Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

In this week’s Alpha Bites, I recommend closing rate curve flatteners in Thailand and India. I had recommended flatteners in these two countries as curves in Asian countries in general lagged the flattening in the US and the rest of EM. This was because of rising growth uncertainty resulting from new coronavirus waves amid slow pace of vaccinations. This is now changing as rate curves in both countries have begun to price in monetary tightening, leading to flattening of the curves.

In this week’s Alpha Bites, I recommend closing rate curve flatteners in Thailand and India. I had recommended flatteners in these two countries as curves in Asian countries in general lagged the flattening in the US and the rest of EM. This was because of rising growth uncertainty resulting from new coronavirus waves amid slow pace of vaccinations. This is now changing as rate curves in both countries have begun to price in monetary tightening, leading to flattening of the curves.

Alpha Bites: Take Profits on Flattener Recommendations in Thailand and India

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

Alpha Bites: Current Trade Recommendations in EM FX and Rates

In our monthly trade ideas recap note, we provide a performance update of the trade recommendations in FX and rates that we make weekly and discuss the new recommendations as well as those we closed over the past month. We have made a total of 21 trade recommendations so far, of which 15 are in the money.

In our monthly trade ideas recap note, we provide a performance update of the trade recommendations in FX and rates that we make weekly and discuss the new recommendations as well as those we closed over the past month. We have made a total of 21 trade recommendations so far, of which 15 are in the money.

Alpha Bites: Performance Summary of Trade Recommendations – August 2021

In this week’s Alpha Bites, we recommend receiving the 5-year rate vs paying the 2-year rate in India. India’s 2s5s curve slope is close to its steepest in a decade and among the steepest in EM. The Reserve Bank of India (RBI) continues to emphasize growth uncertainty over high inflation, leading the curve to push out rate hikes and keeping it steep. We expect the RBI to tighten earlier than currently priced in and given the steepness of the curve, recommend a flattener. We recommend keeping a receiving bias though because of RBI's dovish leaning.

In this week’s Alpha Bites, we recommend receiving the 5-year rate vs paying the 2-year rate in India. India’s 2s5s curve slope is close to its steepest in a decade and among the steepest in EM. The Reserve Bank of India (RBI) continues to emphasize growth uncertainty over high inflation, leading the curve to push out rate hikes and keeping it steep. We expect the RBI to tighten earlier than currently priced in and given the steepness of the curve, recommend a flattener. We recommend keeping a receiving bias though because of RBI's dovish leaning.

Alpha Bites: A 2s5s Flattener in India with Receiving Bias

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

We recommend staying underweight India until the 7-day moving average of Covid cases turns down (likely no sooner than mid-May). There would then be an excellent buying opportunity: we have lowered our forecast of real GDP growth in FY2020/21 to 12% (from 13.5%), but the vaccine roll-out (with 60% of all those above 45 likely to have been vaccinated by the end of this month) should wrestle the new Covid case numbers down from peaks by end-May. A current account surplus, liquid banks, and a reformed, privatization-driven policy framework should ensure that the rebound is delayed but not halted by this virulent Second Covid wave.  When the IMF was forecasting 8.8% real GDP growth for FY2021/22 and the consensus was 8-9%, we raised our forecast to 12.5% in December 2020 -- and to 13.5% at the beginning of February 2021 (post the reform-oriented Budget). Now that the IMF has caught up with our end-2020 forecast, we are lowering ours to 12%, acknowledging the huge uncertainties induced by this 2nd Covid wave. Given the low base in April-May 2020, YoY growth rates for production will barely budge, but private consumption will likely weaken during these months as retailers in key hotspots (including Delhi, Mumbai, Bengaluru) will stay shut during 2-week curfews/lockdowns. The current account surplus of 1.5% of GDP in 2021, and loan-deposit ratio of 72%, imply there is ample external and domestic liquidity to spur a strong economic recovery once lockdowns are lifted. At 145 million vaccinations, 17.7% of the adult population (18 &amp; over) or 57% of all those eligible (45 &amp; over) have had at least one vaccine dose. This is far from achieving herd immunity, but faster vaccinations from June should allow over a billion people to be vaccinated by end-2021. Lockdowns and curfews are proving effective in Maharashtra and Delhi (the worst hotspots), but will now roll through several other states. But the base effects will help the YoY growth rates in April-May. In March 2020 there was only a week's disruption, but exports were up 60% YoY (imports 53% YoY) in March 2021, steel output up a world-leading 23.9% YoY and car production up 79% YoY in March 2021. April and May 2020 were almost wiped out economically, so the YoY growth rates will still be spectacular in Apr-May 2021, given the strong underlying momentum.The disruptions to consumption (especially) and production should be made up in the next few months. The low corporate tax rate, reformed labour market and production-linked incentives should induce a powerful surge in investment, with privatization and asset-monetization providing an extra fillip as they are implemented during the course of the year. We do not expect the liquid banking system (L-D ratio 72%) to contribute to the rebound until early-2022, with early-recapitalization of state-owned banks helping a bit, but privatizations providing a bigger spur.

We recommend staying underweight India until the 7-day moving average of Covid cases turns down (likely no sooner than mid-May). There would then be an excellent buying opportunity: we have lowered our forecast of real GDP growth in FY2020/21 to 12% (from 13.5%), but the vaccine roll-out (with 60% of all those above 45 likely to have been vaccinated by the end of this month) should wrestle the new Covid case numbers down from peaks by end-May. A current account surplus, liquid banks, and a reformed, privatization-driven policy framework should ensure that the rebound is delayed but not halted by this virulent Second Covid wave.  When the IMF was forecasting 8.8% real GDP growth for FY2021/22 and the consensus was 8-9%, we raised our forecast to 12.5% in December 2020 -- and to 13.5% at the beginning of February 2021 (post the reform-oriented Budget). Now that the IMF has caught up with our end-2020 forecast, we are lowering ours to 12%, acknowledging the huge uncertainties induced by this 2nd Covid wave. Given the low base in April-May 2020, YoY growth rates for production will barely budge, but private consumption will likely weaken during these months as retailers in key hotspots (including Delhi, Mumbai, Bengaluru) will stay shut during 2-week curfews/lockdowns. The current account surplus of 1.5% of GDP in 2021, and loan-deposit ratio of 72%, imply there is ample external and domestic liquidity to spur a strong economic recovery once lockdowns are lifted. At 145 million vaccinations, 17.7% of the adult population (18 &amp; over) or 57% of all those eligible (45 &amp; over) have had at least one vaccine dose. This is far from achieving herd immunity, but faster vaccinations from June should allow over a billion people to be vaccinated by end-2021. Lockdowns and curfews are proving effective in Maharashtra and Delhi (the worst hotspots), but will now roll through several other states. But the base effects will help the YoY growth rates in April-May. In March 2020 there was only a week's disruption, but exports were up 60% YoY (imports 53% YoY) in March 2021, steel output up a world-leading 23.9% YoY and car production up 79% YoY in March 2021. April and May 2020 were almost wiped out economically, so the YoY growth rates will still be spectacular in Apr-May 2021, given the strong underlying momentum.The disruptions to consumption (especially) and production should be made up in the next few months. The low corporate tax rate, reformed labour market and production-linked incentives should induce a powerful surge in investment, with privatization and asset-monetization providing an extra fillip as they are implemented during the course of the year. We do not expect the liquid banking system (L-D ratio 72%) to contribute to the rebound until early-2022, with early-recapitalization of state-owned banks helping a bit, but privatizations providing a bigger spur.   

India: 2nd Covid Wave Will Delay (Not Halt) The Strength of the Economic Rebound

INR 2Y (IRSWO2 CURNCY)

Alpha Bites: Take Profits on Flattener Recommendations in Thailand and India

I recommend closing flattener recommendations in Thailand and India as rate curves in both countries have begun to price in monetary tightening,...

Gautam Jain, PhD, CFA

Alpha Bites: Current Trade Recommendations in EM FX and Rates

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the...

Gautam Jain, PhD, CFA

Alpha Bites: Performance Summary of Trade Recommendations – August 2021

We provide a performance update of all our trade recommendations along with discussing the new trades from last month. We have made a total of 21...

Gautam Jain, PhD, CFA

Alpha Bites: A 2s5s Flattener in India with Receiving Bias

India’s rate curve is steep with the pricing of rate hikes pushed out. We expect the RBI to tighten earlier than currently priced and recommend a...

Gautam Jain, PhD, CFA

India: 2nd Covid Wave Will Delay (Not Halt) The Strength of the Economic Rebound

Underweight India near-term amid Covid uncertainty. But real GDP still to grow 12% in FY2021/22, with output growth aided by ultralow base in Apr...

Prasenjit K. Basu