Asia Daily Update

North Asia:
** China expands onshore interbank bond market access to 32 foreign institutions
** China: IMF could deem CNY "fairly valued” in its upcoming report on China
** South Korea: BoK Governor Lee mindful that rate cut could worsen household debt

CHINA: PBoC has given 32 foreign institutions access to invest in the CNY34.3tn (USD5.6tn) onshore interbank bond market. This includes 11 QFIIs, 11 RFQIIs and another 10 overseas institutions. The latest approvals add to the growing list of 24 QFIIs, 86 RQFIIs and an undisclosed number of foreign central banks and CNY trade settlement banks. The move to enhance market liquidity via increasing foreign participation is part of China’s broader move to open up its capital accounts and promote the international use of the CNY on a larger scale.

Separately, WSJ reported yesterday that IMF could assess the CNY to be "fairly valued” when the organisation releases its review on China in the coming months. The CNY was previously assessed to be undervalued by 5 to 10% in 2013. The WSJ report follows Deputy Director of IMF Asia Markus Rodlauer's suggestion in April that the CNY is “moving towards equilibrium”.

SOUTH KOREA: BoK Governor Lee said yesterday he is mindful that further rate cuts could have a negative impact on household debts. At the same time, he said that rate cuts would not be used to boost exports. Governor Lee's comments reinforces our views that rates will be kept on hold at 1.75% in the next policy meeting on 15 May.

South/Southeast Asia:
** India: USD-INR settles within the 63-64 range
** Singapore: PM Najib to speak at the Singapore Economics Society dinner; updates expected on high-speed rail project
** Singapore: SGD NEER appreciates to +0.6% above the mid-point

INDIA: The April HSBC manufacturing PMI released yesterday moderated to 51.3 form 52.1 previously. This is consistent with the weakness seen around the globe, including China. We’ll get the services and the composite PMI for April tomorrow. Overall, the macro backdrop remains one of a bottoming out in growth rather than a strong recovery as yet, weighed down by the uncertain outlook in manufacturing and weak exports. We will get April’s trade numbers this Friday followed by industrial production and the inflation readings next week. Q1 2015 GDP is due at the end of this month on 29 May where we look for something around Q4’s 7.5% y/y.

- For USD-INR, it eased back from the day’s high of above 63.70 yesterday to close unchanged for the day and still above the 63.00 level at 63.42. It has settled within the 63-64 range over the past week or so despite the softer USD backdrop and drop in USD-Asia. We look for continued consolidation near term between 63-64. On the monetary policy front, the bias is still for further rate cuts from RBI but FX stability and continued drop in inflation will be pre-requisites.

SINGAPORE: The April PMI released yesterday came in slightly softer than expected at 49.4 (market: 49.5) from 49.6 previously. This is the 5th consecutive month of a sub-50 reading and highlights the challenging outlook overall. The electronics PMI did not fare any better, it slipped to 49.1(market: 50.0) from 50.1 previously. It has been on a continued downtrend since the 52.6 in October 2014 and tracks the downtrend in the overall PMI. Looking at the details, they also continue to point to a challenging outlook eg the new orders component stay soft at 49.7 and new export orders slipped further to 49.0 from 49.3 previously. The bottom line is that there are few signs of a strong rebound in production or exports near term. The domestic sector, led by construction and services eg hotel, tourism, F&B are expected to remain the key drivers of growth near term.

- Malaysian Prime Minister Najib will be speaking at the Singapore Economics Society dinner tonight in the final part of the official state visit. Singapore Prime Minister Lee Hsien Loong will also be attending along with other high level officials. Most are expecting some sort of announcement and update on the Singapore-Malaysia High Speed Rail project that will cut travelling time between Singapore and Kuala Lumpur to 90 minutes and scheduled to be completed by around 2020.

- USD-SGD closed slightly higher yesterday at 1.3320 after climbing off the 1.3240 level in Asia last Friday. For the SGD NEER, we estimate it is at the strong end of the policy band at +0.6% above the mid-point for USD-SGD at 1.3320, USD-MYR at 3.5980, and USD-CNY at 6.2090. The +/-2% band around the mid-point is estimated at 1.3140-1.3670, ceteris paribus.