This week, HSBC Global Private Banking released its 2023 global investment outlook, assessing the macroeconomic outlook and highlighting where investors should put their money.

Against the global economic downturn, HSBC Global Private Banking expects Asia ex-Japan to be the outperformer and the only region to register growth acceleration in 2023, driven by China.

According to HSBC GPB, China’s GDP growth is forecast to rebound to 5.2 per cent in 2023 from 3.5 per cent in 2022, thanks to Beijing’s policy of relaxing the zero-Covid controls and instigating property easing measures. 

“In mid-November we upgraded Chinese equities to overweight from neutral after the National Health Commission announced the 20 new measures to optimize the zero-Covid policy,” Fan Cheuk Wan (pictured right), chief investment officer for Asia, Global Private Banking and Wealth at HSBC, said.

“We expect China will likely announce more meaningful reopening measures after the National People’s Congress in March 2023 when booster vaccinations are ramped up more broadly across the nation,” Wan continued.

“We see silver linings in the Asian market outlook for 2023 due to China’s growth recovery, stabilizing US rates and a softer US dollar. Another supportive driver for the Asian markets is resilient performance of the ASEAN economies which benefit from continued economic reopening, supply chain reorientation and strong consumer spending,” she said. 

“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 continue in 2023. Within the ASEAN markets, we are overweight Indonesia and Thailand which see the strongest earnings' momentum,” Wan added.

The HSBC commentary came out as reports said Beijing is loosening its strict anti-covid policies, a move that has already boosted equities and the Chinese renminbi. A number of wealth managers have told this news service they think Chinese equities are cheap on long-term valuation metrics.

Global outlook
On a global level, HSBC GPB finds the biggest improvement in long-term expected returns from bonds versus cash and equities after a turbulent year of broad-based market selloff in 2022. 

It expects that peaking interest rates and slowing inflation in 2023 will support performance of bonds. The bank holds a full overweight position in investment grade corporate bonds across all regions with preference for short-to-medium maturities. 

The bank expects that the global economic slowdown will remain a key headwind for corporate earnings and stays mildly underweight in global equities. 

To build recession-resistant equities portfolios, the bank said it is overweight on US, Asian and Latin American equities and underweight on eurozone and UK stocks. 

Against the global downturn, Asia ex-Japan stands out as the only region expected to register growth acceleration in 2023, the bank continued. 

Within Asian equities, the bank said it is overweight in mainland China, Hong Kong, Indonesia and Thailand, and underweight in South Korea and Taiwan. It thinks that the US dollar has already peaked as its rate differentials with other currencies is less likely to widen further. It maintains a tactical overweight in hedge funds and strategic allocation to private assets to diversify portfolios and mitigate market uncertainties.

HSBC GPB forecasts that global GDP growth will decelerate to 1.8 per cent in 2023 from 2.9 per cent in 2022 while global CPI inflation will ease to 6.7 per cent in 2023 from 8.5 per cent in 2022 as a result of hawkish central bank tightening. 

Against the backdrop of a global downturn, Asia ex-Japan stands out as the outperformer and the only region expected to deliver GDP growth acceleration to 4.5 per cent in 2023 from 3.9 per cent in 2022, the bank said, driven by China’s faster-than-expected reopening and policy stimulus to stabilize the property sector.

“Almost all asset classes have repriced substantially since the start of 2022. However, long-term expected returns have improved notably across all asset classes after the broad-based market selloff in 2022,” Wan said. 

“We find the most material improvement in long-term expected returns from bonds versus cash and equities. We are getting closer to the end of the US tightening cycle, as we expect two more 50 bp rate hikes by the Fed in December and February 2023 before it pauses. Given sticky core inflation, we expect the Fed to keep the peak rate at 4.875 per cent throughout 2023,” Wan continued. 

“We believe peaking US rates and slowing inflation in 2023 should create a more constructive bond market environment, supporting our overweight allocation to fixed income in the first half of 2023,” Wan added.

Chinese rates
Chinese authorities have taken a number of steps to support sectors such as real estate, pointed out Patrick Ho, chief investment officer for North Asia, at HSBC's global private banking and wealth arm, said. (He is pictured left.)

"After the People's Bank of China's recent 25 basis-points reserve requirements ratio cut, we expect another 50bp reduction in the reserve requirement ratio in H1 2023 and additional relending quotes for targeted areas," he said. 

"We think there is scope for the central bank to cut key interest rates by a further 5bp by the end of this year to provide a stronger policy signal of an easing bias," Ho added.