Morgan Stanley Fixed-Asia Economics The Viewpoint Addressing Your Top Questions...-110347643

M IdeaAsia Economics | Asia PacificThe Viewpoint: Addressing Your Top Questions on AsiaIn the two weeks post the summer break, we have held discussions with >50 clients in London, Hong Kong and Singapore. In this report, we consolidate and address the key questions we have received in our meetings. Morgan Stanley Asia LimitedChetan AhyaChief Asia Economist Chetan.Ahya@morganstanley.com +852 2239-7812 Morgan Stanley Asia (Singapore) Pte.Derrick Y KamAsia Economist Derrick.Kam@morganstanley.com +65 6834-8272 Morgan Stanley Asia LimitedJonathan CheungEconomist Jonathan.Cheung@morganstanley.com +852 2848-5652 Kelly WangEconomist Kelly.Wang@morganstanley.com +852 3963-0891 1) China: Policy makers have opted to push more investment in manufacturing and infrastructure to offset the decline in real estate investment. Isn’t this the right approach to improve productivity, especially in the context of weaker demographics?2) China: With growth momentum softening again, what easing measures do we expect from now to year end? Will easing help to achieve the 5% real GDP growth target?3) China: Considering how bad the growth cycle has been, what can prompt policy makers to take up decisive easing measures?4) India: When will RBI take up rate cuts? 5) India: What can make RBI cut rates?6) Japan: Is BOJ’s reaction function now more attuned to financial conditions, much like the Fed was in 2015-16? 7) Japan: Will BOJ keep hiking? How far will BOJ go? 8) Japan: How much has the carry trade unwound? What might prompt the carry trade to unwind further? 9) Korea: Will rising property prices/acceleration in mortgage loans mean a delay to rate cuts? 10) ASEAN: Which economy would benefit more if the Fed cuts more than we expect? For important disclosures, refer to the Disclosure Section, located at the end of this report.Key TakeawaysWe have been marketing our views on Asia’s macro outlook post the summer break (for details, please see Asia Economics: The Viewpoint: All About the US). In our discussions with clients, the following key questions have come up and we address them in this report: September 16, 2024 07:27 PM GMTM Idea21) China: Policy makers have opted to push more investment in manufacturing and infrastructure to offset the decline in real estate investment. Isn’t this the right approach to improve productivity, especially in the context of weaker demographics?We do not think so; the key issue is the scale of investment: By targeting relatively high real GDP growth, policy makers have had to maintain a large scale of investing in industrial and infrastructure activities to help offset the large demand gap left by the adjustment in the property sector and local government balance sheets. For context, industrial and infrastructure loans have increased by Rmb3.5trn since 3Q20, while new bank loans to the property sector declined by Rmb5.8trn. This approach has already brought about weaker returns, excess capacity and entrenched deflation. We see