HSBC Global Private Banking expects peaking interest rates, a weaker dollar, China’s economic reopening and solid Asean growth to support a more positive Asian market for 2023.
For the Philippines, HSBC GPB expects the economy to grow by 4.4 percent this year, lower than the government’s forecast range of between 6 and 7 percent.
James Cheo, Chief Investment Officer for Southeast Asia, Global Private Banking and Wealth at HSBC, said the Philippine economy has been driven by robust private consumption, investment and by sustained public infrastructure spending.
“Increased mobility especially after the resumption of face-to-face schooling is underpinning a recovery in domestic demand. Looking into 2023, the country’s growth will slow and the recovery is going to be more gradual as the reopening boost fades and monetary tightening weighs on domestic demand,” Cheo said.
He stressed that due to the high inflation, particularly food inflation, “household’s consumption in 2023 will likely be curtailed. Strong employment, tourism recovery, expanding production and retail sales, and public investment will continue to support growth in 2023.”
“The country’s core inflation is currently the highest in region. With the balance of risk tilting towards inflation, we assess the Bangko Sentral ng Pilipinas (BSP) to make three consecutive 25 bps rate hikes in 2023, pausing at 6.25 percent by the second quarter. The BSP will then likely stay on hold for the rest of 2023 and perhaps at least until the second half of 2024,” Cheo said.
“On the currency front, with the peaking of the US dollar strength, we think that dollar-peso rate could reach 56.5 by the end of 2023,” Cheo added.
Cheo also highlighted that as monetary policy is still going to tighten and growth to slow down, they remain “neutral on Philippines equity market for now.”
“Consensus growth for the stock market remains healthy for 2023. The stock market’s valuation is trading below its historical average. We think opportunities in the Philippines stock market will be in selected consumer companies and banks,” Chee said.
Cheo pointed out that Asean’s resilient growth will continue to provide strong support for the Asian economy in 2023.
“The Asean stock markets have recorded one of the strongest earnings growth in 2022, outperforming the global and regional peers, and we expect this trend is likely to sustain in 2023. Within the Asean equity markets, we are overweight Indonesia and Thailand as they witness the strongest earnings momentum in the region,” Cheo said.
HSBC GPB forecasts global GDP growth will decelerate to 1.9 percent in 2023 from 3.0 percent in 2022 while global CPI inflation will moderate to 6.6 percent in 2023 from 8.4 percent in 2022 as a result of hawkish central bank tightening over the past year.
Against the backdrop of synchronised global downturn, Asia ex-Japan stands out as the outperformer and the only region projected to deliver GDP growth acceleration to 4.3 percent in 2023 from 3.5 percent in 2022, driven by economic reopening in mainland China and Hong Kong as well as solid growth in the ASEAN region.
Fan Cheuk Wan, Chief Investment Officer for Asia, Global Private Banking and Wealth at HSBC, said he sees silver linings in the Asian market outlook for 2023 due to peaking US rates, a softer USD and China’s improved recovery outlook.
“After China made two significant policy pivots to ease the Zero COVID restrictions and step up funding support for the property market, we now forecast China GDP growth to rebound to 5.0 percent in 2023 and further accelerate to 5.8 percent in 2024, up from 3.0 percent in 2022.Another important supportive driver for the Asian markets is resilient performance of the Asean economies, which benefit from the global supply chain reorientation, stronger intra-regional trade and China’s economic reopening,” Wan said.
“Looking ahead into 2023, a crucial inflection point for the markets is the upcoming end of the Fed’s tightening cycle. US CPI inflation has fallen short of consensus estimates for two consecutive months in November and October and the Fed has moderated the pace of interest rate hike to 50bp in December. We expect a final 50bp rate hike in February 2023 before the Fed pauses the tightening. Given sticky core services inflation, we expect the Fed to keep the peak rate at 4.875 percent throughout 2023 before it cuts policy rate by 25bps in Q2 2024 and 25bps in Q3 2024, bringing the federal funds target range backdown to 4.25-4.50 percent by the end of 2024. We believe peaking US rates and easing inflation in 2023 should create a more favourable market environment for bonds, supporting our overweight allocation to fixed income in the first half of 2023,” Wan noted.
“From a cyclical perspective, we foresee a possible bottoming of global economic data around Q2 or Q3 2023, but the global slowdown will remain a key headwind for corporate earnings in the coming months. We expect consensus earnings forecasts will come down further and may bottom around Q2 2023. To build recession resistant equities portfolios, we hold overweight position in markets which are more resilient to recession risks, including the US, Asia and Latin America. We stay underweight stocks in the Eurozone and UK as the two regions are expected to stay in recession at least until mid-2023 with elevated inflation. After the sharp correction in equity valuations in 2022, we selectively position in undervalued quality stocks and structural winners exposed to the net zero transition, digital transformation and secular growth in Asia,” noted Fan.
HSBC GPB holds an overweight position on Asia ex-Japan equities with overweight in mainland China, Hong Kong, Indonesia and Thailand to reflect their positive growth outlook in 2023. It forecasts a strong cyclical rebound in Asia growth starting from Q2 2023, following an estimated -0.5 percent year-on-year China GDP contraction in Q1 2023 due to short-term disruptions caused by the ongoing wave of COVID outbreaks following the removal of Zero COVID restrictions.
