Nomura FX Insights: US Roadshow Notes... Nomura FX Insights: US Roadshow Notes… · @2030FY_X · TwKit

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Nomura FX Insights: US Roadshow Notes... Nomura FX Insights: US Roadshow Notes — Client Views and Nomura's Stance We distilled several core observations from our client conversations. The following are several core takeaways from our US client roadshow during the week of October 19, covering global FX and Asian rates markets. Client discussion points covered the following six areas: 1. Overall optimism on US tech stocks over the medium to long term; 2. Some clients have established long USD/JPY positions, believing that the broader backdrop for portfolio flows has not changed; 3. Views on USD/CNH are split, but most clients lean toward CNH appreciating against the USD; 4. Most clients are bearish IDR, neutral TWD, leaning bullish INR, with the strongest bullish sentiment on KRW; 5. Most clients believe US rates are valuation-supported at current levels and that there are safe-haven inflows, though some remain cautious about elevated energy prices; 6. Clients favor receive-fixed trades in Korean rates, but conviction on receive-fixed trades in Hong Kong front-end rates is relatively limited. Overall, we conclude that the US clients we met have largely not done much positioning for a US equity market correction, which creates downside risk for USD/JPY. On USD/CNH, after this roadshow, more market participants believe that the downward move in USD/CNH will not only play out over the medium term, but will also materialize faster than implied by FX forward prices. For the rest of Asian currencies, we agree with the consensus bearish view on IDR, but the buildup of short IDR positions also carries some risk. We are bearish INR, as the country's balance-of-payments pressure remains; meanwhile, we maintain that Korea and Taiwan will be supported by strong current account surpluses. Given the potential for life insurance fund flows and FX valuation factors, we are relatively more bullish TWD, though we remain cautious due to risks from US equities and the tech sector. In Asian rates, overall market positioning is not excessively crowded, but trades have tended to be curve flatteners. Clients believe that with energy prices elevated, Asian central banks still face pressure to hike, but Asia's fiscal positions are stronger than those of developed economies, so there is room for term premia on Asian long-end rates to decline. Overall, clients agree that receiving fixed in Korean 5-10 year rates (being long Korean government bonds) is a good hedge against further tech equity selloffs. Hong Kong rates are our highest-conviction receive-fixed trade, but client views are quite divided. Clients believe the US economy remains resilient and the Fed should continue hiking; for Hong Kong carry trades, clients prefer short 3-6 month FX swap points. On India, although the market has already priced in a substantial amount of rate hikes, clients want to see more signals of a further slowdown in growth or stabilizing oil prices before initiating receive-fixed trades and long Indian government bond positions. US Client Views and Nomura's Thoughts 1. US clients are overall optimistic on US tech stocks over the medium to long term, mainly because they believe capex and earnings at the "Magnificent Seven" will not disappoint before 2027. Some clients noted these companies have ample cash positions and are not sensitive to rising US yields. Our stance is relatively cautious; we stress that pressure is gradually building. Bloomberg data on October 14 show that 14.8% of US technology company loans are already distressed (i.e., rates are 10% above SOFR; the total sample size of technology loans is $278.1 billion), and the volume of distressed US technology loans is rising. At the same time, we note that US high-yield credit default swap spreads have continued to rise over the past month and are already close to the highs seen around the outbreak of the US-Israel conflict earlier this year. Importantly, even if the medium- to long-term outlook remains optimistic, our high-frequency indicators (ETF and mutual fund flows) show that the scale of foreign investor inflows into US portfolio assets has slowed in recent weeks, which will put pressure on the US equity market and the US dollar. We also laid out our medium- to long-term bearish US dollar view, on which client pushback has been limited; the rationale includes the following eight points: a) Large global investors plan asset reallocations to reduce the US asset share; b) Crowded market positioning combined with technology sector risks; c) The large US twin deficits create persistent financing needs and pose risks; d) Concerns over Federal Reserve independence have not been dispelled; e) The US economy is gradually slowing, and its growth gap with other major economies is narrowing; f) US midterm election risk, with polling data favoring the Democrats; g) Real money, pension funds, life insurers and other institutions have potential demand for FX hedging (i.e., selling US dollars); h) Our judgment of medium- to long-term appreciation in offshore RMB and JPY. 2. Some clients hold long USD/JPY positions, while some believe that the trend of domestic capital repatriation to Japan has not changed. Our view differs; we point out that USD/JPY faces downside risks, driven by: a) Our concerns about the US equity market environment, weakening risk appetite and capital repatriation; there have recently been signs of Japanese investors selling overseas portfolio assets; b) A change in the FX intervention landscape (i.e., US participation and more active operations); c) The Bank of Japan's continued gradual monetary policy tightening, with the Japanese 2-year-10-year yield curve flattening, which would limit USD/JPY upside; d) Improved sentiment among Japanese life insurers toward domestic bonds; narrowing US-Japan policy rate differentials may affect life insurers' hedging ratios, while we need to watch the household sector's medium- to long-term allocation behavior toward JGBs. We propose a short USD/JPY strategy, with conviction 3/5 and a year-end target of 152.50. 3. Views on USD/CNH are divided, but most clients lean toward offshore RMB appreciation. No unified consensus has formed to short USD/CNH; some clients note that short USD/CNH carries negative carry, while others believe the market will merely track changes in FX forwards. Our view differs: the decline in spot USD/CNH has actually significantly exceeded FX forward pricing; over the past year, offshore RMB has appreciated 6.4% against the US dollar; in 8 of the past 12 months, the annualized appreciation ranged from 6% to 17%; on a month-end-to-month-end basis, it outperformed FX forwards in 9 of 12 months. Our core views include: a) The scale of FX settlement and FX receipts by exporters is very strong; b) There is almost no sign that the authorities will suppress RMB appreciation; recent signals show policy efforts to expand the use and internationalization of the RMB, and the People's Bank of China has also stated that the exchange rate's impact on exports is limited; c) There is international political pressure for a stronger RMB; d) The RMB itself is highly competitive, with a relative advantage in production efficiency. We recommend short USD/CNH, conviction 4/5, year-end target 6.50. 4. Most clients are bearish IDR, neutral TWD, lean bullish INR, and are most bullish KRW. i. Short IDR is the market consensus; most clients choose long USD/IDR, while our recommendation is long SGD/IDR, conviction 4/5, end-November target 14440. On negative political and policy risks, the market agrees with us; risk factors include natural resources sector regulation, the anti-corruption drive, fiscal rating risk, and Bank Indonesia independence. There are also balance of payments challenges: current account deficit, subdued bond inflows, equity outflow risk, and the possibility that MSCI downgrades Indonesia to Standalone Market classification, which would further exacerbate this risk. ii. On INR, clients are bullish following the Reserve Bank of India's recent FX policy announcements; some clients cite carry returns as a reason to be bullish INR. We recommend long USD/INR, conviction 3/5, mid-January 2027 target 98.5, implying about a 4% move. Our logic: a) balance of payments fundamentals are weak, and high oil prices further amplify current account deficit pressure; b) AI transformation will create hidden concerns for India's software surplus; c) foreign equity outflows (USD 32 billion year-to-date) and foreign selling of bonds, because India was not included in the Bloomberg Global Aggregate Bond Index, disappointing the market; d) FX spot reserves have declined recently, and the RBI holds large USD/INR forward short positions; when conditions permit, the RBI will most likely rebuild FX reserves and reduce forward exposure; e) the RBI has already introduced forceful FX policies, but their effect in supporting INR has been limited; our macro team expects the RBI will not raise rates substantially further. iii. On TWD and KRW: most clients focus on the strong current account surpluses of both; market sentiment is more bullish on KRW, and the worst phase of foreign portfolio outflows has passed. We believe that, despite uncertainty over the near-term outlook for US equities, KRW still faces risks: a) the Bank of Korea is limiting USD/KRW downside by buying FX, as recent FX intervention estimates corroborate; b) if the global tech sector corrects, or if SK Hynix and Samsung shares rise sharply, be alert to the shock from foreign selling of Korean equities; foreign ownership of Korean stocks reached USD 1.6 trillion in September 2026, and a tech selloff would create enormous pressure. If KOSPI rises sharply, led by SK Hynix and Samsung, KRW would also face multiple risks: a) single-stock position limits being hit again, forcing funds to sell Korean memory chip stocks (under EU UCITS regulations); b) overseas investment by Korea's National Pension Service would increase as KOSPI rises; c) our analysis finds that after local equities strengthen, equity and multi-strategy hedge funds would increase long USD/KRW NDF hedges. Korea's financial account has other challenges: the Korean retail sector's overseas investment is high (mainly in US assets); Korea's shift in attitude toward Alaska investment, combined with Trump-related policy risks, also warrants attention. iv. Unless US tech stocks see a larger selloff, we are relatively more bullish TWD; FX valuation shows TWD is significantly undervalued, which could invite US government FX scrutiny, especially compared with KRW, CNH and JPY, which have appreciated in recent months. At the same time, Taiwan, China will not see the kind of situation in Korea where foreign investors are forced to sell stocks because of single-stock position limits; with hedging ratios low, if the US dollar starts to decline, life insurers in Taiwan, China may restart FX hedging trades that short USD/TWD. 5. Market leans toward receiving Korean rates, with lower conviction on Hong Kong front-end rates. Overall, the market has not raised much objection to our view that Korean rates will fall; we hold a long H27 5-year Korean interest rate swap position, with conviction 4/5. The KOSPI has weakened recently, further supporting the case for lower Korean rates; drivers include a moderate pace of Korean government bond issuance before year-end, a K-shaped economic divergence, and the Bank of Korea having already delivered two rate hikes. After the Bank of Korea's policy meeting, the market questioned whether the governor's remarks were more hawkish than expected and whether receive-rate positions had become overly crowded; but most clients believe the KOSPI is the core driver in the short term, and attention should be on SK Hynix's earnings report on October 28. By contrast, in Hong Kong, client views are divided on our highest-conviction (5/5) recommendation to be long H27 1-year Hong Kong interest rate swaps. Some clients see this as essentially a US rates trade, with the Fed still in a hiking cycle. Others agree there is an opportunity in Hong Kong carry trades given ample market liquidity, but the market prefers to express the trade through front-end FX swap points rather than interest rate swaps. 6. Looking for opportunities to receive Indian rates, but need to watch economic growth and oil prices. Indian rates were another major discussion point; two weeks ago the Reserve Bank of India tightened liquidity, driving a sharp rise in Indian rates. Overall, investors have not established meaningful directional positions in the Indian rates market at present; the market is also debating why MIBOR rates moved so quickly from a liquidity surplus phase to a liquidity deficit phase. Broadly, if oil prices stabilize, the market would lean more toward receive-rate trades, and the market has already priced in multiple hikes; however, some clients want to see clear signals of slowing GDP and credit growth, or wait until the Reserve Bank of India completes another hike in December, before putting on Indian receive-rate trades. 7. The market is showing interest in receiving China rates. Although China is a very low-beta market, persistently falling rates are drawing market attention; however, most China discussion centers on the renminbi rather than interest rate swaps. The overall trading bias is toward receiving rates, the economy has not shown clear rebound signals, and the PBOC's policy anchor is shifting from the 7-day reverse repo rate to the overnight rate. But some clients believe the 5-year interest rate swap has already fallen below 1.40%, which is too low; if they missed this down move, they can wait for a price rebound before entering.

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