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China, Asia, global emerging market outlook - Restarting the growth engine

CHAO David
2 Authors - Uncategorised
18/10/2022 · 1 Min

Fiscal stimulus and a looser monetary policy have improved China’s prospects, but the current slowdown of its economy, rising inflation and supply chain problems will likely mean near-term volatility for Asian markets. However, this should not derail the structurally positive forces at work in many emerging market economies.

Since May, China has been fine-tuning its Covid containment measures, including reducing quarantine periods and rapid, targeted lockdowns. We expect the medium-term policy direction to be more pro-growth and pro-business, with a focus on high-value manufacturing, hard tech production, import substitution and technological self-sufficiency.

 Equity market technicals look particularly favourable, in our view. Our Greater China equities team is sticking with selected high-quality growth companies that have resilient fundamentals amid the macroeconomic downturn.

As for Asia and emerging markets, we believe the growth path into 2023 will depend on the policies of individual governments on Covid control, market reopening, and responses to inflation. The key driver of Asia’s post-Covid recovery – external demand – is losing steam. Amid weaker global growth, it is crucial to focus more on domestic demand opportunities.

Asian and EM equities have now priced in much of the weaker global conditions. Current earnings per share (EPS) estimates for 2023 are above those for 2022. Modest valuations, light investor positioning and good fundamentals are buffers against near-term volatility.

Our Asia & Global Emerging Markets team is focused on structural trends, strong business models and high-quality companies with low debt that can generate sustainable returns with sound or improving environmental, social and governance (ESG) profiles.

Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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