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Our Asia economists shared their 2017 Equities, Forex & Economic Outlook with the media on Friday, December 9, highlighting our Global Markets research team’s expectations for the year ahead. This podcast is a compilation of each economist’s 5 minute overview – see below for the individual time stamps.

Rob Subbaraman

01:52 - 09:15

Yang Zhao

09:16 - 14:17

Sonal Varma

14:20 - 18:38

Euben Paracuelles    

18:41 - 24:08

Craig Chan

24:11 - 29:48

Mixo Das

29:49- 33:57

As Asia sails into 2017, trying to remain even keel will be more challenging than in 2016, as its structurally slowing economies, many of which are in a late-stage credit cycle, are vulnerable to more inward-looking US policies and high geopolitical risks.

We think China’s reported GDP will continue to grow in 2017, underpinned by large fiscal stimulus. But underneath this facade of remarkably stable growth is an economy addicted to credit. We are mindful of the early warning indicators sounding alarm bells for China, as they have done a good job in predicting past financial crises in other countries. Our growth forecasts are well below consensus for a number of economies – Hong Kong, Singapore, Korea, Malaysia, Taiwan and Australia – and our key message is that we still see the risks to Asian growth as stacked to the downside. Over time, once the storm passes, we see a growing divide in Asia, as its striving cubs (India, Indonesia, the Philippines and Vietnam) unlock their growth potential and replace the ageing tigers as the core of regional economic dynamism.

FX strategy: Asia FX depreciation pressures are expected to continue, mainly from shifting global monetary policy and risk of Asia’s foreign portfolio holdings unwinding further Rising global rates, more political shocks and local FX weakness could exacerbate the deleveraging risks to Asia’s foreign currency loans. The other source of pressure will likely remain from China, where RMB depreciation will continue, while stable China growth is already the broad consensus view.

Rates strategy: We expect a return of the reflation theme in 2017 and are biased towards steeper curves. We expect front-end rates to outperform US rates in select Asia markets, because of Asia monetary policy decoupling from that of the US. While we expect most front-end Asia rates to be capped, we see term premia rising in some countries due to a faster Fed hiking cycle and reflation expectations.

Equity strategy: We expect the MSCI Asia ex-Japan to end 2017 slightly below current levels. The commodities/industrials space will likely peak soon and the tech cycle may be peaking.

For further insights and analysis, read the full 2017 Outlook report here.

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