Malaysia is leveraging its tech hub in Penang to produce controller chips for EVs. All of this can result in significant movements of FDI, resulting in large capital flows and hedging flows.
A third theme is the continuing fragmentation of semiconductor supply chains in Asia as the US Chips Act forces Samsung and TSMC to shift more leading-edge production to the US. In response, China is pushing ahead with the world’s largest import substitution drive – to flesh out its own semiconductor supply chains. Similar to the EV story, all of this can result in significant movement of investment, resulting in large capital flows and hedging flows.
Fourth, geopolitical uncertainty is inducing Taiwan, Japan and China to raise military spending. As China tries to catch up, the US will counter China’s influence in North Asia and also Southeast Asia. Not only will the military spending increase borrowing requirements for these countries, these periods of tensions also present volatility and good trading opportunities.
Finally, Asia’s response to climate change is yet another important theme. Historically, Singapore has issued government debt purely to create a benchmark for pricing corporate debt, as the government runs a fiscal surplus and does not need bond financing. For the first time, Singapore will be issuing special purpose bonds to reduce its vulnerability to climate shocks and to meet its green goals. This includes the coastal protection programs against rising sea levels and a 4,000km undersea cable to import green energy from Australia to meet Singapore’s goal of 30% green energy by 2030. Taiwan is yet another example, betting big on an offshore windfarm program to deliver 20.5GW by 2035 (from zero in 2017) to reduce emissions by half by 2050. Over time, this could significantly increase government borrowing and hedging flows in the longer end of the rates curve.
In conclusion Lim is very positive about the opportunities available for continued growth for the Asian Macro strategy. Modular is well placed to monitor and take advantage of the themes identified above and others. THFJ
“China’s extreme heatwave in its central plains, India’s monsoon deficit in its rice planting states, combined with the worst ever floods in Pakistan, has sown the next rice crisis.”
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