Rate expectations are moving up. Fed rate hike expectations and yields have moved up  and Asian rates have followed suit across markets. However, given the relatively contained  inflation, the policy responses across markets in Asia are likely to be measured. Economists  still forecast only 30-120 bp hike in APAC markets over the next two years. The largest rate  increases are forecast for Singapore, Hong Kong, Australia, India, and Indonesia. Asian  yields (ten-year) are already at 180-480 bp premium to the US ten-year yield. Strong forex  reserves and improved external account in both Indonesia and India are likely to keep  currencies resilient in the face of Fed rate hikes. China, with positive real rates, is expected  to see monetary easing. 

Earnings positively correlated to rates. Bank earnings are positively correlated with rates. 

Banks in most countries (ex Korea) have +20-45% asset vs deposit repricing gap in a ratehike cycle. With banks’ deposit funded and high share of CASA, asset repricing is quicker  than liabilities—hence, rising rates aid margins. A 50 bp rate hike raises NIMs of our  coverage geographies by ~7-18 bp and earnings by ~4-17%. Over the past five years, the  Asian banks’ performances have also been positively correlated to rates.