Economics Goldilocks and the three bears - Capital Nomura Securities Public Company Limited - NOMURA DIRECT
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Connecting Markets East & West Economics Goldilocks and the three bears Capital Nomura Securities Public Company Limited Investment Research and Investor Services Nuchjarin Panarode (+66 2638 5776) Nuchjarin.panarode@th.nomura.com February 2020 © Nomura
Executive Summary Global: Goldilocks and the three bears US: Holding pattern Euro area: ECB on hold Japan: Still many clouds ahead Asia: Glass is half full and half empty Thailand : A severe fiscal drag Capital Nomura Securities Public Company Limited Economics - 1
Global : Green shoots of recovery Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)” Capital Nomura Securities Public Company Limited Economics - 2
Global : Improving semiconductor/electronics cycle Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)” Capital Nomura Securities Public Company Limited Economics - 3
Global : Dovish monetary stance Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)” Capital Nomura Securities Public Company Limited Economics - 4
Nomura : FX valuation update ( Sep 19) 30 Sep 19 30 Sep 19 DXY = 99.38 USDTHB= 30.58 Overvalued by 11% Overvalued by 4% Source : Nomura , “FX Insights; Global FX valuation update (22 October 2019) Capital Nomura Securities Public Company Limited Economics - 5
Nomura : FX valuation update ( Dec-19) 31 Dec 19 31 Dec 19 DXY = 96.39 USDTHB = 29.7 Overvalued by 10.1% Overvalued by 2.5% Source : Nomura ,” FX Insights: Global FX valuation update (23 January 2020) Capital Nomura Securities Public Company Limited Economics - 6
Global : Goldilocks and the three bears Source : Nomura ,” Global Economic Outlook Monthly ( 14 January 2020)” ; Note : EEMEA = Czech Republic, Hungary, Poland, Romania, South Africa, Turkey, Russia and Israel ; Bold = actual J Ja Capital Nomura Securities Public Company Limited Economics - 7
Global risk : Debt stress, US-China rivalry and geopolitics Source : Nomura ,” Global 2020 Economic Outlook (10 December 2019)” Capital Nomura Securities Public Company Limited Economics - 8
Global risk : Coronavirus Direct and total contribution of travel and tourism to the global economy 10.4% of global GDP Global Tourists 2018 = 1,323 mn Chinese tourists = 149.72 mn (11.3% share) 3.2% of global GDP’18 (USD84.8trn Source: https://www.statista.com/statistics/233223/travel-and-tourism--total-economic-contribution-worldwide/ ; https://www.travelchinaguide.com/tourism/ IMF, CNS (IRIS) The direct travel & tourism contribution includes the commodities accommodation, transportation, entertainment and attractions of these industries: Accommodation services, food & beverage services, retail trade, transportation services and cultural, sports & recreational services. The figures for total impact also include indirect and induced contributions. Capital Nomura Securities Public Company Limited Economics - 9
US : De-escalation of US-China trade tensions. Source : Nomura , “US Monthly Inflation Monitor ( 10 October 2019)” Source : “US Economic Weekly (10 January 2020)” Capital Nomura Securities Public Company Limited Economics - 10
US : Holding pattern Growth has slowed to potential but we expect a modest acceleration starting in H2 2020 as uncertainty wanes. Recession risk has dissipated as consumer fundamentals help sustain the expansion Core inflation should pick up as higher tariffs pass through to consumer prices and labor markets remain tight. After cutting rates three times in 2019, we expect the Fed to remain on hold over the forecast horizon. Risks include aggressive trade policy, elevated levels of corporate debt and a sudden tightening of financial conditions Source : Nomura , “US Economic Weekly ( 24 January 2020 )” Capital Nomura Securities Public Company Limited Economics - 11
Euro area : Green shoots of recovery Source : Nomura , Europe Economic Weekly (17 Janurary 2020; 24 January 2020) Capital Nomura Securities Public Company Limited Economics - 12
Euro area : ECB on hold We expect growth to stay weak but to slowly recover in 2020. Manufacturing recession risks spilling over into services/jobs. We see euro area core inflation rising gradually over time, but remaining well below the ECB’s inflation aim. We expect the ECB to remain on hold as survey data improve and underlying measures of inflation grind higher. Source : Nomura , “Europe Economic Weekly ( 10 January 2020 )” Capital Nomura Securities Public Company Limited Economics - 13
Asia ex-Japan : Glass is half full and half empty Glass half empty: Despite recent green shoots, we expect GDP growth to slow further in Q4 with a prolonged bottoming process into Q1 2020 due to a slowing China, weak consumption and elevated inventories. Glass half full: We expect only the first signs of a recovery in Q2 2020, as Asia benefits from an upturn in the tech cycle and easier financial conditions. The U-shaped growth profile will be led by exporters, while consumers lag. Despite the Fed leaving rates unchanged, we forecast more policy rate cuts in China, India, Indonesia, Malaysia and Thailand. In the case of a deeper slowdown, fiscal easing will likely be stepped up. Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )” Capital Nomura Securities Public Company Limited Economics - 14
Asia ex-Japan : Growth cycle upturn will likely disappoint Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )” Capital Nomura Securities Public Company Limited Economics - 15
Asia ex-Japan : Sensitivity to China growth Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )” Capital Nomura Securities Public Company Limited Economics - 16
Asia ex-Japan : Easier financial conditions Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )” Capital Nomura Securities Public Company Limited Economics - 17
Thailand : Domestic-led growth Source : NESDC ( 18 November 2019) Capital Nomura Securities Public Company Limited Economics - 18
Thailand : Weaker domestic strength Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )” Capital Nomura Securities Public Company Limited Economics - 19
Thailand: Green shoots of recovery in industrial sector Source : The Bank of Thailand (31 January 2020) Capital Nomura Securities Public Company Limited Economics - 20
Thailand : A severe fiscal drag We forecast 2020 GDP growth to remain well below potential at 2.7% (and below Consensus’ 3%). The large fiscal drag from the delayed budget in the near term is likely under-estimated by market participants due to the government announcing a slew of fiscal stimulus measures, which we think will prove ineffective. In response, we expect the BOT to cut again by 25bp to 1% in Q1 ( Likely Feb-5) In the near term, we expect H1 2020 GDP growth to average 2.3% y-o-y, from 2.4% in H2 2019, weighed on by the fiscal drag due to delays in the budget bill being passed, before picking up to 3.1% in H2, helped by back-loaded government spending. Source : Nomura , “Global Economic Outlook Monthly (14 January D2019 )” Capital Nomura Securities Public Company Limited Economics - 21
Risks: Coronavirus Capital Nomura Securities Public Company Limited Economics - 22
Risks: Budget FY2020 delay Source : Fiscal Policy Office Capital Nomura Securities Public Company Limited Economics - 23
ANALYST CERTIFICATION FOR REGULATION I, Nuchjarin Panarode , a research analyst employed by Capital Nomura Securities, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that I have expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or by any other Nomura Group company or affiliate thereof. Explanation of CNS rating system for Thailand companies under coverage published from 2 March 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst’s assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn’t think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. • A "Buy” recommendation indicates that potential upside is 15% or more. • A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%. • A "Reduce" recommendation indicates that potential downside is 5% or more. Sectors: A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. 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