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In Asia, our top pick on a total return basis remains the INR and our preferred way to express the trade is using SGD as a funding currency. We have held short SGD-INR since April 2016 (13% gain) and we would add exposure at current levels. SGD NEER is trading above the midpoint (75bp) and offers good value as the MAS is unlikely to tighten policy in October and we continue to believe the risks are slanted toward easier policy over the coming years.
We also remain short USDTHB (initiated June 7). The recent consolidation phase is healthy for medium term price action but after the strong move in July, lightening up exposure is prudent.
The preferred portfolio hedges include a USDTWD down-and-out call option and a USDCNH call option.
The only rates position in Asia currently is in India, where we continue to hold an INR 5yr NODIS payer position. Since initiation (June 19) 5yr swap rates have been treading water, but with neutral carry/roll we are happy to maintain exposure due to pressure on state finances, market being received, and RBI unlikely to cut again.
Other positive carry/roll possibilities that are piquing our interest include receiving the front end (1 or 2yr swaps) in Korea, which offers good risk-reward if BoK stays on hold through 2018 as we expect. The 2yr segment has marginal positive carry/roll of 2bp/month.
HKD forward spreads have returned to their cyclical lows but selling the spread still offers good carry in the context of ample liquidity and no discernible catalyst for the curve to steepen. Selling the 3x12 offers the most attractive carry (26bp/month) when considering roll costs. Courtesy: Societe Generale
