Asia Equity Strategy Are equity investors to blame for FX moves?:: UBS

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UBS Investment Research
Asia Equity Strategy
Are equity investors to blame for FX
moves?
􀂄 Significant foreign capital flows so far this year…
Currencies have gained significant momentum in the region this year. Especially so
after renewed expectations of Quantitative easing. Many central banks have started
adopting capital control measures. Are equity investors to blame for these?
􀂄 Equity flows strong but not extreme
Based on our data for six countries in Asia ex Japan, equity flows have been strong
this year but not exceptionally so. A total of US$ 43bn flowed into equities in these
markets year to date. This takes the stock of foreign ownership in equities since
2004 to 12% of their market cap, still below the peak of 14% in 2007. Indonesia
and India have surpassed their pre-crisis peaks of foreign stock since 04 beginning.
􀂄 Equity flows significant relative to GDP; not dominant relative to bonds
Equity flows have been significant relative to GDP on a 12 months basis in Korea,
Taiwan India, and also Thailand in the last three months. Relative to bond flows,
equity flows look dwarfed in Indonesia, comparable in Korea and The Philippines,
and bigger in India.
􀂄 Equities mattered for FX; FX mattered more for Equities
Currencies have played a crucial role in equity returns this year, and we expect it to
continue. Our economists expect the Indian Rupee to appreciate the most by 2011
end, one of the reasons why we continue to like the market notwithstanding
valuation.