Opportunities on the Horizon: Investing Through a Slowing Economy

Regional Previews | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 63 Japan : Global investors increasingly see Japanese equities as a means to access Asian development, especially amidst US-China tensions. Recent wage negotiations between corporates and unions have produced a 3.8% wage hike agreement, the largest in three decades ( FIGURE 2 ) . We expect that the Bank of Japan will purposefully exit its ultra-loose monetary policy, which could take place in the second half of this year. If this happens, the yen has room to strengthen further. Corporate governance reforms are also progressing, with the Tokyo Exchange pushing a wide array of firms to increase dividends and buybacks. This has begun to lift valuations from low levels. India & Southeast Asia : The post-Covid recovery in India and Southeast Asia has been boosted by a substantial rise in investment as global companies seek to diversify their supply chains. The economic recovery is strongest in Thailand, India, Indonesia, and the Philippines, all of which saw stronger earnings growth. Equity prices have rallied in tandem, but continue to lag earnings, so valuations remain at the lower end of their historical multi-year range ( FIGURE 3 ) . We expect improved equity performance in the second half of this year, supported by potential weakness in the US dollar, rising demand in the region and increasing direct foreign investment due to US-China strategic competition. FIGURE 1 : We Expect GDP Growth to Remain Elevated in Asia through 2023-24 -5 0 5 10 Real GDP Forecasts 2022 2023 2024 Japan US Euro Area South Korea Singapore HK China Malaysia India Philippines Taiwan Thailand Asia Ex-JP Ex-Ch Indonesia Global Source: Haver Analytics, Citi Global Wealth Investment CIO Bulletin Five Insights Likely to DriveMarkets in 2023, Citi Research Global Economic Outlook & Strategy, as of May 22, 2023.