POPULARITY OF CWM DESIGNATION AND FUTURE PREDICTIONS

WANT TO
KNOW FUTURE?
SURE.
SEPTEMBER 11, 2013
TI EM
SPECIAL REPORT: THE POPULARITY OF CWM DESIGNATION
CHARTERED WEALTH MANAGER
FELLOWSHIP
DINNERSEPTEMBER 11, 2013 MANILA, PHP

19th November 2012
18th January 2013
On November 6 2012, Obama became the first
Democratic president since Franklin D. Roosevelt
to twice win the majority of the popular vote and
being elected as President.

2013 unfolds with Taliban story …… Burma and then to Europe.

February & March … was consumed with Pope and issues around church

June from tornado ..to china …to informers

July … a twist. Buddhist Terror. Happiness. Back to Egypt.

August & September …. As it unfolds

Cyprus
Spain
Greece
Italy
Portugal
India
Indonesia
Australia
Brazil
Currency
China
Russia
Japan
UK
Ireland

PIGS
PIGS
Portugal | Italy | Greece | Spain

PIGS
PIGS
PIIGS
Portugal | Italy | Ireland | Greece | Spain

BRIC
Brazil | Russia | India | China

VIEWS
6INVESTMENT
1997 AGAIN?
ASIA
The recent sharp sell-off in emerging
market (EM) debt and currencies has
raised investor concerns that Asia
could see a repetition of the financial
crisis in 1997–1998.

NO

1997 AGAIN?
ASIA
Will Asia see a repetition of
the 1997 financial crisis?

ASIA IS IN MUCH BETTER
SHAPE NOW THAN IN 1997

ASIA IS IN MUCH BETTER
SHAPE NOW THAN IN 1997
Improvement in
current account
balances
Higher level of
foreign exchange
reserves
Lower
dependence on
external debt
More ﬂexible
currency regimes

IMPROVEMENT IN CURRENT ACCOUNT BALANCES
HOW DOES IT HELP ?
Current Account Balance
Net of ‘Exported’ and ‘Imported’
goods and services, plus the net
flow of income from investments
and employment.
A country that runs a current
account deficit (CAD) will
experience a net outflow of
domestic capital to pay for
imports, unless it is able to
finance the deficit by attracting
foreign investments.
financial fundamentals of most Asian economies have seen a
substantial improvement since 1997 (Figure 1). More
specifically, there have been some positive developments
since 1997, which have helped to significantly reduce Asia’s
external vulnerability.
(1) Substantial improvement in current account
balances – One basic measure of the health of a country's
Figure 1
Sharp improvement in current account balances of most Asian
economies since the 1997 Asian financial crisis
-10
-5
0
5
10
15
20
IN ID TH HK CN MY PH KR TW SG
1996 2013F
Current account (% of GDP)
Source: IMF World Economic Outlook Database April 2013, Credit Suisse
vulnerable to capital outflows, while Ch
and the Philippines are least vulnerable.
 We favor Asian equity markets with str
external balances and FX reserves and s
overweight on Taiwan and Hong Kong.
see tactical opportunities in China due to
strong surpluses and growth stabilization
 We underweight equities in Indonesia
India, given their high external vulnerab
We remain negative on the IDR and
INR and avoid local currency bonds in th
two countries.
Top investment ideas
FX: Stay negative on the IDR and the INR, with
and 12M USD/IDR forecasts at 11,000 and 11
and 3M and 12M USD/INR forecasts at 66.0 a
68.0, respectively. We are positive on the CNY
forecast USD/CNY at 6.10 in 3M and 6.00 in 1
One basic
measure of
the health
of a
country's
external
balance is
the current
account
balance.
1

POINT
§  Balance of payments (BoP) in India, Indonesia, Malaysia and
Thailand have deteriorated markedly in recent years.
§  Strong domestic demand in these countries has led to
higher import requirements, while exports have been
sluggish due to weak demand in G3 markets.
§  Foreign direct investments (FDI) in Malaysia and Thailand
have slowed, while residents have become more active in
investing overseas.
§  Consequently, these countries are more vulnerable to capital
outﬂows due to the smaller buﬀer provided by the weaker
current account.

HIGHER LEVEL OF FX RESERVES
HOW DOES IT HELP ?
Impart of FX reserve
A country with a higher
level of FX reserves
would be able to more
readily supply foreign
exchange to the market
when capital outflows
intensify.
The level of
foreign exchange
(FX) reserves
determines the
extent to which a
country can
maintain stability
in the value of its
currency during
times of capital
outflows.
Singapore and Hong Kong, 3 September 2013
Figure 3
donesia, Malaysia and
ears
Most Asian economies now have a bigger stock of FX
reserves to counter currency weakness
03 05 07 09 11 13
Thailand Malaysia
DP
10
13
23
26
29
38
39
40
83
91
107
0 20 40 60 80 100 120
Indonesia
India
Japan
Korea
Philippines
Thailand
China
Malaysia
Taiwan
Singapore
Hong Kong
Dec-1997 Current
in % of GDP
Source: DataStream, Bloomberg, Credit Suisse
The level of FX reserves
(relative to GDP) in most
Asian economies has
increased significantly
since 1997
2

POINT
§  The increase in Indonesia and India’s FX reserves has been
fairly negligible.
§  In the current environment of sluggish export demand and
low inﬂation pressures, some Asian central banks may be
willing to allow a modest currency weakness to provide
some support to exports and economic growth, and refrain
from aggressively intervening to cap the sell-oﬀ in
currencies.

LOWER DEPENDENCE ON EXTERNAL DEBT
HOW DOES IT HELP ?
External Debt
External debt (or
foreign debt) is that part
of the total debt in a
country that is owed to
creditors outside the
country.
One factor which aggravated the negative impact of the Asian Financial
Crisis (AFC) was Asian countries’ heavy reliance on external financing.
What happened in AFC?
①  In the mid-1990s, Asian companies, banks and governments borrowed heavily
in foreign currency terms, assuming the fixed exchange rate regimes would
hold.
②  The borrowed money was in turn invested locally, often in projects with longer
repayment periods (e.g., in real estate and fixed asset investments).
③  When the AFC unfolded in 1997, international creditors were unwilling to roll
over the external debt and demanded their US dollars back, driving a wave of
deleveraging and asset liquidation by local borrowers.
3

POINT
§  Asia’s dependence on short-term external financing has fallen
significantly over the past two decades.
§  NOTE - Asia has nonetheless become more dependent on
foreign portfolio flows to help finance investment plans.
§  Equity investments dominated the 2000s, foreign investors fixed
income investments picked up after the 2008 global financial
crisis. However, these fixed income investments are mainly
dominated in local currency.
§  The important factor is that the degree of duration and currency
mismatch in local corporate and official balance sheets has
fallen significantly.
§  As such, the real economic impact of a reversal of capital flows
will likely be smaller compared to 1997.
§  Reduced duration
mismatch.
§  Equity Investment; not
debt.
§  Debt in local CCY.
§  Better duration & FX
management
§  Safer for economy

MORE FLEXIBLE CURRENCY REGIMES
HOW DOES IT HELP ?
What happened in AFC?
①  Prior to the AFC, economies such as
Thailand, Indonesia and South Korea
adopted fixed exchange rate regimes (i.e.,
exchange rates were fixed against the
USD).
②  These countries were forced to abort their
exchange rate pegs abruptly in 1997 due
to the depletion of FX reserves, the values
of their currencies plunged rapidly,
sending severe shocks through financial
markets and the real economy.
4
Figure 4 Figure 5
Asian exchange rates around the 1997 financial crisis Ratio of FX
700
0
100
200
300
400
500
600
94 95 96 97 98 99
Indonesia Korea Thailand Malaysia
USD exchange rate against local currency (1994 = 100)
External v
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID
%
Source: Bloomberg, DataStream, Credit Suisse * Refer to Table 1
Source: Bloomb
Figure 4 Figure 5
700
0
100
200
300
400
500
600
94 95 96 97 98 99
External v
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID
%
Source: Bloomb
Figure 4 Figure 5
700
0
100
200
300
400
500
600
94 95 96 97 98 99
External v
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID
%
Source: Bloomb
Figure 4 Figure 5
700
0
100
200
300
400
500
600
94 95 96 97 98 99
External v
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID
%
Source: Bloomb
Figure 4 Figure 5
700
0
100
200
300
400
500
600
94 95 96 97 98 99
External v
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID
%
Source: Bloomb

POINT
§  Most Asian countries now adopt a managed float regime,
with varying degrees of currency flexibility across countries.
§  Greater flexibility in exchange rates – even if they are subject
to active intervention by local authorities – should act as
shock absorbers to cushion changes in capital flows and
external financing conditions.
§  The increased two-way movement of exchange rates over
time means businesses in Asia are less complacent about
currency risks and it has also encouraged better currency
hedging practices.
§  Managed float vs Fixed
pegged exchange rate.
§  Greater Flexibility – on
top of matter.
§  Less complacent

VULNERABILITY & SAFEST
ASIA IS MANY MARKETS
Which countries are most vulnerable?
①  The expected tapering of the US Federal
Reserve's quantitative easing (QE) program
has led to rising US bond yields and a
reversal of the QE-driven liquidity flows into
EM assets in recent years.
②  Investment Research (Credit Suisse)
presented an external vulnerability scorecard
– that compares the ratio of FX reserve
relative to each Asian country’s external
financing needs, including the potential risk of
portfolio outflows.
Summary Singapore and Hong Kong, 3 September 2013
ure 4 Figure 5
an exchange rates around the 1997 financial crisis Ratio of FX reserves to potential capital outflows *
00
0
00
00
00
00
00
00
94 95 96 97 98 99
SD exchange rate against local currency (1994 = 100)
External vulnerability assessment (ratio of FX reserves to potential outflows)
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
ID IN MY TH KR HK SG TW PH CN
%

POINT §  India and Indonesia are most vulnerable
countries in Asia – the ratio of FX reserves
to potential capital outflows for both
countries is less than 100%. This implies
that these two countries do not have
enough FX reserves to maintain a stable
currency in the event that external
financing conditions worsen and capital
flight intensifies.
Figure 5
Ratio of FX reserves to potential capital outflows *
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
%
* Refer to Table 1 for a detailed analysis of our external vulnerability assessment.
Source: Bloomberg, Datastream, Credit Suisse
§  The next two weakest countries are
Malaysia and Thailand, although the ratio
of FX reserves to outflows in these
countries is higher at 137% and 227%,
respectively. However, they remain weak
compared to most other Asian countries.

POINT
§  The two strongest countries are China and
the Philippines, whose FX reserves are
more than or nearly ten times the size of
potential capital outﬂows.
§  Taiwan, Singapore and Hong Kong are
also relatively well protected against
external contagion, given their relatively
high ratios of 449%, 426% and 331%,
respectively.
Figure 5
Ratio of FX reserves to potential capital outflows *
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
%
* Refer to Table 1 for a detailed analysis of our external vulnerability assessment.
Source: Bloomberg, Datastream, Credit Suisse

MAKING THE POINT
4
The latest market data show that redemptions from EM
bond funds have averaged around USD 150 million per day in
recent weeks, with EM currencies of the larger indebted and
deficit countries being the hardest hit, including India,
adding downside risks to economic and earnings growth.
Indonesia entered bear market territory after the Jakarta
Composite Index (JCI) corrected 22% from its year-high,
together with the sharp depreciation of the IDR against the
Figure 6 Figure 7
MSCI Asia Pacific performance since 31 May (in USD) YTD performance of Asian currencies against USD
Performance
-20
-15
-10
-5
0
5
Japan
Korea
China
MSCIAsiaPacific
Australia
HongKong
Taiwan
MSCIAsiaexJapan
Singapore
Malaysia
Thailand
Philippines
India
Indonesia
-17.4
-10.4
-8.2
-7.7
-4.8
-4.2
-4.1
-3.2
-0.1
1.8
-16-15-14-13-12-11-10-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4
USD/INR
USD/IDR
USD/PHP
USD/MYR
USD/THB
USD/SGD
USD/KRW
USD/TWD
USD/HKD
USD/CNY
% returns YTD
Source: Bloomberg, Credit Suisse Source: Bloomberg, Credit Suisse
The latest market data show that redemptions from EM
bond funds have averaged around USD 150 million per day in
recent weeks, with EM currencies of the larger indebted and
deficit countries being the hardest hit, including India,
adding downside risks to economic and earnings growt
Indonesia entered bear market territory after the Jakar
Composite Index (JCI) corrected 22% from its year-hig
together with the sharp depreciation of the IDR against t
Figure 6 Figure 7
MSCI Asia Pacific performance since 31 May (in USD) YTD performance of Asian currencies against USD
Performance
-20
-15
-10
-5
0
5
Japan
Korea
China
MSCIAsiaPacific
Australia
HongKong
Taiwan
MSCIAsiaexJapan
Singapore
Malaysia
Thailand
Philippines
India
Indonesia
-17.4
-10.4
-8.2
-7.7
-4.8
-4.2
-4.1
-3.2
-0.1
1.8
-16-15-14-13-12-11-10-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3
USD/INR
USD/IDR
USD/PHP
USD/MYR
USD/THB
USD/SGD
USD/KRW
USD/TWD
USD/HKD
USD/CNY
% returns YTD
Source: Bloomberg, Credit Suisse Source: Bloomberg, Credit Suisse
ALTHOUGH THERE ARE
VULNERABILITIES;
ASIA WILL NOT FACE 1997
AGAIN

VIEWS
6INVESTMENT
1997 AGAIN?
ASIA

IDEAS
6INVESTMENT
#1
FI: CREDIT, NOT DURATION
In view of current economic environment, do not take
duration mismatch risk, for conservative investors
invest in:
§  1-3 years duration (Short dated)
§  Good Quality
AA- to BBB financials and
A to BB non-financials (excluding autos)
§  Could consider - CHF, EUR, GBP and USD.
§  Cash will give near-zero yields in most
markets.
§  Debt default rates expected to remain stable in
2014. Corporate bonds of short maturities
offers a reasonable yield pick-up versus cash.
§  After the recent rise in yields, valuations of
medium-term bonds have improved but rate
volatility is likely to remain very high.
§  Conservative investors should continue to
focus on short (1-3 year) investment grade
bonds.
Fixed Income

IDEAS
6INVESTMENT
#2
EQUITIES; TAKE PROFIT
§  Global growth is likely to accelerate.
§  The US clearly remains the leader of the recovery and
exposure to the US is the cornerstone of the recovery theme.
§  However, due to increased short-term risks and a strong
performance, take profit in US consumer and US recovery
stocks.
§  European economic data are looking on the positive side.
European stocks may start to look increasingly attractive.
§  Asia, wait & watch.
Equities
§  Take profit on US consumer and US
recovery stocks.
§  Buy M&A stocks.
§  Lookout for European Recovery
Stocks
§  Wait & Watch Asian Equities

IDEAS
6INVESTMENT
#3
DIVIDENDS & BEYOND
§  A defensive theme for investors who are interested in
absolute returns and have expectations of relatively high
cash flow disbursements from dividends.
§  Fundamental drivers for equity yield remain
§  However, due to current market environment, be cautious
to Convertibles.
§  Consider taking profit on the emerging market and APAC at
this time due to increased short-term risks.
Equities
§  Selectively buy high-dividend-
yielding stocks and stocks
generating high free cash flow and
hold, but do not add to global
convertibles.

IDEAS
6INVESTMENT
#4
GAS & OIL
§  Higher crude oil prices should disproportionately benefit
oil and gas companies with new exploration
technologies or that have interest in unexploited shale
gas, tight oil or deep water oil sources, since these are
becoming increasingly attractive and profitable the
higher the crude oil price is.
§  Due to the volatile market environment, take profit on
this high beta idea at this time.
Equities
§  Take profit on upstream energy
stocks.

IDEAS
6INVESTMENT
#5
US REAL ESTATE
§  US homebuilding stocks and real estate investment
trusts (REITs) have underperformed in recent weeks.
§  Rising long-term interest rates were the main trigger for
the drawdown.
§  This sector is expected to provide positive performance,
however, real estate is unlikely to outperform overall
stock markets in such an environment.
§  Selectively, US REITs continue to offer attractive
investment opportunities to investors looking for
defensive dividends.
Alternative Investments
§  Exit listed real estate investments.

IDEAS
6INVESTMENT
#6
THE NEW HARD CURRENCIES
§  In the near term, the high volatility of 10-year US yields
is weighing on emerging market currencies.
§  An improvement in the external environment and the
now higher carry should attract renewed capital inflows.
§  CNY still has upside potential, but is nearing a peak.
§  Diversify into only a few selected emerging market
currencies.
Foreign Exchange
§  Hold selected emerging market
currencies funded in EUR, USD or
GBP..

IDEAS
6INVESTMENT
ARE GATHERED FROM VARIOUS SOURCES.
Investors should NOT consider this presentation as solicitation for any
investment products. Aprikot is not involved in any business of selling or
buying securities or any investment products. The investment ideas are
personal ideas of the presenter, who is not a broker nor a financial advisor.
Investments carry risks.

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