China: Fiscal divergence favors total return – DBS Bank

DBS Bank's Group Research Senior Economist Samuel Tse, highlights the fiscal trajectories across Asia as a key driver of rates performance and FX outcomes. The report emphasizes that China is well-positioned to outperform the region on a total return basis due to moderate fiscal expansion and improving external balances, while other regional peers face rising fiscal risks. The report also notes that ongoing fiscal concerns in India and Indonesia could impact their bond markets negatively.

China's fiscal position strengthens outlook

"China is best positioned to outperform the region on a total return basis, as fiscal expansion remains measured, monetary policy retains flexibility, and external balances continue to improve."

"Fiscal concerns in India are re-emerging. Net tax receipts are missing budget estimates, while expenditure compression is still underway."

"Likewise, Indonesia’s fiscal risks are gaining attention. Its deficit trajectory is moving closer to the statutory 3% budget cap."

"In contrast, China’s fiscal expansion remains moderate. Incremental investment is focusing on AI and advanced manufacturing, which are less capex-intensive than past property or infrastructure cycles."

"The RMB is also strengthening, supported by strong trade performance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)