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 - Asia in 2023: Economics and equities in the Year of the Rabbit
28 Plays2 years ago
Fred Neumann and Herald van der Linde discuss the key issues shaping Asian economies and equity markets in 2023, including interest rates, inflation and China’s grand re-opening.
Disclaimer: https://www.research.hsbc.com/R/51/czw7wxr 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
Introduction to Global Business Trends
00:00:00
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.
00:00:11
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:14
Speaker
Thanks for listening.
00:00:15
Speaker
And now onto today's show.
00:00:16
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
00:00:22
Speaker
Search for HSBC Global Viewpoint or join us via the HSBC Global Banking and Markets page on LinkedIn.
00:00:29
Speaker
However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Asia's Economic Outlook: Focus on China
00:00:45
Speaker
Hello, Happy New Year and a very warm welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
00:00:51
Speaker
I'm Fred Newman, Chief Asia Economist here at HSBC.
00:00:54
Speaker
And I'm Harold van der Linde, Head of Asian Equity Strategy.
00:00:58
Speaker
2023 is shaping up to be an important year for the region, not least because of mainland China's grand reopening, including the border with Hong Kong, which is just a few days away.
00:01:08
Speaker
Inflation and the export cycle also remain key talking points for investors at the moment.
00:01:13
Speaker
We're here to discuss those and many other issues shaping the Asian economics and equities landscape in the year of the rabbit.
00:01:20
Speaker
With that, let's get the conversation going right here under the banyan tree.
00:01:34
Speaker
Fred, I propose that we take a walk through the region.
China's Economic Recovery and Consumer Spending
00:01:37
Speaker
It's the beginning of the year, so we can see what is unfolding across the whole of Asia.
00:01:42
Speaker
So let's look at China, North Asia, ASEAN and India in particular.
00:01:48
Speaker
But of course, we kick off with China.
00:01:49
Speaker
The big news there is the grand reopening.
00:01:52
Speaker
That must be good news for consumers and the economic outlook there, correct?
00:01:56
Speaker
It's likely to be good news.
00:01:57
Speaker
Of course, China is relaxing a lot of the restrictions, the control measures that imposed over the past year.
00:02:05
Speaker
But it's going to be a bumpy ride.
00:02:06
Speaker
So the next few months, we actually expect the economy to contract first because of the spike in infections that we're seeing.
00:02:14
Speaker
Before you see then, by sort of mid-year, a strong recovery unfolds, most of the economic growth is actually going to be back loaded towards the second half of the year.
00:02:25
Speaker
And growth drivers, you mentioned consumer spending, of course, very strong, especially services, is something...
00:02:31
Speaker
We've seen in other economies, right, when we get that reopening, it's particularly the services sector that benefits.
Market Sentiment: Earnings and Investments
00:02:37
Speaker
But in China as well, you might see even other growth drivers like housing construction coming back because there have been a lot of measures being unveiled to support the housing market as well.
00:02:48
Speaker
So a dual, really, recovery, both in terms of reopening and in terms of the housing construction market.
00:02:54
Speaker
But that means about 5% growth this year on average.
00:02:58
Speaker
Surely it must be good news for equities then?
00:03:00
Speaker
Well, in a sense, this is good news for equities.
00:03:02
Speaker
And I think what we see here is that you talk about a kind of delayed response in the economic numbers in the second half of the year in China.
00:03:11
Speaker
What we see in the equity space already is that we see analysts starting to upgrade earnings in China.
00:03:17
Speaker
So it's very minor, but this is a big shift over last year when throughout actually the last almost 18 months, we've seen a continuous downgrading in earnings expectations across China.
00:03:29
Speaker
So earnings upgrades are obviously quite positive for equity.
00:03:33
Speaker
So that's one thing.
00:03:35
Speaker
The other issue that's of importance to the Chinese equity market simply is positioning.
00:03:39
Speaker
Most funds, either regional funds or global funds, are just heavily on the weight on China.
00:03:45
Speaker
They came in last year being very cautious on China for all the reasons we discussed in the podcast last year.
00:03:51
Speaker
But yeah, now they might get caught in that on the weight position.
00:03:55
Speaker
So we've seen inflows in China going up
00:03:59
Speaker
quite substantially, but because the market has gone up, they need to buy more in order to move neutral or if they want to overweight.
00:04:07
Speaker
So I think there's a flow dynamic that will unfold in Chinese equities as well that adds further complexity to the whole story.
Northeast Asia: Travel, Connectivity, and Economic Challenges
00:04:17
Speaker
So the way you described it almost reminds me a little bit in global context.
00:04:21
Speaker
Last year, broadly speaking, U.S. was looking relatively strong to the growth terms, at least for part of the year.
00:04:29
Speaker
Maybe equities holding up a little bit better in the U.S. than in mainland China.
00:04:34
Speaker
This year, it might be the other way around, perhaps?
00:04:36
Speaker
It could well be the other way around.
00:04:38
Speaker
The important other dynamic here is, of course, what happens in the U.S., not just with growth, but also with inflation and interest rates.
00:04:46
Speaker
Were those interest rates to come down throughout 2023, that's an additional positive factor in China.
00:04:53
Speaker
So we have the economic recovery, the earnings recovery, we have the positioning, and maybe the global macro is going to help this particular equity market as well.
00:05:01
Speaker
So that's really positive.
00:05:03
Speaker
And of course, one other aspect of China's reopening, quote unquote, is the international dimension.
00:05:09
Speaker
More tourists, probably Chinese tourists venturing abroad.
00:05:14
Speaker
We have a lot of connectivity among Asian economies.
00:05:17
Speaker
If we move to Northeast Asia, how would you think about the equity markets in that particular context in Northeast Asia, which of course includes Japan, Korea and Taiwan as well?
00:05:28
Speaker
Yeah, that's right.
00:05:29
Speaker
I think there's a couple of interesting dynamics going on in those particular markets.
00:05:34
Speaker
There's one issue I'm going to ask you a question about in a second.
00:05:38
Speaker
The first issue is what you refer to the grand reopening of mainland China.
00:05:43
Speaker
That means potentially that more business and tourist travel.
00:05:47
Speaker
Korea seems to be the obvious choice.
00:05:48
Speaker
That's at least where they've gone mostly in the past.
00:05:52
Speaker
That would benefit local companies there.
00:05:53
Speaker
That's anything from confectionary companies, companies that sell cookies to theme parks to domestic consumption.
00:06:00
Speaker
Some of the supermarkets and hypermarkets that are in Korea.
00:06:03
Speaker
So that is a first impact.
00:06:06
Speaker
The other issue in those markets is really what happens with the global economy.
00:06:09
Speaker
These are large technology markets.
00:06:12
Speaker
They sell computers and memory sticks and cars and these sort of things.
00:06:17
Speaker
So global demand is really an issue.
00:06:20
Speaker
It's probably more of a worry, I would say.
00:06:23
Speaker
So on the exporters, you've got to be probably careful there.
00:06:26
Speaker
If you really want to go for some of these markets, don't look at what the demand is, but really what happens with the supply in these markets.
00:06:32
Speaker
There are certain tech industries where we see cuts in consumption, often in CAPEX and investments and these sort of things.
00:06:39
Speaker
But the other bigger thing is, of course, what's going on in those economies, in particular Japan.
00:06:44
Speaker
We've seen some changes in interest rates there.
00:06:47
Speaker
What is your view on that?
00:06:49
Speaker
Well, Japan is certainly an interesting story in 2023.
00:06:51
Speaker
And we just had big news about a change in the Bank of Japan's monetary policy, at least a bit of a tweak, a widening of that yield curve control that they had introduced.
00:07:04
Speaker
And that is read by some people, perhaps as a signal that they're
00:07:08
Speaker
think about changing monetary policy, but we probably don't think so because there's not really an inflation problem in Japan.
00:07:15
Speaker
In fact, Japan, still the outlook is somewhat challenging.
00:07:18
Speaker
It's partly just like elsewhere in Northeast Asia, there's a challenge of weaker exports coming through.
00:07:25
Speaker
You mentioned
00:07:26
Speaker
You already hinted at the tech cycle, for example, the export cycle being a bit of a headwind for Korea and Taiwan.
00:07:33
Speaker
It's true also for Japan, right?
00:07:35
Speaker
The new orders for electronics are contracting.
00:07:38
Speaker
We're seeing still weaker demand for consumer and industrial electronics come through.
00:07:43
Speaker
And that kind of weighs on the export performance and hence the overall economic performance of Northeast Asia, including Japan.
00:07:50
Speaker
And that's why the Bank of Japan will probably not really engage into a
00:07:55
Speaker
monetary tightening cycle even if inflation is a little bit elevated in Japan.
ASEAN's Economic Resilience and Opportunities
00:08:02
Speaker
Well, we're going to take a closer look at the outlook for Southeast Asia and India in a moment.
00:08:06
Speaker
First, though, we want to let you know that you can catch the two of us at HSBC's Asian Outlook Conference, which kicks off here in Hong Kong on Tuesday, January 10th.
00:08:16
Speaker
We'll be taken to the stage in person alongside global research colleagues from our economics, equities, fixed income and FX teams to discuss this year's topic, inflation, recession and beyond.
00:08:28
Speaker
The conference then heads to Singapore on January 12th.
00:08:30
Speaker
So if you happen to be there, please join us.
00:08:34
Speaker
And if you can't make it to Hong Kong or Singapore, you can also participate in an online session a week later.
00:08:40
Speaker
If you're a global research client, you can register online at research.hsbc.com or reach out to your HBC representative for more details.
00:08:59
Speaker
Good Fred, we've spoken so far about China, we've looked at North Asia.
00:09:03
Speaker
Let's move to Southeast Asia.
00:09:05
Speaker
What are the economic dynamics in that part of the region?
00:09:09
Speaker
Well, overall, the ASEAN region has been extraordinarily resilient over the past year.
00:09:15
Speaker
Growth is still relatively robust, but we're likely going to see a slowdown coming through during the year of the rabbit.
00:09:21
Speaker
And that's partly because what we just mentioned, the export cycle is weakening.
00:09:25
Speaker
Tech also matters for some of the Southeast Asian economies.
00:09:30
Speaker
Think Vietnam, think Singapore, think Malaysia.
00:09:33
Speaker
But then there's also the issue that we had fairly elevated inflation readings there, and that's biting into consumers purchasing power.
00:09:40
Speaker
We saw higher interest rates, for example, as well.
00:09:43
Speaker
And with a lag, that's going to slow down consumer spending, investment spending by companies.
00:09:49
Speaker
Now, it's going to be a mild slowdown.
00:09:51
Speaker
But still, the region overall is enormously resilient.
00:09:55
Speaker
If you just look at foreign direct investment, for example, still pouring in at record levels into the region, partly because of supply chain rejigging, partly because global companies are looking at very promising domestic consumer markets.
00:10:10
Speaker
Now, some of the equity markets have actually outperformed, I think, global peers over the past year.
00:10:15
Speaker
So what are your thoughts on the equity side here in Southeast Asia?
00:10:20
Speaker
You're correct.
00:10:20
Speaker
Some of the ASEAN markets have done really well in 2022.
00:10:25
Speaker
For the reasons you've mentioned, supply chains have reshuffled.
00:10:29
Speaker
So that means more employment for people there.
00:10:31
Speaker
That means more consumption as well.
00:10:33
Speaker
That's a positive.
00:10:34
Speaker
And of course, the grand reopening of mainland China suggests that we could submit tourism going to places like Phuket or Bali or the Philippines.
00:10:42
Speaker
in the course of 2023 as well.
00:10:44
Speaker
That's a positive as well.
00:10:46
Speaker
The issue really for Southeast Asia is how people are positioned in it.
00:10:51
Speaker
Last year, most funds were underweight on China.
00:10:54
Speaker
They needed to go somewhere else in the region.
00:10:56
Speaker
And markets such as Indonesia were the preferred destination in 2022.
00:11:01
Speaker
The issue really is that most funds have already bought therefore into that story and most of them actually are starting to reduce that at the expense of maybe going somewhere else in the region.
00:11:12
Speaker
We see outflows actually of some of the ASEAN markets and inflows in China at the moment.
00:11:19
Speaker
Now, there will be a greater differentiation.
00:11:22
Speaker
The supply chain story and employment story is good for most markets.
00:11:26
Speaker
Thailand, Malaysia, Indonesia, I would say.
00:11:29
Speaker
The grand reopening of mainland China is probably more positive for Thailand.
00:11:34
Speaker
That's what most tourists are going to go for.
00:11:36
Speaker
So there will, I think, also be a greater differentiation across the ASEAN markets as we go deeper into 2023.
India's Growth Amid Global Challenges
00:11:43
Speaker
The other big economy, of course, in the region is India.
00:11:47
Speaker
The dynamics there seem to be completely different than in the rest of Asia.
00:11:51
Speaker
Is that fair to say, Fred?
00:11:53
Speaker
It is.
00:11:55
Speaker
And India is an economy that is perhaps less affected by some of the vagaries of the global economy that we've seen elsewhere.
00:12:02
Speaker
So we talked about Northeast Asia is very open, right?
00:12:05
Speaker
Sensitive to global trade cycle.
00:12:07
Speaker
Southeast Asia, of course, as well.
00:12:09
Speaker
India is more domestically focused in many ways and has therefore also delivered surprisingly resilient growth, actually, over the past year.
00:12:17
Speaker
Now, that's likely to slow again over the coming year.
00:12:20
Speaker
The
00:12:21
Speaker
Central Bank has raised interest rates.
00:12:23
Speaker
We need to see some fiscal consolidation probably on the government side.
00:12:27
Speaker
But broadly speaking, slow down by still fairly elevated growth levels.
00:12:32
Speaker
And that reflects partly that structural improvement in India's growth profile.
00:12:37
Speaker
So we see productivity improvements coming through very,
00:12:40
Speaker
via some government policies.
00:12:42
Speaker
If you take, for example, the electronification of bank records, for example, it gives lots more Indians access to the financial system.
00:12:52
Speaker
We're seeing much more capex coming through by large companies, foreign direct investment pouring in, lots of investment going to attack.
00:13:00
Speaker
All of that is really lifting India onto a higher growth plane.
00:13:04
Speaker
So yes, the economy is flowing, but it's remarkably, remarkably resilient.
00:13:09
Speaker
But of course, the question is how do investors look at India these days?
00:13:13
Speaker
Yeah, well, from the equity point of view, the story is actually very similar.
00:13:17
Speaker
The earnings growth story in India
00:13:20
Speaker
is very resilient, just healthy.
00:13:23
Speaker
We see good earnings growth across a wide range of sectors.
00:13:26
Speaker
In line with your kind of economic outlook, you also see that very high growth numbers are moderating, but still pretty decent numbers.
00:13:34
Speaker
High teens, maybe even early 20s this year, earnings growth in India.
00:13:39
Speaker
So that is really positive.
00:13:41
Speaker
The issue really is valuations in India.
00:13:44
Speaker
It is by far the most expensive market across the region.
00:13:49
Speaker
It is one of the best stories, but it's also one of the most expensive stories in the region.
00:13:54
Speaker
So as an investor, you really have to ask yourself what type of investor you are.
00:13:57
Speaker
If you're looking for long-term structural growth that is highly visible, India is the great story.
00:14:03
Speaker
But if you say, I want to buy stocks when they're really cheap, I'm a value investor, then India is a very difficult market for yourself.
00:14:11
Speaker
The other thing is that the electrification of all sorts of records creates new business opportunities in India.
00:14:18
Speaker
These companies are growing rapidly.
00:14:19
Speaker
They need money.
00:14:20
Speaker
Therefore, they go to the equity markets, a lot of IPOs of all sorts of new tech companies in India.
00:14:25
Speaker
That means a further diversification of what is available in that market.
00:14:30
Speaker
Yeah, the Indian story is just really, really healthy, very good, just really expensive.
00:14:36
Speaker
That's what you have to ask yourself.
00:14:38
Speaker
Are you willing to pay these multiples for Indian equities?
00:14:42
Speaker
Always difficult questions to answer for investors, of course.
Global Risks and Asia's Economic Strategies
00:14:45
Speaker
But Harold, here we are at the start of 2023, I think.
00:14:49
Speaker
it'd be fair to say that none of us would have predicted really the turbulence that the year of the tiger brought last year to the region.
00:14:58
Speaker
Now, as we look into the year of the rabbit, what are some of the things that we should really worry about?
00:15:05
Speaker
One thing that comes to mind from the economic side, for example, is
00:15:09
Speaker
potentially a very much deeper than expected slowdown in the Western world, which we'd like to highlight Asia's resilience, but we're still tied to the hip, right, to the Western world.
00:15:21
Speaker
Exports, for example, matter enormously for this region.
00:15:24
Speaker
So I would highlight potentially a risk of a recession in the U.S. and Europe would certainly take some of the shine off of growth
00:15:33
Speaker
in Asia as well.
00:15:34
Speaker
But from a market side, how do you look at the global risks here impacting us in Asia?
00:15:41
Speaker
Weaker growth is not good for equity, so that is obviously a risk.
00:15:45
Speaker
But on the other hand, you could argue we have the grand reopening of mainland China that offsets some of that weakness that might come from the US or Europe.
00:15:54
Speaker
And the other important factor to look at is simply what would happen with interest rates.
00:15:58
Speaker
If there would be much weaker than expected growth in, say, the US, it might well be that the central banks there start to cut interest rates.
00:16:06
Speaker
And that's actually a positive for us as well.
00:16:09
Speaker
So we have maybe a few buffers here in Asia that could help us out in such a difficult kind of global growth environment.
00:16:17
Speaker
Hopefully that's going to play out in 2023.
00:16:21
Speaker
Well, Harold, according to the Chinese zodiac, people who were born in the year of the rabbit have sort of that soft and tender characteristic.
00:16:30
Speaker
And let's hope that after the wild ride of the year of the tiger, that that's indeed what markets and economics will deliver for the next 12 months.
00:16:39
Speaker
Well, that would be very much welcome, I think, after what we've seen in 2022.
00:16:42
Speaker
Soft and tender sounds a hopeful theme for 2023.
00:16:49
Speaker
Fred, so I'll be seeing you at the Asia Outlook Conference here in Hong Kong next week.
00:16:54
Speaker
And for any of the listeners who will be there as well, please come and approach us, tap us on the shoulder, have a chat with us about what you think about markets or economies.
00:17:03
Speaker
And on that note, I'd like to wish all of our listeners a very happy new year 2023.
00:17:06
Speaker
Happy new year.
00:17:14
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:17:18
Speaker
We hope you enjoyed the discussion.
00:17:20
Speaker
Make sure you're subscribed to stay up to date with new episodes.