Insights

This month we assess the trends in wages and salaries with significant change potentially in progress; we also discuss how changes at the BOJ may affect the market.

A regular debate between the older and younger members of the Hunt-household revolves around whether old suspenseful Black-and-White horrors are actually more scary than vivid technicolour gore modern films. We suspect that for the Federal Reserve, what you can’t see in black and white may be the scarier concept…

In our view, the change from dollar strength to relative weakness is meaningful for the shift in relative growth prospects, favouring the rest of the world over the US.

While consumer sentiment may be weaker across China presently, we believe that the long-term outlook for the country’s consumer sector remains attractive. China’s lower-tier cities are stepping up to fuel the growth engine that once relied heavily on megacities.

Clean, secure and affordable energy is likely to be one of the major challenges of this decade. Given we need abundant energy to complete the energy transition, we believe fossil fuel companies that are actively enabling transition to low carbon society can be part of the solution. They often understand how to deliver global energy at scale and have the balance sheets capable of enabling the transition to clean energy.

Chinese shares outperformed in December as the country continued to move away from its zero-COVID policy while markets in Taiwan and South Korea slumped amid concerns towards the global economy. In ASEAN, Thailand led the region as the country is expected to be one of the biggest beneficiaries of a potential return of Chinese tourists.

We expect global inflation to ease and global growth to weaken in 2023; we also think that the Fed is likely to pause hiking rates by the first quarter of 2023. Against this backdrop, we are broadly constructive on regional bonds as most Asian central banks could be nearing the end of their rate hike cycles.

We discuss the Bank of Japan’s unexpected move to tweak its yield curve control scheme and the potential implications; we also provide a brief overview of some of the factors seen impacting Japan equities in 2023.

The subject of inflation has of course dominated markets in 2022 and most investors – no doubt cheered by some recent improvements in the reported rate of US headline inflation – are hoping that the issue will fade over the course of 2023 and leave them a “clearer run”.

We don’t expect smooth sailing for the global economy and markets, but there should be great relief for both stocks and bonds in 2023, with pockets of strong outperformance due to idiosyncratic advantages. Notably, Europe and Developed Pacific-ex Japan should be overweighed for equites for the next six months, but Japan should perform the best by next December.