Opportunities on the Horizon: Investing Through a Slowing Economy

Regional Previews | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 62 6.1 Asia: Economies get a boost from the late reopening, weaker dollar KEN PENG Head of Asia Pacific Investment Strategy Asia is set to outgrow and outperform relative to other regions over the years to come. Demographics, diversification of supply chains, a weaker US dollar and amore accommodative Federal Reserve should provide the fuel. We see Japan, India and Southeast Asia receiving increasing attention from global investors. Asia’s post-Covid reopening came after other regions, but the benefit of its later reopening is faster growth even as the US and Europe are slowing. China is a main driver, even with recent challenges. We expect China’s real GDP growth to reach 5.8% in 2023, followed by a return to 4.5% in 2024. For the region excluding Japan and China, we see GDP growth moderating to 4.0% in 2023, then picking up to 4.5% in 2024 ( FIGURE 1 ) . Given this backdrop, we see potential equity opportunities across Asia, especially in industry-leading companies with strong balance sheets. In regional fixed income, we remain focused on quality. Asia is vulnerable to US recession and uncertainties about Chinese consumer demand and geopolitics. China : China’s recovery has been uneven. Consumer spending, driven by a boom in travel and other service sectors, leads the way. But residential real estate and manufacturing continue to face headwinds, as it will take some time to digest inventories. The government’s pro-growth economic policies have not yet revived market sentiment. We expect additional easing in both business and financial policies, as well as moderate rate cuts in the second half of the year. These actions should spur economic and earnings growth. At current valuations of under 10 times forward earnings, recent disappointing market performance appears overstated as potential for a substantial and sustained economic recovery remains.