Insight

Insurance Insights Q3 2023: How will the path of major central banks impact APAC markets?

Insurance Insights Q3 2023: Macro outlook

As we head into the tail-end of the year, APAC markets have been focused on a couple of developments: the path of major central banks and China’s economy.

Firstly, most developed central banks from the Federal Reserve to the Bank of England and European Central Bank, are maintaining their “higher for longer” stance on interest rates, which we’re seeing reflected in the bond market. At the same time there is compelling evidence that shows most developed economies are experiencing disinflation and so it’s difficult to have visibility even a few months ahead let alone one year ahead. I still think it’s possible that we could be pleasantly surprised by rate cuts from developed market central banks sooner rather than later, much of it depends on how the disinflationary narrative and economic slowdown in the US and Europe plays out in the coming months. 

Figure 1 - Hiking path for major developed markets central banks
Figure 1 - Hiking path for major developed markets central banks

Source: Macrobond, Eurex Exchange, Intercontinental Exchange and CME Group. Data as at 5 October 2023.

China on the other hand, has reported some surprisingly resilient economic data at the end of Q3. Household consumption is starting to firm up, as evidenced by the strong Golden Week holiday spending. This suggests the slow drip of stimulus policies may be starting to have a positive impact, especially in building confidence. It is worth noting the World Bank just released its growth forecasts for 2024, and it has cut growth expectations for China from 4.8% to 4.4%.1 In my view, it’s hard to make forecasts for next year without knowing what targeted stimulus may be unveiled in coming months. Thus, all eyes are on whether the nascent momentum can gather steam in the next quarter and whether policymakers may roll out further stimulus for the property market.

Looking ahead, I wouldn’t be surprised to see a bit more volatility in the near term due to policy uncertainty. So, it makes sense to be cautious and defensively positioned. I expect a period of consolidation among cyclical assets and am overweight on government bonds and investment grade debt. Cash rates are high and offer diversification. My conservative stance is balanced by maintaining a regional bias towards Asian assets. I think Japanese equities will still have another leg up due to structural reforms and could be the best performing developed market asset in the coming quarter. Indian government bond yields look attractive at these levels especially before passive flows start in 2024 due to the recent JPMorgan bond inclusion. China equities also look cheap and I’m starting to selectively warm up to them.

Footnotes

  • 1

    World Bank cuts China's 2024 growth amid property crisis, October 2023, https://asia.nikkei.com/Economy/World-Bank-cuts-China-s-2024-growth-amid-property-crisis 

Related Articles