Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.  

India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Which Countries Are Outliers Within EM Rates This Year?

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Higher Real Rates in EM than in DM

Digging deeper into the underperformance of EM rates to the US, we find that within EM, the regional differentiation has been quite significant. Specifically, while rates in Latin America have underperformed the rally in the US significantly, rates in Asia have lagged by much less. This differentiation argues for relative-value trades between rates in LatAm and Asia as well as within countries in Asia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Digging deeper into the underperformance of EM rates to the US, we find that within EM, the regional differentiation has been quite significant. Specifically, while rates in Latin America have underperformed the rally in the US significantly, rates in Asia have lagged by much less. This differentiation argues for relative-value trades between rates in LatAm and Asia as well as within countries in Asia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: The Gap Between Rates in LatAm and Asia Grows

As the correlation of rates in Asia and Latin America touches its lowest level in multiple years, we point out that historically such extremes don't last, implying better performance for LatAm rates ahead.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

As the correlation of rates in Asia and Latin America touches its lowest level in multiple years, we point out that historically such extremes don't last, implying better performance for LatAm rates ahead.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Regional Correlations Within EM Break Down

India

Overnight Indexed Swap (OIS) is a fixed/float interest rate swap where the floating leg is computed using a published overnight index rate. The index rate is typically the rate for overnight unsecured lending between banks, for example the Federal funds rate for US dollars, Eonia for Euros or Sonia for sterling

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India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

After likely real GDP growth of 15%YoY in Apr-Sep21, the fiscal coffers are full; this will allow oil excise duty cuts. With inflation below 5%,...

Prasenjit K. Basu

Rates 10y Dashboard: Which Countries Are Outliers Within EM Rates This Year?

Looking at the beta-adjusted performances of rates in EM countries corroborates our earlier findings that EM has lagged the US and LatAm rates have...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Higher Real Rates in EM than in DM

Real rates in EM are much higher than in the US, making the spread of EM local debt to the US attractive, especially with EM rates volatility...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: The Gap Between Rates in LatAm and Asia Grows

As EM rates have underperformed the rally in the US, we find that there has been significant regional differentiation within EM, arguing for inter...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Regional Correlations Within EM Break Down

As the correlation of rates in Asia and LatAm touches its lowest level in multiple years, we point out that historically such extremes don't last,...

Gautam Jain, PhD, CFA

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52-week Range

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