Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Under the Banyan Tree - Enter the Year of the Dragon
22 Plays1 year ago
Fred Neumann and Herald van der Linde kick off 2024 with a special podcast outlining our key views for Asian markets and economics in the year ahead. Disclaimer: https://www.research.hsbc.com/R/61/kmzgfJ9 Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Podcast Introduction
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Where to Listen & Disclaimers
00:00:24
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
00:00:30
Speaker
However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Asian Markets 2024 Forecast Overview
00:00:46
Speaker
Hello from Hong Kong and a very happy 2024 to all our listeners.
00:00:51
Speaker
This is Under the Banyan Tree, where we put Asian markets and economics in context.
00:00:56
Speaker
I'm Harold van der Linde, Head of Asian Equity Strategy at HSBC.
00:01:01
Speaker
And I'm Fred Newman, Chief Asia Economist.
00:01:03
Speaker
We're here to talk about what 2024 has in store for markets and the macro landscape in Asia, economics, earnings, elections, and much more coming up right here on the podcast.
00:01:12
Speaker
Plus details of our flagship regional conference, the HSBC Asian Outlook, taking place later this month.
00:01:19
Speaker
We've got a whole year to get through in the next 20 minutes, so let's get the conversation underway.
00:01:23
Speaker
From HSBC Global Research, you're listening to Under the Banyan Tree.
2023 Economic Performance Review
00:01:34
Speaker
So, Harold, the Year of the Dragon is upon us.
00:01:37
Speaker
Of course, a dragon known as being powerful and charismatic and intelligent, I guess, is something you get excited about.
00:01:44
Speaker
I think there's a lot of things to get excited about, Fred.
00:01:46
Speaker
But hold your horses for a moment, because I think for us to talk about 2024, let's first just quickly recap what happened in 2023.
00:01:56
Speaker
So in your economics universe, what was the big story in 2024?
00:02:00
Speaker
Well, it was the year of the rabbit, if you remember.
00:02:03
Speaker
Not too bad overall, but we haven't quite seen that big resurgence in Chinese growth that was expected beginning of the year of the rabbit.
00:02:14
Speaker
Remember, we came out of these lockdowns.
00:02:17
Speaker
So it was still decent growth, but certainly disappointment in terms of expectations.
00:02:22
Speaker
And across the rest of the region, okay-ish growth, trades slowed a little bit.
00:02:27
Speaker
We, of course, saw rising interest rates, which was a headwind.
00:02:30
Speaker
We still saw fairly high commodity prices, sticky inflation.
00:02:34
Speaker
So I think the year of the rabbit was sort of a middling year, if you will.
00:02:40
Speaker
But how about
Stock Market Analysis 2023
00:02:41
Speaker
markets?
00:02:41
Speaker
How did markets fare in 2023?
00:02:44
Speaker
Yeah, I'm trying to think about some sort of rabbit analogy here, but I can't find one.
00:02:48
Speaker
We've had markets that have done reasonably well.
00:02:50
Speaker
We've had good earnings growth.
00:02:53
Speaker
Remember, you look at economics growth before equities.
00:02:57
Speaker
Stock markets, it's earnings growth that count, the profits that these companies generate.
00:03:02
Speaker
In parts of the region, that has been pretty good.
00:03:05
Speaker
Now, we're not completely out of the reporting season yet.
00:03:08
Speaker
I know this is 2024, but the actual 2023 numbers will come in the next couple of months or so.
00:03:14
Speaker
So we'll see how they stack up.
00:03:16
Speaker
But in China, they were holding up reasonably well.
00:03:18
Speaker
In India, they surprised on the upside.
00:03:20
Speaker
So that's been OK.
00:03:22
Speaker
Sentiment and market performance, though, is a completely different story.
00:03:26
Speaker
We've seen very weak mainland Chinese equities and Hong Kong equities.
00:03:30
Speaker
The Indian market has performed very well.
00:03:32
Speaker
So there's been very wide divergence in performance.
00:03:35
Speaker
And there's a couple of issues at play, I think.
00:03:38
Speaker
For example, we've seen announcements of U.S. pension funds withdrawing from mainland Chinese equities and Hong Kong equities.
00:03:45
Speaker
So these have kind of hang over the market as well.
00:03:48
Speaker
So those were the key issues in equities in 2023.
00:03:52
Speaker
But, Fred, what do you expect for this particular year?
2024 Economic Growth Forecasts for Asia
00:03:56
Speaker
Well, we wish we could say the year of the dragon, we're roaring back in Asia, fire-breathing economic growth.
00:04:03
Speaker
But it's not going to be quite that.
00:04:06
Speaker
For China, for example, it's going to be a slight tick down in growth.
00:04:10
Speaker
We have about 4.9% or so expectations for the coming year in mainland China.
00:04:17
Speaker
That's not bad.
00:04:18
Speaker
at all considered, but of course, it's not that high growth rate that we're accustomed to in mainland China.
00:04:25
Speaker
Now, if you look at some of the smaller Asian economies in Southeast Asia in particular, there might actually be a bit of a pickup in growth, partly because trade might stabilize.
00:04:34
Speaker
There was a big drag last year.
00:04:37
Speaker
But she continued investment flows in the region.
00:04:39
Speaker
She continued investment flows, for example.
00:04:41
Speaker
And India, of course, continues to do very well indeed.
00:04:44
Speaker
So it's a mixed picture.
00:04:47
Speaker
Overall, the region, of course, still outperforming much of the rest of the world in terms of growth.
00:04:52
Speaker
But we're just slightly below.
00:04:54
Speaker
But it's not the level that counts, right?
00:04:55
Speaker
It's where we're coming from.
00:04:56
Speaker
Where are we coming from?
00:04:57
Speaker
And pre-pandemic, we obviously still had higher growth rates.
00:05:00
Speaker
So not bad, but probably year of the dragon is going to be a transition year to then a full normalization and better growth numbers later on.
00:05:09
Speaker
But how do you think that will play out in markets and financial
Earnings Growth Expectations in Asia
00:05:14
Speaker
markets?
00:05:14
Speaker
Well, let's first look at earnings growth and the expectations, consensus expectations of earnings growth.
00:05:22
Speaker
They are, with the exception of one market, that's Korea, and I'll take that aside for a moment, they're slowing in all markets.
00:05:28
Speaker
So we're coming from high growth and we're also slowing.
00:05:31
Speaker
But this is across pretty much all markets in Asia.
00:05:37
Speaker
A sort of normalization after a bit of sudden resurgence in profits after COVID, you could say.
00:05:43
Speaker
But the overall numbers are still pretty good.
00:05:45
Speaker
Again, taking Korea out.
00:05:47
Speaker
Because I'll talk about Korea in a second.
00:05:49
Speaker
Broadly across Asia, consensus earnings estimates are for 10 to 12 percent earnings growth.
00:05:54
Speaker
That is not flaming, dragon flaming hot numbers, but that's still pretty reasonable kind of growth numbers.
00:06:03
Speaker
India could surprise on the upside as it has done in 2023 last year because there's some real earnings momentum coming through.
00:06:10
Speaker
Now the Korea story is completely different.
00:06:13
Speaker
In Korea, consensus earnings estimates are for over 60%.
00:06:18
Speaker
That's really high, but that's a bit of a special story.
00:06:21
Speaker
It's got everything to do with the recovery in DRAM.
00:06:23
Speaker
So you see DRAM produced, so DRAM is memory chips, right, in computers and all kinds of devices.
00:06:29
Speaker
As these prices tick up, the profits of these companies just get blown out of the water.
00:06:33
Speaker
But the market is anticipating that to a large extent already.
00:06:36
Speaker
So that's a slightly different story.
00:06:39
Speaker
But broadly across Asia, weaker earnings growth, but not too bad.
00:06:43
Speaker
And China is not a particular exception to that.
00:06:46
Speaker
China's consensus earnings growth are looking for something like 14, 15 percent.
00:06:51
Speaker
That is not bad.
00:06:53
Speaker
So it's not bad.
00:06:55
Speaker
Let's talk about some of the downside risks.
00:06:58
Speaker
Of course, we have to talk about those.
Financial Market Risks in 2024
00:07:02
Speaker
Where in financial markets would you look at a downside risk?
00:07:06
Speaker
What sort of could go wrong, if you will?
00:07:09
Speaker
I think for my universe, there are a couple of downsides.
00:07:14
Speaker
I would say, broadly speaking, three downside risks, financial risks.
00:07:18
Speaker
The first one, and I'm going to ask you about this, is simply that we've been in this stage of, hey, U.S. inflation has peaked, bond yields are coming off, we are past the peak, and then suddenly there's a resurgence in numbers and we have to recalibrate and bond yields go higher.
00:07:34
Speaker
So the global macro backdrop that looks very supportive for Asian equities
00:07:39
Speaker
could change.
00:07:39
Speaker
We had that actually in 2023 as well.
00:07:43
Speaker
The second risk is really that these consensus earnings estimates prove to be too high and that we get some shockers coming through, that the slowdown in earnings is suddenly accelerating to the downside.
00:07:57
Speaker
in particular in China.
00:07:58
Speaker
So that's something that we have to take a look at as well.
00:08:02
Speaker
And there's a third, I would say, kind of unique risk in particular mainland Chinese and Hong Kong equities is that we have these U.S. pension funds that have probably stated we want to significantly reduce our exposure to those markets and or not at all.
00:08:20
Speaker
We don't know exactly, because it's not publicly disclosed, how much they have.
00:08:25
Speaker
In some of our reports, we've made all sorts of estimates, but there might be an overhang.
00:08:30
Speaker
And looking at some of the share price performances in late 2023 and early this year, some high-quality companies have really been sold off.
00:08:39
Speaker
So I think there's still an overhang there that's very difficult for me to see when that is fully digested.
00:08:45
Speaker
But what is it for you, Fred?
00:08:47
Speaker
What sort of risks are you looking at?
00:08:49
Speaker
Well, there are a few risks out there.
00:08:52
Speaker
One is, for example, we see on the trade side, which is enormously important for Asia, right?
00:08:56
Speaker
These economies are really highly geared towards exports.
00:09:01
Speaker
There's some green shoots that have come through of late suggesting stabilization.
00:09:05
Speaker
You mentioned DRAM, for example, out of Korea, those memory chips.
00:09:09
Speaker
That's also reflected in export numbers out of Korea, for example.
00:09:13
Speaker
Now, one of the risks could be that some of these green shoots, as we call them, these first indications that things are stabilizing, that that's basically a misleading signal, that actually that was just an inventory correction and that because global demand is so weak that you see exports come down again.
00:09:33
Speaker
over the course of the year of the dragon.
00:09:35
Speaker
And that would, of course, knock out quite a bit of growth from particularly smaller open economies.
00:09:40
Speaker
So that's one risk.
00:09:41
Speaker
How good are things on the export side, really?
00:09:44
Speaker
A second risk would be in mainland China.
00:09:47
Speaker
It's still an important, important economy, not just in its own right, but for the region overall.
00:09:52
Speaker
Yeah.
00:09:53
Speaker
And here in the property sector, there's still signs of a bit of stress coming through, not sort of that quick stabilization people had hoped for.
00:10:02
Speaker
And is there a risk that things could continue to kind of sag and get weaker?
00:10:07
Speaker
And how much is that going to impact overall economic growth in mainland China?
00:10:13
Speaker
There are countermeasures that the government is obviously pushing hard, but how quickly will they get traction?
00:10:19
Speaker
Is it going to be three months or another year before that we really see that stabilization?
00:10:24
Speaker
That's a policy risk in the sense in terms of what they're going to do and how much, but also then how effective it will be as well.
00:10:29
Speaker
How effective it will be, yeah.
00:10:31
Speaker
So those are two key Asia-centric risks and of course the global risks that you mentioned as well.
00:10:36
Speaker
The interest rates could go up.
00:10:38
Speaker
We see oil prices, for example, spike again.
00:10:42
Speaker
But those are risks that usually in a normal year we have anyways.
00:10:46
Speaker
So those are some of the downside risks for 2024.
00:10:48
Speaker
In a moment, we're going to discuss the positives that could surprise us.
00:10:51
Speaker
But
HSBC Asian Outlook Conference Details
00:10:52
Speaker
before we do that, we want to bring you some details on our HSBC Asian Outlook Conference.
00:10:57
Speaker
Indeed, this is our flagship Asian conference held in person with colleagues and guests from around the world.
00:11:03
Speaker
It includes presentations on economics, forex, bonds and of course equities and much more as well as macro outlooks on the regional and the global scale.
00:11:12
Speaker
The event kicks off in Beijing and Shanghai on the 15th and 16th of January respectively and after that it's Hong Kong on the 17th and Singapore on the 18th.
00:11:21
Speaker
By the way, the two of us will be among the speakers in both those locations.
00:11:26
Speaker
And if you're an HSBC client, please contact your representative for more info or visit hsbcscheduling.com.
Potential Positive Surprises in 2024
00:11:44
Speaker
So, Fred, we've looked at the downside risk, but things could also surprise us on the upside in Asia in 2024.
00:11:51
Speaker
Where do you see maybe positive surprises coming through this year?
00:11:55
Speaker
Well, one area is inflation.
00:11:57
Speaker
There are signs that inflation is coming down, and it might come down later.
00:12:01
Speaker
maybe a little bit faster than expected.
00:12:04
Speaker
And that would help to stabilize things because it gives households much more purchasing power and you get that relief from inflation coming through.
00:12:11
Speaker
Central banks can purely... Maybe central banks can ease interest rates and that will give us extra growth coming through, for example.
00:12:18
Speaker
So a lot depends on
00:12:20
Speaker
where we land on inflation, how quickly it actually comes down.
00:12:23
Speaker
That would be a big upside risk, or at least a positive.
00:12:27
Speaker
We say upside risk in the business.
00:12:30
Speaker
Of course, it means something that's positive.
00:12:34
Speaker
And then when we look at mainland China, for example, some of the fundamentals are not too bad, actually.
00:12:42
Speaker
Some of the headlines are too negative out there.
00:12:45
Speaker
So if you look at consumer spending, it's still fairly decent.
00:12:48
Speaker
If you look at the manufacturing investment coming through, it's fairly decent.
00:12:52
Speaker
If you look at infrastructure spending, it could still be positive.
00:12:54
Speaker
So as long as the housing market stabilizes, we could very quickly get much stronger growth numbers coming through in China, and that would reverberate across the region.
00:13:05
Speaker
So as cautious as the market right now is around China, we should be taking
00:13:13
Speaker
careful, right?
00:13:14
Speaker
The Chinese economy is still very dynamic fundamentally.
00:13:17
Speaker
And so there could be relative to expectations, certainly a bit of better sentiment to come through, better numbers come through.
00:13:25
Speaker
But in financial markets, Harold, is there a catalyst that you can think of where investors would say, you know, if that happens, then really things are going to look much better?
00:13:36
Speaker
We like to have catalysts because it's an easy way to frame things.
00:13:41
Speaker
It would be fantastic if we can say on this and this particular date, the government will come out, make these announcements, and from there on stock markets should be moving higher.
00:13:49
Speaker
That's just not the way it very often works.
00:13:52
Speaker
If I think about mainland Chinese equities performance, we've now had a couple of years of pretty dismal performance, year-on-year, every year down.
00:14:01
Speaker
A lot of funds have clearly withdrawn from the market.
00:14:05
Speaker
As I said, some of them have publicly stated so.
00:14:09
Speaker
If the earnings are holding up and the macro environment improves, then suddenly you could have a resurgence in that market that could really be a positive surprise to Asian equity markets.
00:14:22
Speaker
How important are exchange rates for you then in that context, if you think about equity markets?
00:14:27
Speaker
Because the year of the rabbit, we don't really want to think about it too much as investors, but the year of the rabbit was also characterized by a fairly strong US dollar against Asian currencies.
00:14:38
Speaker
Now, if that were to reverse, is that important for equity markets?
00:14:41
Speaker
Yeah, that is very important, yes.
00:14:42
Speaker
In what sense?
00:14:44
Speaker
A weaker dollar suggests that people are selling dollar assets, right?
00:14:48
Speaker
So they're buying, if you sell a dollar asset, you have to buy something else.
00:14:52
Speaker
So Asian equities would be one of the options available to you.
00:14:55
Speaker
So generally speaking, a weaker dollar is very positive for Asian equities in general.
00:15:02
Speaker
And mainland Chinese equities in particular, that has just historically so been the relation, has been the most sensitive to this.
00:15:09
Speaker
So if that were to materialize, that could suddenly then change that picture.
00:15:13
Speaker
If we see a significantly, for example, weaker dollar coming through, it's one of these things that could suddenly lead to a resurgence in interest in mainland Chinese equities.
00:15:22
Speaker
And I think one other thing to watch in the Year of the Dragon are elections.
Impact of Elections on Markets
00:15:27
Speaker
We've talked about this quite a bit, right?
00:15:29
Speaker
And there's quite a few coming through again.
00:15:31
Speaker
Correct me if I'm wrong, but we have Taiwan still coming very soon, actually.
00:15:36
Speaker
We have Indonesia.
00:15:38
Speaker
Indonesia is the next one, I think.
00:15:40
Speaker
Yeah, Indonesia and India.
00:15:41
Speaker
Korea is up there as well.
00:15:44
Speaker
Correct.
00:15:45
Speaker
Plenty happening.
00:15:45
Speaker
In fact, 2024 is going to be a year when the largest number of people in a long time in the world vote.
00:15:53
Speaker
Vote, yeah.
00:15:54
Speaker
If you take Indonesia and India together.
00:15:56
Speaker
And of course, US as well and other parts of the world.
00:15:59
Speaker
So we could see real big shifts in leadership in terms of politics.
00:16:04
Speaker
the direction they want to go for, right?
00:16:06
Speaker
So that will be something of course... And even if these elections don't necessarily lead to leadership changes, often what happens if you have a new government and reinvigorates the reform processes, the government comes in with new mandates, you know, they swap out some of the officials, fresh energy, and that can be quite positive at times.
00:16:27
Speaker
Is that something that equity markets you think will be watching?
00:16:30
Speaker
Yeah, equity markets will obviously be watching on it.
00:16:33
Speaker
And again, for us, very often, the question is really, what is the outcome of this election?
00:16:39
Speaker
But what does that mean for the profits of these companies?
00:16:41
Speaker
And sometimes the simple answer is not so much, because you can have new leadership in a country, but it doesn't mean that people are not going to buy shampoo, for example.
00:16:50
Speaker
But for other companies, of course, it can have dramatic influences.
00:16:53
Speaker
If a new government says, we're going to build out...
00:16:57
Speaker
I don't know, a high-end tech semiconductor business.
00:17:01
Speaker
Now, that means for the equipment makers, this could lead to massive growth.
00:17:05
Speaker
So you have to then distill a little bit further what the implications on equities are.
00:17:10
Speaker
That comes very often afterwards.
00:17:13
Speaker
And of course, it has implications for fiscal policy, monetary policy, and that's really your territory, right?
00:17:17
Speaker
That's where you'll be.
00:17:17
Speaker
Yeah, so for economics it matters, of course, as well.
00:17:20
Speaker
There's really two aspects to this.
00:17:22
Speaker
One is big elections.
00:17:23
Speaker
It's often very good for consumption in that year.
00:17:26
Speaker
And so we tend to all adds equals.
00:17:29
Speaker
We bump up your consumption expectations for that year.
00:17:33
Speaker
There's a lot of money being spent during campaigning.
00:17:37
Speaker
And then the second issue is that, yeah, if a new government comes in, even if the same government, but with a new agenda, maybe it might be good for investment for certain sectors.
00:17:47
Speaker
Right.
00:17:47
Speaker
If there's new reforms coming through, there might be a bit of tweak to the fiscal sense.
00:17:52
Speaker
Usually the fiscal side contracts a little bit after elections because it's usually more generous before the election and less generous after elections.
00:18:00
Speaker
But.
00:18:00
Speaker
So, yeah, you factor that in.
00:18:03
Speaker
But it'll be interesting to watch after a long time.
00:18:05
Speaker
We have really a sequence of elections across Asia, which I think will be market attention grabbing for, say,
2024 Outlook Summary
00:18:13
Speaker
the least.
00:18:13
Speaker
Yeah.
00:18:14
Speaker
So just putting this all a little bit then together, we have a year in which the global macro, at least from my side, starts to move in the right direction to be supportive to Asian equities.
00:18:24
Speaker
The growth outlook is a bit more.
00:18:27
Speaker
weaker than in the previous calendar year, but not alarmingly so.
00:18:31
Speaker
But there's still sentiment issues and flow issues in equities that could really, yes, lead to a continued dispersion in performance across the region, as we've seen in 2023.
00:18:45
Speaker
And also from the global perspective, there might be sort of the chance that you see maybe slightly weaker growth in the US, maybe not quite the growth you would like in Europe.
00:18:57
Speaker
But if Asia does a bit better, it's sort of the pendulum swinging back into this region.
00:19:01
Speaker
But for that to happen, we really need China to do well.
00:19:06
Speaker
And that's going to be key.
00:19:13
Speaker
But Harold, Year of the Dragon, intelligent, charismatic and powerful.
00:19:17
Speaker
One might think to talk about you, but, you know, the dragon is good for it.
00:19:22
Speaker
It's good for wealth.
00:19:23
Speaker
It makes money.
00:19:24
Speaker
Well, then on that thought, maybe we should wish all our listeners a happy 2024 and a prosperous one.
00:19:31
Speaker
Indeed.
00:19:32
Speaker
Happy Year of the Dragon, everyone.
00:19:33
Speaker
I will speak to you all again very soon.
00:19:54
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:19:57
Speaker
We hope you enjoyed the discussion.
00:19:59
Speaker
Make sure you're subscribed to stay up to date with new episodes.