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Asia Pacific. Know where to look.
While world attention is focused on Ukraine, global markets face new uncertainties. Our latest Credit Suisse Ahead podcast focuses on Asia, which is relatively insulated from the conflict but does have its own issues. These include Covid, the Chinese property bubble and the sharp jump in commodities prices.
The discussion, between Nannette Hechler-Fayd'herbe, our Global Head of Economics and Research, and John William Huia Woods, Chief Investment Officer, APAC, starts with Europe, where we see new inflationary pressures, slower growth and rising interest rates, before focusing on Asia. In China, notwithstanding the rally following the shift to a more stable domestic regulatory environment, equities remain attractively valued. Meanwhile, across the region fixed income plays offer a mixed picture.
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Take it region by region
European growth is slowing and the conflict in Ukraine is triggering new inflationary pressures. We expect inflation across the EU to average about 6% for 2022, putting upward pressure on interest rates. We therefore forecast a 25bp rise by year end. Meanwhile, the picture in Asia is quite different.
China, for example, faces three challenges. Each adds risk. The first is an over-leveraged property sector that accounts for one-third of the country’s economy. Deflating this bubble without inflicting damage elsewhere is a priority.
Second, it has yet to end its Zero Covid strategy, which is suppressing demand and growth. Finally, China’s Common Prosperity policy, designed to improve income equality, has led to some unexpected market interventions. However, the authorities have indicated a pause to these interventions, triggering a positive market response. Furthermore, given government policy objectives of self-sufficiency and carbon emissions reductions, we see support for semi-conductors, 5G, renewable energy and electric vehicles, presenting opportunities for investors.
Follow falling markets tactically
Reflecting on recent events, we have moved to tactical overweight in US and Chinese equities. However, given the elevated volatility, we stress that diversification across asset classes and regions is more important than ever.
Think out of the box for diversification
Fixed income in the region offers a mixed picture. In China, property companies have defaulted on bonds, pushing up yields. But India, Thailand and the Philippines account for some two-thirds of the Asian high-yield bond market, making them worth consideration as a diversification play.
Markets dislike uncertainty and the geopolitical situation is fraught. Knowing where to look to find strong fundamentals is key to staying one step ahead. If you’d like to know more about these or any other investment opportunities, contact your relationship manager.
These forecasts are not reliable indicators of future performance.
The individuals mentioned above only conduct regulated activities in the jurisdiction(s) where they are properly licensed. Please, contact your Relationship Manager for further information.
Source: Credit Suisse, unless otherwise noted.
Monthly “90 seconds with” podcast: September 2023
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