Morgan Stanley Fixed-EM Strategy Asia Macro Strategy Are Chinese Exporters Read...-110687441

M IdeaEM Strategy | Asia PacificAsia Macro Strategy: Are Chinese Exporters Ready to Buy CNY?Morgan Stanley Asia Limited+Min DaiStrategist Min.Dai@morganstanley.com +852 2239-7983 Gek Teng KhooStrategist Gek.Teng.Khoo@morganstanley.com +852 3963-0303 Strong US data and the US election suggest that short covering of Asia FX, which started in August, is done and could be reversed. We expect Asia FX to trade sideways ahead of the election but the result could drive Asia FX, especially USD/CNH, to both the upside and downsideChinese exporters settled US$37 billion in August, a record number this year: To gauge the potential conversion going forward, if we use the long-term average of whole year conversion of US$240 billion/year and the peak of FX conversion in 2021 (US$336 billion) as a benchmark, exporters could convert somewhere between US$120 billion and US$216 billion in September-December.September conversion (data would be out in mid-October) should be high given that USD/CNY broke 7.0 at a certain point. If we assume September's conversion is US$50 billion, we estimate that 4Q24 could see US$70-166 billion. Such conversion could happen post-US election, if the outcome unlikely to increase trade tension, pushing USD/CNY towards 6.80-6.90. On the other hand, we expect USD/CNY to trade to 7.35 should Trump be electedThis week, we also discuss the upcoming Korea WGBI inclusion announcement. In FX, we recommend:• Short CNH/TWD (hold)• Short CNH/INR (close) • Short THB/INR (new)• Long 3m USD/CNH 6.95/6.80 put spread (new)• Long 3m USD/CNH 7.20/7.35 call spread (new)• Long 6m USD/CNH 7.40/7.60 call spread (close)In rates, we suggest:• Receive 1-year CNY NDIRS (hold)• Long onshore FX-hedged 1y CGB (close)• Long 10-year G-Secs FX-hedged (hold)• Pay 1-year HKD versus 1-year USD IRS (hold)• Pay 5-year SGD versus 5-year USD IRS (hold)• 2s10s KRW NDIRS flattener versus USD IRS steepener (new)Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. October 8, 2024 07:19 AM GMTM Idea2Are Chinese Exporters Ready to Buy CNY?Two weeks of sell-off: AXJ currencies sold off across the board in the past two weeks on the back of better data from US and profit-taking from investors, despite better news from China. IDR led the underperformance, followed by PHP and MYR