UBS Equities-Global Strategy _ASIA FX Large Dividend Outflows Ahead_ Aro...-114572858

ab8 April 2025Global ResearchGlobal StrategyASIA FX: Large Dividend Outflows AheadLarge dividend outflows in the coming weeks…Asian corporates pay ~50% of annual dividends in Q2, which partially explains currencies’ poor seasonality this quarter. Thai, Korean and Indo corporates pay in Apr-May; China, India in Q2 to early Q3; Taiwan’s are quarterly. In the coming four weeks, we estimate 12bn$ of dividend outflows to non-residents from TH, ID, SK, and TW corporates (13.5bn$s through May). These flows equate to about 4.2x (TH), 4x (ID), 2.3x (SK), and 0.7x (TW) the recent run rate of monthly equity portfolio flows (6mma). That’s not nothing, and an additional headwind for currencies.….would add to the Tariffs driven headwinds for EM Asia currencies…If not unwound, the recent tariffs could tip the global manufacturing into a recession (UBS sees the risk of a 7-8% contraction in global trade volumes). Our Asia econ team sees risk of China’s ’25-26 NGDP growth averaging below 4% (vs. 9% in ’18- 19), with material downside risks to the open economies in ASEAN. That’d be a significant headwind for Asian TWIs, even if the broad dollar is range bound. We recommend a short exposure in SGD, IDR, THB, INR vs. longs in G3 FX, and have a short bias on CNY TWI (ASIA: Tariffs Implications in 15 charts). Note: In the previous two manufacturing downturns (1Q20, and 2015), Asia FX lost 7%, 12% respectively vs. this G3 basket. Since Feb, the currencies have lost only 2.5% on the same metric.…especially if the RMB begins to catch-down with the recent developmentsThe CNY has so far been calm amidst authorities' resolve for a stable currency, explaining the relatively muted risk premium in Asia FX derivatives. However, if the 50+% tariffs on China are not scaled back, our models suggest that the CNY TWI could potentially weaken by 7-8%. That weakness will also spillover to other regional currencies. Historically, during periods of large RMB depreciation, IDR, KRW, TWD and MYR have recorded large depreciations. That’s a headwind, over and above the financial conditions tightening led ongoing EMFX weakness.Dividends’ impact to be most potent for THB, IDR
IDR: 1) The domestic policy uncertainty is already a known-unknown for the IDR/equities'. 2) During periods of deteriorating risk sentiment, IDR tends to underperform alongside commodities FX. An unwinding of recent bond inflows could catalyze this sensitivity. Then comes the effect of 2.6bn of dividend outflows this month (worth 2.3% of GDP), and an unfavourable post Ramadan trade flows seasonality. 3) Over a medium term, a potential deterioration of the CA deficit would be a headwind for the BoP position (more here)
THB's seasonal trading track record is strong, with March-May being generally an underperformance period for the currency (more here). We see a clear pattern of Thailand’s BoP deterioration during this period – on dividend outflows, and a lull period for the tourism season – explaining FX underper