance 5.9% y/y up from the 5.7% % y/y clip in Q2 but down from the 6.0% y/y rate of growth for the same period a year ago. Broadly speaking, the stronger growth momentum seen in the region, we think will support growth in Malaysia. The external sector is admittedly softer than the government would like for it to be. While exports have recovered to positive growth in Q3 (+0.6% y/y) up from the -1.2% y/y performance in the second quarter and -1.0% y/y showing in H1, it is hardly at a pace that could be said to be positively contributing to the growth momentum. Services, particularly in the financial sector is expected to pick up the slack from the external sector as asset markets have continued to show resilient growth - never mind the credit market scare in August. Islamic banking has also been a boost to the financial sector in Malaysia. Domestic cons