JPMorgan analysts expect Southeast Asian markets to experience “a sharp decline followed by a rapid rise in height (a bearish rally), followed by one other decline, until markets finally rest at the underside” in 2023.
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In accordance with JPMorgan analysts, Southeast Asian markets will move in a “bungee jumping” fashion in 2023, plunging ahead of a surge within the second half of the 12 months.
That is prone to be characterised by “a sharp decline followed by a rapid rise in height (a bear rally), followed by one other decline until markets finally rest at their lows,” analysts led by Rajiv Batra wrote within the report. They explained this by weakening purchasing power in the sunshine of monetary policy tightening, lower savings and better borrowing costs.
JPMorgan expects the MSCI ASEAN Index to “retest this 12 months’s lows and potentially drop even lower” in the primary half of 2023, weighed down by weaker external demand, tightening financial conditions and a “fading” reopening recovery, amongst others.
The MSCI ASEAN Index it fell 22% from a February high to an October low. The index then rebounded 10%, fueled by hopes of China reopening and a turnaround from the US Federal Reserve.
The impetus for China’s reopening is anticipated to be modest given global recessionary conditions.
The index measures the performance of enormous and mid-cap stocks in 4 emerging markets, one developed market and one emerging market. Totally it includes 170 ingredients in Singapore, Indonesia, Malaysia, Philippines, Thailand and Vietnam.
Trade-oriented economies
Fed rates of interest is anticipated to achieve 5% by May, and a US recession is anticipated by the top of the 12 months.
But “contrary to what investors consider, the stock market has failed to completely price in a recession until it happens,” the report said.
Trade-oriented economies similar to Singapore, Thailand, Vietnam and Malaysia might be particularly affected by slowing global growth going forward and weaker demand for durable consumer goods.
An epidemic control employee outside the federal government quarantine facility in Beijing, December 7, 2022.
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As well as, the expected easing of Covid restrictions by China is unlikely to offset the projected decline.
For instance, Thailand’s economy is anticipated to be hit by a “significant decline” in exports, private investment and manufacturing, and JPMorgan analysts have lowered their 2023 gross domestic product growth forecast from 3.3% to 2.7%.
Singapore can be expected to face tougher macroeconomic conditions.
“We expect the weakening in external demand to proceed to decelerate [Singapore’s] goods production sector, even when the service sector provides some compensation’.
Singapore’s upcoming VAT hike – from 7% to eight% – may also dampen consumer demand and prospects, JPMorgan said.
Reopening China
China’s “reopening impulse” is estimated to be modest given global recessionary conditions.
“The advantages of reopening China might be offset by recessions in developed markets,” JPMorgan analysts told CNBC, adding that Southeast Asian markets have high export exposure and demand from developed market economies.
People are seen along a walkway overlooking the Marina Bay Sands hotels and resorts in Singapore, November 19, 2020.
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But reopening China to international travel, if it happens, can be a “positive catalyst” for Singapore’s economy. Chinese tourists accounted for around 20% of tourist arrivals to Singapore in 2019, and their return also can “generate knock-on effects for [Singapore’s] the buyer and travel services sector’.
Nevertheless, JPMorgan estimates that growth is prone to proceed to be constrained by the aforementioned global recessionary conditions and the external demand challenges facing the country.
Fully reopening borders with China would also add “potential advantages” to Thailand’s tourism boom, which the report said could have an effect on inflation.
“There may be an argument that the earlier-than-expected reopening of China’s borders is inflationary,” JPMorgan said. Nevertheless, while tourism may stimulate wage growth and consumption, it will not be closely correlated with inflation in countries similar to Thailand, where the character of inflation is especially supply-driven, analysts added.