Goldman Sachs : Asia: Domestic demand to drive differentiation; China, India, Indonesia best positioned

Macro data are increasingly turning positive, but markets have moved strongly to price that in throughout the region. We think now is a good time to focus more on differentiation within the region rather than simple “risk-on” trades across the whole region.

We continue to believe that the primary factor to focus on is domestic demand. With that in mind, we have 1) built a new diffusion index to monitor the turn in the macro data; 2) estimated the rolling combined fiscal and monetary stimulus in a consistent way across the countries and across the different types of policies; and 3) compared that combined stimulus to the underlying shock faced by each country.

Conclusion: China, India and Indonesia remain the strongest countries when comparing the combined stimulus with the underlying macro shock. The resulting domestic demand resilience there should help support equity markets in these countries. The delta relative to the recent past is greatest for India and Indonesia. We remain positive on the outlook for the IDR, and also see the INR as also well positioned on a relative basis.