The cross-currency swap markets are not very developed across EM Asia, owing to the idiosyncratic investment and hedging needs of each market. However, we believe this segment of the rates market is developed in Korea, Taiwan, Singapore and India (onshore).

We've shown below the type of flows in Asia and their impact on the different parts of the cross-currency swap curve:

Corporates borrowing in foreign currencies (due to the larger demand base relative to domestic market) and swapping the proceeds into local currencies. This results in CCS paying and puts upward pressure on the long end of the curve.

These flows are common in Korea (5-10y), India (3-5y) and, to some extent, Singapore (although in the opposite direction - ie, foreign firms issuing in SGD and swapping into local currencies, pushing the basis lower).

Domestic investors (for instance: insurance companies) buying interest in foreign assets in search of yield, and swapping the asset in local currencies. These flows are common among the low yielders, and high-per-capita-income and current-account surplus economies of Korea and Taiwan, and have recently picked up in Thailand. Monetary policy divergence plays a role, but pricing dislocations also play a significant role.

Exporters hedging proceeds through FX swaps, which places downward pressure on the short end of the CCS curve. Although these flows are common to almost every market, they are acute in the 1-3y sector of Korea's CCS curve, owing to Korea shipbuilders' large share of the global vessel market and the long time to project completion and receipt of proceeds. These flows have been slowing notably, reflecting industry dynamics.