With the market arguably exposed disproportionately to a ‘Remain’ vote going into the referendum; the initial price action to the result has been as one would have expected. USD-Asia complex has moved sharply to the right, and the rates markets reaction is split between beta to the UST moves (for the low yielders) and repricing to the poor risk/low liquidity environment (high yielders). Indeed, like noted in our Asia Macro Strategy Notes from yesterday, we would expect further pressure particularly on the more liquid pairs (KRW, SGD) and the ones with the poorer risk profiles (MYR) and equity exposures (INR). The key immediately will be to look for if/when central banks come in to provide liquidity (sell dollars), and whether they hold price points in doing so. Rates markets should trade to multiple considerations; 1) liquidity (Indonesia bonds - negative); 2) UST beta (Korea, Taiwan - positive); 3) repricing of central bank easing (Korea, Thailand, India - positive); 4) and sensitivity to FX (Singapore - flatter).

　　A key factor in how much worse the risk backdrop gets for Asia macro will be China/RMB, and more specifically, to what extent PBoC maintains its ‘beta’ to the USD move up in the fixing on Monday. We went into the referendum with CNY TWI at near its lows for the year, and down 5%+ year to date. So there is scope for PBoC to buffer the risk sentiment by reducing participation to the USD up move. But will it? Just to illustrate, given the levels at the time of writing, were PBoC to keep the CFETS basket on Monday morning flat to the Friday fixing levels (i.e. full participation in the USD move), it would fix USDCNY at above 6.65 (versus 6.5776 on Friday). That could add to the headwinds for risk.

　　Like we argued in our note from yesterday, we see topside in JPY/KRW and USD/MYR as the best trades to capture a poor risk sentiment in Asia. The former is supported by valuations (which suggest a fair price point closer to 12), and the contrasting fundamental trends between Japan and Korea in terms of their basic balance picture, and their relative monetary policy capacities. MYR we have argued is one of the more vulnerable currencies in the region, on a mix of policy constraints and inadequate buffers. The current account has continued to slip to all time lows, and BNM's reserves buffer is weak, with the need to rebuild the same making risk-reward more one sided. Carry is low, vol is high, as is beta to USD. Finally, SGD in our view is the other glaring mispricing in the region, trading (even after the moves this morning) 1%+ above the mid of the NEER bands, and rather incongruous, in our opinion, to the policy bias of the MAS (which, if anything, is more at risk of a further easing move). We see value in expressing this either via short SGDNEER or flatteners on the Singapore curve (2Y/10Y spread, targeting 40bp). To be sure, we think these moves will make for better value in the ‘good’ idiosyncratic stories in the region like Indonesia; but we would not be in a rush to chase the same.