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...debt whose perceived risk profile has notably changed; 3) with inflation risks still a concern but US rates at near-zero levels for longer, the monetary policy mix may be shifting now to tightening via RMB appreciation than using interest rate/liquidity tools, and the best time to let RMB move faster without exacerbating speculative capital inflow is when global risk sentiment is poor and offshore speculative positioning has lightened up. CNY stability coupled with central bank FX intervention in a region where inflation risks are still there could help keep Asia FX relatively low beta vis-à- vis other risk currencies. In the near-term, we would remain very cautious and we would be lightly positioned – though bouts of weaknesses could provide opportunities for countries with solid fundamentals and where central bank provides support to cap volatility – KRW and IDR.
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