GalaTime

• Morgan Stanley: Dollar Smirks in Asia

When confronted with the choice between growth and inflation, most of Asia will choose to protect growth. As a result, the structural descent in USD/AXJ will likely be temporarily interrupted. For short-term players, this may be time to consider putting on tactical long-USD/Asia positions. For longer-term players, we advise patience in re-establishing short-USD/Asia positions. We stress that this is the first time in a long while that we are recommending that investors unwind short USD/Asia positions.

If we see inflation decelerating sequentially every quarter this year, which is possible as the global economy slows and commodity prices have already experienced sharp increases in 1Q of this year, policies will turn much less hawkish.

If we look at the last two rounds of Fed rate cuts – the early-1990s (the FFR was 9.75% in April 1989 and 3.00% by September 1992) and early-2000s (the FFR was 6.50% in December 2000 and 1.00% by June 2003), we see that, in both episodes, the unweighted average USD/AXJ rose during the US slowdown and FFR rate cuts. This, in fact, is the essence of the ‘Dollar Smile’ theme, whereby a US slowdown hurts other currencies more than the dollar.

INR:USD at almost 41, CNX IT staged a massive turn-around at 3pm yesterday.

• Financial Times: Brics offer investors a varied harvest

Bric economies helped to push up the share of global exports from emerging markets from 20 per cent in 1970 to 42 per cent in 2006, according to Professional Wealth Management. At the same time, capital flows into the Brics and emerging markets have reached record levels, with the Institute of International Finance reporting that foreign direct investment jumped by more than 50 per cent from $167.4bn in 2006 to $255.6bn in 2007.

Barclays Wealth has a particular focus on infrastructure and real estate in India, and agriculture and infrastructure in Latin America. It also believes “tier two” cities in China look viable for real estate and infrastructure investment, and is monitoring opportunities.

• AFP: Asian nations agree to set up crisis fund

Finance ministers of 13 Asian nations agreed here on Sunday to set up a foreign exchange pool of at least 80 billion dollars (52 billion euros) to be used in the event of another regional financial crisis.China, Japan and South Korea will provide 80 percent of the funds, with the rest coming from the 10 members of ASEAN.

The creation of the pool is a big step towards the creation af an Asian equivalent of the Washington-based International Monetary Fund (IMF).

During the 1997-1998 Asian financial crisis Indonesia, Thailand and South Korea had to borrow heavily from the IMF to boost their finances as investors sold their currencies.

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