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
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Economics - 1
Global : Green shoots of recovery
Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)”
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Economics - 2Global : Improving semiconductor/electronics cycle
Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)”
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Economics - 3Global : Dovish monetary stance
Source : Nomura ,” Anchor Report: Asia Pacific Strategy : 2020 Outlook: The show will go on (10 January 2020)”
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Economics - 4Nomura : 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 - 5Nomura : 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)
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Economics - 6Global : 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
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Economics - 7Global risk : Debt stress, US-China rivalry and geopolitics
Source : Nomura ,” Global 2020 Economic Outlook (10 December 2019)”
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Economics - 8Global 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.
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Economics - 9US : De-escalation of US-China trade tensions.
Source : Nomura , “US Monthly Inflation Monitor ( 10 October 2019)” Source : “US Economic Weekly (10 January 2020)”
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Economics - 10US : 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 )”
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Economics - 11Euro area : Green shoots of recovery
Source : Nomura , Europe Economic Weekly (17 Janurary 2020; 24 January 2020)
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Economics - 12Euro 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 )”
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Economics - 13Asia 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 )”
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Economics - 14Asia ex-Japan : Growth cycle upturn will likely disappoint
Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )”
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Economics - 15Asia ex-Japan : Sensitivity to China growth
Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )”
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Economics - 16Asia ex-Japan : Easier financial conditions
Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )”
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Economics - 17Thailand : Domestic-led growth
Source : NESDC ( 18 November 2019)
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Economics - 18Thailand : Weaker domestic strength
Source : Nomura , “Global 2020 Economic Outlook ( 10 December 2019 )”
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Economics - 19Thailand: Green shoots of recovery in industrial sector
Source : The Bank of Thailand (31 January 2020)
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Economics - 20Thailand : 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 )”
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Economics - 21Risks: Coronavirus
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Economics - 22Risks: Budget FY2020 delay
Source : Fiscal Policy Office
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Economics - 23ANALYST 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.
DISCLAIMERS:
This publication contains material that has been prepared by Capital Nomura Securities Public Co., Ltd., Bangkok, Thailand. This material is (i) for your private information, and we are not soliciting any
action based upon it; (ii) not to be construed as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal; and (iii) is based upon
information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are current opinions as of the date appearing on
this material only and the information, including the opinions contained herein are subject to change without notice. We, or other affiliates and/or subsidiaries of Nomura Holdings, Inc. (collectively referred
to as the “Nomura Group”) may from time to time perform investment banking or other services (including acting as advisor, manager or lender) for, or solicit investment banking or other business from,
companies mentioned herein. We, the Nomura Group, our or any of their officers, directors and employees, including persons involved in the preparation or issuance of this material may, from time to time,
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