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.
We believe that the benign macro backdrop should remain supportive for credit fundamentals in 2023. The fiscal deficits of Asian economies are expected to gradually narrow as the need for pandemic support decreases.
The just-released 3Q CY22 data on aggregate corporate profits in Japan was very positive, with the overall corporate recurring pre-tax profit margin hitting a record high on a four quarter average.
China’s bond market is exhibiting low correlation to other asset classes, displaying historically lower volatility, enjoying continued internationalisation of the renminbi and benefitting from the country being included in globally recognised indices.
This month, Fed Chair Powell seemed hellbent on quashing any last hope of a pivot or at least slowing the pace of rate hikes sometime soon. But this crushing blow to hope helped sow the seeds of an eyewatering rally when one inflation print showed some promise—hence, the manic cycle continues.
We are inclined towards Singapore and South Korean government bonds, given their relatively higher sensitivities to stabilising US Treasury yields. In currencies, we see the Singapore dollar continuing to outperform its regional peers.