Going into 2023, HSBC Asset Management (HSBC AM) believes there remain challenges in developed markets but is positive on both equities and fixed income in Asia.
“We are a bit concerned about the outlook for developed market equities for the first half of the year because we have this profit recession and equity multiples are not reflecting the higher level of bond yields that we are starting to see as well,” said Joseph Little, global chief strategist at HSBC AM.
Within equities, Little believes emerging markets have demonstrated resilience in 2022 and this is likely to continue into 2023.
“The outlook for emerging market equities in the first quarter of next year may still be choppy, as the dollar may still be strengthening. But as the global economy enters recession and the dollar weakens, there will be major opportunities for emerging market equities,” he said.
The major driver for Asian equities, especially in North Asia, will be domestic demand rather than exports.
“Exports were a major factor holding the economy together in the previous 12-to-18 months, while domestic demand, which was held back due to Covid policies and the weak property market, will start to reverse,” said Caroline Maurer, head of China and Hong Kong equities.
The 16-point plan to rescue the Chinese property sector has removed some of the balance sheet risks for real estate developers. While companies that have gone into bankruptcy will continue their restructuring process into 2023, the remaining companies are likely to have survived the storm and are poised to bounce back when demand resumes.
HSBC AM also prefers sectors that are benefitting from the relaxation of Covid policies in China, such as airlines, tourism, and the service sector, thanks to pent-up local demand.
Regarding fixed income, HSBC AM identified Asian bonds as one of their top picks for 2023.
“With the significant rise in bond yields to current levels, fixed income once again becomes an attractive investment opportunity,” said Elizabeth Allen, head of Asian fixed income.
“A weaker US dollar and economic outperformance from Asia should also lead to meaningful appreciation of currencies, while corporate credit would benefit from the same conditions,” she added.
The asset manager favours Asian investment grade bonds, as they have demonstrated solid fundamentals and low duration compared with their peers.
