Asia Economic, Investment and Markets Outlook for Second Half of 2023

In their latest reports, they covered a range of key topics including the China’s reopening recovery, Asia equities and Asia FX. Key takeaways include:

Macroeconomics Outlook
-    Asia Pacific’s economic growth is expected to be slower in 2023, with manufacturing still under pressure and trade downturn to continue until second half of the year.
-    China’s reopening recovery continuing in the near term, albeit with a weak momentum. In the medium term, policymakers might be slow to respond forcefully to the structural deleveraging and deflationary pressure.
-    Japan’s domestic resilience with inflation continuing its upward trajectory, and the higher wage growth is expected to stay.

Asia Equity Market Outlook
-    China equities require a solid recovery, the return gap between offshore equities and the rest of Emerging Market Asia reaching nearly 13pp. 
-    An improving economic momentum potentially induced by some form of policy response is required for the valuation of Chinese internet stocks to recover. While both valuation and positioning argue for some rebound now that MSCI China forward P/Es are back below 10x.
-    Asia’s equity returns lead the semiconductor cycle by 6 to 8 months. 

Asia FX/Rates Market Outlook
-    Common factors impacting the Asia FX markets: 1) global growth, including the US, will likely slowdown; 2) the global monetary policy normalisation has peaked out; 3) the commodity prices will likely remain stable.
-    It is expected a similar but opposite directional opportunity at the long end in KRW and US rates in second half of the year. The yield differential between Korea and the US is tight, suggesting that the market does not properly reflect the risk of a massive scale of additional KTB net issuance.
-    A weakening CNY and collapsing China rates have not created a synchronised movement in the Asia FX and rates space. The traditional correlation between China and other Asia is loosening.

Click the below to read our latest research:
Monthly - China: have we reached peak pessimism?
Waiting for a stimulus
3Q Outlook – The overshoots (AI) and the undershoots (China)
Mind the gap in Korea fiscal revenue shortfall

(Full reports are only available to existing clients. Any questions please reach out to sg-markets@sgcib.com)

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