ChinaOn the campaign trail, Trump threatened to label China as a currency manipulator on his first day in office. He can do this unilaterally, provoking an instant 15 per cent tariff on Chinese goods into the US for a period of 150 days. We would wager that such a measure would lead to a modicum of reprisal from Chinese authorities and damage would be wrought on both economies. The People’s Bank of China will be, alongside the Federal Reserve, the most important central bank in 2017. The manipulation and movements of the yuan will be crucial to how well China weathers any trade or Trump driven storm. World First thinks Chinese GDP will stay at or around the 6.5 per cent mark in 2017 as lower trade numbers remain balanced by higher investment figures.
SingaporeSingapore is one of the most open economies, let alone emerging market economies, in the world and therefore is very much in the firing line of any protectionist trade winds that blow across the globe in 2017. The SGD has a lot of room to weaken and we believe that it is as much as ten per cent overvalued at current levels following a near 15 per cent appreciation since 2010. This will not move the Monetary Authority of Singapore to loosen policy further however and we foresee a simple extension of the current neutral policy stance.
PhilippinesThe Philippines economy is waiting on policy from two elections – the local election that saw president Duterte take the reins and the beginning of the Trump presidency. Investment, both national and inbound from elsewhere, was somewhat subdued into the end of 2016 and this will likely persist as long as uncertainty over the government’s policy agenda remains. One thing that the Philippines has that is rare in emerging market Asia is a central bank that is likely to raise interest rates in 2017. While this may not take place until the end of the year, any move in Philippine bond yields that maintain a decent spread over US counterparts will allow for some support for the currency.
The peso should remain between 48-50 against the USD but upside risk to 52.00 remains into the beginning of the Trump presidency.
MalaysiaIf there is one economy that has begun and will likely need to continue its pivot to China in 2017 it is Malaysia. In the first half of 2016, three out of five dollars invested in the Malaysian country came from either China and Hong Kong and a trade environment that is expecting damage from an aggressive US president will see this relationship become stronger. Indeed, investment is set to become an increasingly more relied upon growth driver in the coming months wherever it comes from. The outlook for the ringgit has been made more occluded by Trump and the belief that the Bank Negara Malaysia will no longer need to, or have the room to cut interest rates in 2017 although World First believes that it will be caught up in the overall USD strength atmosphere and spend a lot of the year under pressure and moving towards 4.60.
IndonesiaMuch like India, World First is of the thought that Indonesia displays few characteristics of a country that will be meaningfully damaged by a protectionist, anti-trade Trump presidency and a stronger US dollar. The Indonesian government and Indonesian businesses have drawn down their levels of USD borrowing whilst the average Indonesian maintains a decent level of saving from their monthly wage packets. Internally, growth remains strong however and should continue to expand if expectations of an increase in commodity prices and exports become more realistic. Of course, Trump remains a very much unknown factor – on trade in particular – and his desire to pursue aggressive reforms could easily peter out once he’s in office. Similarly, they could intensify with seemingly little encouragement or forethought.
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