EFTA01449247.pdf

16 May 2013 FX Blueprint Dashing Buck Theme In: Japanese Takeaway We expect sensitivity to the JPY and offshore JPY has been a key driver of Asian FX performance portfolio allocation preferences will continue to drive Asian FX. We are long USD/KRVV, USD/SGD • Latest GM Cornfleuen to -MY ILMS) 04 .; & MYR/JPY. •YTD Fedi:aroma vs. USD (RS51 03 J: Asian FX returns this year have largely been driven by Manors• I 02 4 varying sensitivities to the JPY. Correlations to the JPY • (first chart) differentiate the relative laggards - that 0I I compete for exports and portfolio flows with Japan - 0 from the relative leaders - that are integrated into A1 Japanese supply chains and should benefit from I-cates Ali Japanese import demand, FDI, and potential QE- • induced portfolio investment. With USD/JPY breaking A3 A4 • into the triple-digit atmosphere, and a bulk of the "real" OM) KR%V 11V2 CNY INR PliP IOR 1v1YR THB flow impact from Japanese policies yet to materialize, these divergent correlations remain the best guide to Sewn Dasseleaset Stasfrovienenc• LP regional FX trends. in our view. In addition to the JPY, the outperformance of EM debt over EM equity fund flows has boosted debt-centric ASEAN FX over equity- Equity flows move away from Korea and towards centric North Asian FX. We believe this trend has legs !Japan during periods of JPY weakness but will become more selective. KRV/ has the most to lose from JPY weakness. Competitiveness metrics such as export similarity indices point to a trade channel vulnerability. But the real pressure point comes from the portfolio channel. Earnings expectation downgrades for Korean companies and upgrades in Japan are driving relative equity market performance, resulting in flows into Japan and away from Korea. Importantly, an identical -40 1 saerew L I 4,0 1 award biS). trend unfolded during the JPY weakness of 2004.07 (second chart). Politicization of FX may also drive 50I -I40.11E.1vt). Inn:/M) (k , —Kan EgAttylsflows IRHII further monetary easing and FX intervention in Korea. ICO •I 01 cc co OS ot. cc 0/ 0, 10 11 12 13 By comparison, TVVD losses should be more subdued from here given weaker export competition with Japan, Sown tans. Bent elontfrety Antra LP stronger equity inflows and central bank USD supply. SEA) is the puinst USD beta in Asia. By virtue of its Portfolio reallocation to drive MYR outperformance NEER framework, the USD IVO has consistently been the top driver of USD/SGD. Unsurprisingly then, the 20 USO bit Bond inflows (3m sum) importance of the JPY to SGD has surged since the USD/JPY uptrend began in October. Importantly, a long 15 USD/SGD view is predicated in principal on USD 10 strength broadening across Singapore's trading partners. It is thus even compatible with SSNEER 5 tracking near the top band, although this positioning makes the risk-reward that much more attractive. 0 MYR should outperform, given good inflow potential —Maros. and a growing trade surplus with Japan. The status Other ASEAN OM TH13, PHPs quo election result should sponsor portfolio rebalancing .10 - towards Malaysia. Equities have considerable scope to 2008 2010 2011 2012 2013 catch up to ASEAN peers, where valuations are now Sam Dana* Berh. BentIkon An a carocrod ton tA• moat* ceays elf worms unattractive. IPOs should resume in force and could attract offshore interest. Bond allocations should pick Sameer Goel, Singapore, up as underweights are covered (third chart) and as Mara° Sachdeva, Singapore, Thailand considers penalizing bond market access for foreigners. Malaysia meanwhile is unlikely to consider capital controls or a line in the sand on FX. Page 14 Deutsche Bank AG/London CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104578 CONFIDENTIAL SDNY_GM_00250762 EFTA01449247