Independent Strategy

No enthusiasm for the Asia bounce

There are signs of life in DM demand after the spring soft patch. That provides some positive news for Asian exporters and is supporting renewed portfolio flows into EM Asia. But this is a momentum trade. It is still being driven principally by central bank liquidity and the hunt for yield. The logic of buying on expectations, rather than a real recovery in demand, is conflicted given that this would also imply an upward shift in US rate expectations, which undermines the carry story. We would avoid chasing it. Furthermore, China is still managing its currency weaker. This not only compounds existing overcapacity problems but, overtime, will pressure Asian currencies weaker. We remain short.

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