We believe that there are substantial rewards for those who are capable of driving the push for global decarbonisation. So, the question is: who is building the kit for the world’s net zero ambitions? We believe that the answer, both now and well into the future, is Asia.
This month we discuss what the market may initially seek the most from the next Bank of Japan governor; we also look at Japan’s expanding outlays, with tax revenue and inflation in focus.
The official GDP growth target of “around 5%” unveiled at China’s annual National People’s Congress was lower than many external forecasts, and fiscal policy looks less accommodative relative to both market expectations and that of 2022. In our view, these conservative targets leave room for outperformance and likely reflect cautiousness over unexpected events and reluctance in overstimulating the economy.
Considered to be one of the greatest modern-day medical breakthroughs, robotic surgery is revolutionising surgical practices around the world. The breakthrough is particularly prominent in China, which could be the next growth frontier for surgical robotic companies.
The just-released 4Q CY22 data on aggregate corporate profits in Japan was somewhat mixed, as the overall corporate recurring pre-tax profit margin fell from its record high on a four quarter average. The non-financial service sector ticked up, but the manufacturing sector fell from its record high.
Currently, there is a wide variety of predictions for the BOJ’s actions, with some expecting imminent hawkish decisions based upon some of Governor-nominee Kazuo Ueda’s “anti-distortion” comments, but changes are more likely to be gradual and tentative assuming the global economy continues improving.
Current equity market conditions dictate that you choose your investment attire particularly carefully. In our view, buying profitless technology companies is like going up a Scottish mountain wearing flip-flops. You might get away with it, but the odds are not in your favour. Instead, we prefer the protection afforded by profits (and cash) generated today—not at some unspecified point in the future.
Growth prospects look to be improving—a sharp shift from late 2022 when the markets had strong conviction that a first half slowdown was to be followed by a better second half.
We maintain the view that global inflationary pressures may moderate further. We prefer Singapore, South Korea and Indonesia bonds. As for currencies, we favour the renminbi, the Singapore dollar and the Thai baht.
Asian equities made a strong start to 2023, with the MSCI AC Asia ex Japan Index returning 8.2% in US dollar (USD) terms in January, supported by a rebound in investor sentiment towards China.
This month we assess the trends in wages and salaries with significant change potentially in progress; we also discuss how changes at the BOJ may affect the market.
Contract development and manufacturing organisations (CDMOs) could play an important role in addressing health-related needs as society seeks rapid solutions to issues such as an increase in refractory diseases.
In our view, the change from dollar strength to relative weakness is meaningful for the shift in relative growth prospects, favouring the rest of the world over the US.
While consumer sentiment may be weaker across China presently, we believe that the long-term outlook for the country’s consumer sector remains attractive. China’s lower-tier cities are stepping up to fuel the growth engine that once relied heavily on megacities.
Clean, secure and affordable energy is likely to be one of the major challenges of this decade. Given we need abundant energy to complete the energy transition, we believe fossil fuel companies that are actively enabling transition to low carbon society can be part of the solution. They often understand how to deliver global energy at scale and have the balance sheets capable of enabling the transition to clean energy.
Chinese shares outperformed in December as the country continued to move away from its zero-COVID policy while markets in Taiwan and South Korea slumped amid concerns towards the global economy. In ASEAN, Thailand led the region as the country is expected to be one of the biggest beneficiaries of a potential return of Chinese tourists.
We expect global inflation to ease and global growth to weaken in 2023; we also think that the Fed is likely to pause hiking rates by the first quarter of 2023. Against this backdrop, we are broadly constructive on regional bonds as most Asian central banks could be nearing the end of their rate hike cycles.
We discuss the Bank of Japan’s unexpected move to tweak its yield curve control scheme and the potential implications; we also provide a brief overview of some of the factors seen impacting Japan equities in 2023.
No single catch-phrase epitomises the 2023 global macro outlook, but here are ten predictions for the year ahead.
On balance, we are constructive mainly for valuation support and growth prospects improving for China with a firm tailwind from an easing dollar. Pockets of the US equity market may struggle on weaker earnings, but the rest of the world should still fair relatively well provided the US does not enter a deep recession.
Some of the factors that have shaped 2022 look less likely to recur in 2023 (for instance, supply chain duress because of COVID containment) but others will likely last longer (most notably a higher cost of capital). We are cautiously optimistic that less aggressive monetary policy will eventually make 2023 a kinder year for equity markets but there may yet be shocks to overcome.
We expect a moderation of growth, a peak in inflation and a more accommodative monetary policy in 2023. We see this as a positive for Singapore, as we believe a more accommodative policy backdrop will help support continued expansion in corporate earnings growth in 2023.
We believe that the rewards will outweigh the risks related to China amid an existence of enough cyclical, thematic and structural trends that could enable the country to outperform in 2023; particular focus will be on the government’s zero-COVID policy and its support for the property sector.
Most Asian countries are expected to grow at a slower pace in 2023 than they did in 2022, and fiscal stimulus will no longer be a dominant factor driving growth in the region. We expect monetary policy outlook to persist as the primary driver of rates in 2023 with focus on the potential end to the tightening cycle.
We present our 2023 outlook for core markets, emerging markets and global credit.