UBS: Non-China Asia: What's Up with Exports?

Admittedly, we typically advise clients not to read too much into January data because of the Chinese New year distortion. However, despite fewer working days in January this year, as the Chinese New Year holidays fell in January this year but February last year, USD exports turned out to be quite strong in the key North Asian exporters, expanding 12.1%y/y in Korea and 7.0%y/y in Taiwan. What is the key reason behind these decent numbers? More importantly, is it a piece of evidence that we underestimate external demand and we should therefore turn more constructive on the export cycle going forward? To be clear, we have long argued for nominal USD exports to bounce in 1H17, partly reflecting some stabilization in external demand. But the key reason behind this is the increase in export prices as oil prices bounce. Oil prices rose almost 80%y/y in January, the biggest monthly jump since 2009. This, we believe explains the bulk of the positive growth in nominal USD exports last month (see figure below). But once the positive export price effects taper off, which we think could happen around mid-2017, we expect export momentum to also peak. So we see little reason to upgrade the outlook for Asian exports based on the latest data or the view that US President Trump will implement fiscal stimulus, while ignoring a growing probability of trade conflict and protectionism this year.

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