Idiosyncratic factors matter more

We expect EM Asian currencies to appreciate against the dollar in 2024, with the KRW being the top runner, and VND, INR and PHP being the laggard.

1# Examine the impact of a weak US dollar on Asian FXs. The dollar is an important factor for Asian FXs, a weaker dollar would strengthen Asian currencies. However, country specific factors would play more important role and create variant patterns across Asian FXs in 2024. CNY would be front loaded due to policy stimulus, KRW will benefit from upward semiconductor cycle most and an improving tourism supports THB, wider current account deficit will cause a muted INR performance despite strong GDP growth.

2# Challenges for Asian exports amid DM’s slowdown. A sharp growth deceleration of US economy and weak Eurozone economy suggest stress for overall Asia’s exports in 2024. However, stronger exports of certain products, like AI-related products and semiconductors, likely offset some of the challenges that Asia exports would face, especially for countries like South Korea, Taiwan and Malaysia.

3# Asia’s domestic demand supported by lower inflation and rates and differentiated by fiscal policy. We are most positive on consumption and investment spending in India, where there continues to be a strong infrastructure push by the government, and private sector investment pipeline remains robust. Indonesia should see some modest rebound in consumption with fiscal policy turning slightly expansionary while headwinds from lower commodity prices fade.

4# China’s property market: to stabilize, with efforts. The still not yet stabilized property activity necessitates further policy stimulus. Government will also work on non-commodity housing including affordable housing, shantytown renovation and etc to help stabilize the sector. The large residential floor space under construction implies an extended period of demand and supply adjustment is needed.

5# Asia’s central banks to start rate cutting cycle in 2024 but take the lead from the Fed. With inflation pressures moderating further, we think the vast majority of central banks in our region will start their rate cutting cycle. Nonetheless, we see the rate cuts as being more backloaded in 2H2024, especially for domestic-oriented countries which place more importance on FX stability and volatility such as India, Indonesia and the Philippines.

6# A moderate rebound in portfolio and FDI inflows. Some Asian stock markets attracted sizeable foreign portfolio inflows in 2023, signalling a continued portfolio inflows next year, due to a more resilient growth outlook in EM Asia compared with DMs, and improving yield spread. Industries like electric vehicles, electronics, renewable energy, e-commerce and digitalization are target areas for FDI inflows.

7# Tourism to achieve cruise altitude in 2024, benefiting Thailand, Korea and Singapore the most. We think 2024 will see tourism reach its full potential for many Asian countries. Many Asian markets have already announced visa policy relaxations. Meanwhile, China tourism arrivals are still 50-60% below pre-pandemic levels and has vast potential to improve further.

8# Risks – Economic, Geopolitical, and Elections.