HSBC Expects Malaysia Economy To Grow 4% For 2023

HSBC Global Private Banking (“GPB”) expects peaking interest rates, a weaker USD, China’s economic reopening, and solid ASEAN growth to support a more positive Asian market for 2023.

Against the backdrop of synchronised global downturn, Asia ex-Japan stands out as the only region projected to deliver growth acceleration in 2023. Within Asian equities, it is overweight in mainland China, Hong Kong, Indonesia, and Thailand and underweight in South Korea and Taiwan. After a turbulent year of the broad-based market selloff in 2022, HSBC GPB finds substantial improvement in long-term expected returns from bonds versus cash and equities. It holds a full overweight position in investment-grade corporate bonds across all regions with a preference for short-to-medium maturities. Expecting the global economic slowdown will remain a key headwind for corporate earnings, it stays mildly underweight in global equities with a focus on building recession-resistant equities portfolios. It holds an overweight position in US, Asian, and Latin American equities and remains underweight on Eurozone and UK stocks. It believes the USD has already peaked and holds a bullish view on the JPY and SGD within the Asian currency bloc. It maintains a tactical overweight in hedge funds and
strategic allocation to private assets to diversify portfolios and mitigate market uncertainties.

Silver Linings – Peaking US Rates, Softer USD, China’s Growth Recovery HSBC GPB forecasts global GDP growth will decelerate to 1.9% in 2023 from 3.0% in 2022 while global CPI inflation will moderate to 6.6% in 2023 from 8.4% in 2022 as a result of hawkish central bank tightening over the past year. Against the backdrop of synchronised global downturn, Asia ex-Japan stands out as the outperformer and the only region projected to deliver GDP growth acceleration to 4.3% in 2023 from 3.5% in 2022, driven by economic reopening in mainland China and Hong Kong as well as solid growth in the ASEAN region.

Fan Cheuk Wan CIO for HSBC says: “We see silver linings in the Asian market outlook for 2023 due to peaking US rates, a softer USD, and China’s improved recovery outlook. After China made two significant policy pivots to ease the Zero COVID restrictions and step up funding support for the property market, we now forecast China’s GDP growth to rebound to 5.0% in 2023 and further accelerate to 5.8% in 2024, up from 3.0% in 2022. Another important supportive driver for the Asian markets is the resilient performance of the ASEAN economies, which benefit from the global supply chain reorientation, stronger intra-regional trade, and China’s economic reopening.”

China Reopening and Solid ASEAN Growth Supportive of 2023 Asia Outlook HSBC GPB holds an overweight position on Asia ex-Japan equities with overweight in mainland China, Hong Kong, Indonesia and Thailand to reflect their positive growth outlook in

It forecasts a strong cyclical rebound in Asia growth starting from Q2 2023, following an estimated -0.5% year-on-year China GDP contraction in Q1 2023 due to short-term disruptions caused by the ongoing wave of COVID outbreaks following the removal of Zero COVID restrictions.

James Cheo, Chief Investment Officer for Southeast Asia, Global Private Banking and Wealth at HSBC, points out ASEAN’s resilient growth will continue to provide strong support for the Asian economy in 2023. “The ASEAN stock markets have recorded one of the strongest earnings growth in 2022, outperforming the global and regional peers, and we expect this
trend is likely to sustain in 2023. Within the ASEAN equity markets, we are overweight Indonesia and Thailand as they witness the strongest earnings momentum in the region.”

Malaysia’s Economic and Market Outlook
Cheo points out that 2022 has been a solid year for the Malaysian economy, recovering at a robust pace. “The country’s external engine has been remarkably robust, benefitting from its diversified export base. Although some commodity prices have cooled, elevated commodity prices are still boosting Malaysia’s commodity exports. Furthermore, Malaysia’s electronic
exports have been robust as it is a major producer of automotive chips. Looking into 2023, Malaysia’s export will likely slow down from the blistering pace in 2022. The good news is that Malaysia’s domestic demand is likely to remain robust and supportive of overall growth. The labor market is key, the unemployment rate is low and wage growth is healthy which should be supportive of domestic consumption. Most of the high-frequency indicators like retail sales have surpassed pre-pandemic levels, while the tourism sector should continue to improve in

We expect Malaysia’s economy to moderate and grow by 4% in 2023.” “Malaysia’s headline inflation looked to have peaked, but core inflation can remain sticky which will likely keep Bank Negara Malaysia (BNM) on its tightening path for a while longer. BNM policy calibration will be very much dependent on the next few inflation reading. Therefore, we expect BNM to stay on its tightening path a little longer, delivering another 75bp in hikes in 1H23, and thereafter taking a pause through 2024.

With the peaking of the USD strength, we think that USDMYR could be at 4.35 by the end of 2023.” “We are neutral on Malaysia equities. Malaysia has a high level of reliance on exports and a slowdown in global growth poses risks for the equity market. Consensus earnings for Malaysia is expected to be healthy. The valuation of the equity market is trading below its historical average. Our preferred sectors for Malaysia will be on selected banks and consumer companies.”

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