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Spotlight on Asia – 2020

Here are five charts outlining the macro narratives that form the backdrop for investing in 2020 in the world’s growth engine – Asia.
03 December 2019
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    Key takeaways:

    • After several quarters of fretting about slowing growth and weak demand, there are signs of stabilisation and/or pick up in key cyclical sectors, which bodes well for corporate earnings in the region after a year of staying more or less flat
    • In the face of an external drag brought about by a global slowdown, Asian nations still have room to support their economies via policy easing
    • In the context of investing in Asia, we believe the risk posed by the ongoing US-China trade tension has been overstated
    • As a result of the US-China trade tension, select Asian countries are already beginning to see benefits accrued to their economies, in the form of increases in foreign direct investment (FDI)

    On the road to a cyclical recovery

    On the whole, the monetary and fiscal policy measures rolled out by Asian economies to counter external and domestic pressures have seen varying degrees of success in countering the slowdown. Encouragingly, we are seeing signs of bottoming out in certain key cyclical sectors in Asia, including the tech/semiconductor industry. We see a better outlook for Asia’s semiconductor sector in 2020 amidst improved demand-supply dynamics. Also, driven by demand for 5G, AI and cloud data centres, economies in Asia that are integral to the tech supply chain shall benefit.

    Bottoming out/pick up in tech sector
    Bottoming out/pick-up in tech sector

    Source: Bloomberg, CEIC, HSBC Global Asset Management, data as of September 2019
    Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way.  HSBC Global Asset Management accepts no liability for any failure to meet such forecast, projection or target. For illustrative purpose only.

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    Policy support

    Room for further easing but focus on improving transmission

    To combat slowing growth in 2019, central banks across the world have adopted expansionary monetary policies. Asian central banks have followed suit and cut their policy rates throughout the year. However it is worth noting that for some key Asian economies, recent rate cuts have merely reversed the rate hikes undertaken in 2018. Looking ahead, we see room for further monetary expansion, if necessary, but for now the focus is on improving the transmission of policy easing to the real economy.

    Cumulative policy rate changes
    (2015-October 2019)
    Cumulative policy rate changes (2015-October 2019)

    Source: CEIC, Bloomberg, HSBC Global Asset Management, data as of October 2019.
    Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way.  HSBC Global Asset Management accepts no liability for any failure to meet such forecast, projection or target. For illustrative purpose only.


    Inflation risk remains manageable for now

    Core inflation in Asian countries have either been steady or trending lower amid pressure from tepid demand, even in the face of recent headline volatility due to food and energy prices. Inflation is unlikely to be a constraint on policy easing for Asian central banks, in our view. However, the dovish market perception of this risk flags the possibility that inflation could surprise on the upside amidst wage growth pressures and more active fiscal policy.

    Core CPI inflation
    Core CPI inflation

    Source: Bloomberg, HSBC Global Asset Management, data as of October 2019.
    Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way.  HSBC Global Asset Management accepts no liability for any failure to meet such forecast, projection or target. For illustrative purpose only.


    US-China relations

    Too linked to cut loose

    The uncertainty over US-China relations are clearly an overhanging risk factor for the region’s economy. But given the interconnectedness of the two economies through trade, investments, financial flows and other links, we believe both sides would have strong incentive to resolve the trade dispute. While it is difficult to say with any certainty when the two sides are likely to reach a resolution and what the terms of such an agreement might be, the fact that both sides seem supportive of a “phase one” trade deal with continuing trade negotiations is testament to their willingness to seek common ground and resolve their differences.

    US-China FDI stock and sales by US foreign affiliates in China
    US-China FDI stock and sales by US foreign affiliates in China

    Source: US Bureau of Economic Analysis, Bloomberg, CEIC, HSBC Global Asset Management, data as of October 2019
    Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way.  HSBC Global Asset Management accepts no liability for any failure to meet such forecast, projection or target. For illustrative purpose only.


    Supply chain realignments

    Lose some, win some

    While the negative repercussions from US-China trade tensions remain a cause for concern, there is growing focus on the potential gains to lower-cost Asian economies (particularly ASEAN and India) from the resulting global supply-chain realignments over the medium-to-long term. This could be illustrated by the recent increase in foreign direct investment (FDI) approvals/ applications in manufacturing to southeast Asian nations (Vietnam, Thailand and Malaysia, in particular).

    FDI approval/application value
    FDI approval/application value

    Note: * FDI approval value for Malaysia; ** FDI application value for Thailand; *** Registered FDI capital (manufacturing) for Vietnam
    Source: Bloomberg, CEIC, HSBC Global Asset Management, data as of September 2019.
    Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way.  HSBC Global Asset Management accepts no liability for any failure to meet such forecast, projection or target. For illustrative purpose only.


    Important information

    The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.

    The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management Global Investment Strategy Unit at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity.

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