Asia Daily Update

** China: Market remains in panic mode amid stock rout
** South Korea: Two Koreas end talks on easing tension
** Taiwan’s activity data remained sluggish
** India: Rajan notes India is in a good position vs its emerging market peers
** Singapore: USD-SGD stable on safe haven status, CNY stable
** Malaysia: MYR remaining under pressure on oil drop
** Indonesia: BI Governor affirms commitment to IDR stability

North Asia:

NORTH ASIA: The stock market plunged by more than 8% yesterday, which has triggered stock sell-off across the world. In North Asia, South Korea and Taiwan are monitoring the recent market developments, and could take action to stabilize the market. Taiwan’s regulator announced to ban short-selling of Taiwanese shares at less than the previous day’s closing prices to stabilize the local market. It is reported that Taiwan could allow the stabilization fund to support the stock market if necessary. However, the Chinese government remains quite calm in the past few days.

CHINA: PBoC set USD-CNY fixing rate at 6.3987 this morning, compared with yesterday’s closing rate at 6.4041. In the meantime, China’s central bank conducted CNY150bn 7-day reverse repos this morning, compared with maturing funds of CNY120bn today. The liquidity injection is to offset the cash withdrawal due to FX market intervention. However, the offshore liquidity continues to tighten as market participants rush to USD. One week implied CNH rate climbed to 22% yesterday, the record high. In general, the market remains in the panic mode especially after the stock sell-off globally and still sees strong weakening bias in CNY exchange rate.

SOUTH KOREA: North Korea agreed to lift its “semi-state of war” with South Korea at the same time as the South halts propaganda broadcasts across their heavily fortified border, ending a standoff that roiled financial markets in Seoul. The government said yesterday that it is on “high alert” for market moves.
Taiwan: The unemployment rate dropped to 3.74% in July, from 3.76% in the prior month, suggesting that the job market remains stable. However, the commercial sales declined by 4.42% y/y in July, from -3.00% previously. Industrial production fell by 2.99% in July, compared with -1.35% in June and market consensus of -1.99%. The real activities remained sluggish in the island.

South/Southeast Asia:

INDIA: RBI Governor Rajan said yesterday that RBI will not hesitate to use reserves to curb big swings in the rupee. FX reserves are at USD353bn for week-ending 14 August, this is around 10 months of import cover. He added that India needs to increase domestic demand as global demand slows and emerging markets in general still face challenges to the export-led model. He said India is in a “good position” compared with its emerging market peers and is betting that low inflation will attract investors when things calm down.

He said structural reforms will help strengthen growth and economic growth is still below potential. He reiterated the bank’s tough stance on the need to contain inflation and that central banks shouldn’t give “booster shots” to falling stock markets. For USD-INR, it rose another 1.2% yesterday to 66.65, the highest in two years, since September 2013. The upper end of the 66-67 range is seen with good support expected above 65.00.

SINGAPORE: The latest inflation readings for July released yesterday remained soft as expected. Headline CPI contracted 0.4% y/y and in deflation territory for the 9th consecutive month. Core CPI, which strips out private road transport and accommodation, held at 0.4% y/y. It is likely to remain below 0.5% for the rest of the year, below MAS’ 0.5-1.5% forecast for 2015.

For USD-SGD, it gained only 0.2% yesterday to 1.4110 and fared much better than its regional counterparts owing to its safe haven status and relative stability in USD-CNY in the past few sessions eg USD-MYR shot up 1.8% to 4.2430. For the SGD NEER, we estimate it is at -1.5% vs the mid-point for USD-SGD at 1.4110, USD-MYR at 4.2430, and USD-CNY at 6.4040. The +/-2% range for the SGD NEER corresponds to USD-SGD between 1.3630-1.4190, ceteris paribus.

MALAYSIA: USD-MYR shot up sharply at the open yesterday by over 2% to a high of 4.2620 before closing around 4.2430. The continued drop in oil prices and commodity prices are likely to continue weigh on MYR. The swift run-up in USD-MYR of over 11% in just the first three weeks of August alone points to signs of overshooting. There are various estimates of fair value for USD-MYR, ranging from 3.60-3.70, implying that at the current level, it is around 13-15% under-valued. Once the markets display some calm, there is the risk of a snap back in USD-MYR. However, we’d probably need to see a base and turnaround in oil and commodities before we get a sustained rebound in MYR. The ongoing political uncertainty and threats of rating downgrades are also factors that could continue to weigh on MYR. For USD-MYR, the immediate barrier is seen at 4.25-4.27 with 4.20 as the initial support.

INDONESIA: Bank Indonesia (BI) Governor Agus Martowardojo yesterday affirmed the central bank’s commitment towards ensuring IDR stability. At the same time, he played down the need for BI to take part in competitive devaluation, and reiterated that BI views the IDR as undervalued. For USD-IDR, it gained 0.8% yesterday to close at 14,050 and the key barrier is seen at 14,500.