1、12023 Market Outlook Navigating the global reset2023 Market OutlookNavigating the global reset in bringing youto the forefront of Asia.2023 Market Outlook Navigating the global reset2Foreword We will probably be past peak Fed hawkishness in the second half of 2023.3 Mapping another new normalInvesto

2、rs need to adjust to an environment where inflation and interest rates remain high.4 Tracking Chinas re-openingThe potential upside for Chinese assets is attractive as the Chinese economy re-opens.9 Embracing a different AsiaAsias investment universe is becoming more diversified,offering multiple op

3、portunities.13 Charting sustainability pathwaysMore Asian corporates are making efforts to improve their sustainability roadmaps.18 Pursuing resilience amid volatilityBeing nimble and proactive is important during periods of high market volatility.22 ContentsThe articles in this document have been p

4、roduced by Eastspring Investments(Singapore)Limited.Please see important disclaimer at theend of the document.2023 Market Outlook Navigating the global reset3 2023 Market OutlookForewordresulting in greater efficiencies and improved profitability.We see significant upside for Japanese equities in 20

5、23 and beyond.That said,we expect volatility to remain elevated in the new year.The Russia-Ukraine war reminds us that geopolitical events are hard to predict.A deep US recession and a disorderly re-opening in China are also potential risks that investors may have to contend with.Investors can consi

6、der making use of smart beta,multi-factor,and low volatility strategies to build portfolios that are less influenced by swings in market sentiment.Our multi asset portfolio solutions team is also finding creative ways to add resilience to portfolios via tactical overlays and derivatives.As Asia and

7、the world races towards net zero,we see sustainable investing becoming more entrenched in the region.Increasingly,there is a move away from a pure exclusions approach to one that embraces greater engagement.This encourages us to continue in our efforts to engender change among our investee companies

8、 and add value to our stakeholders and the community.The outlook for inflation and its impact on monetary policy will continue to drive markets in 2023.If the US Federal Reserve(US Fed)succeeds in driving down inflation with determined rate hikes,the ensuing slower growth should favour quality fixed

9、 income solutions.This is especially the case for Asian bonds whose yields are at their most attractive in over a decade.We expect a more benign economic backdrop in the second half of 2023 when we will probably be past peak inflation and peak US Fed hawkishness.This environment should be positive f

10、or risk assets including Asia and Emerging Market equities,as well as Asian credit.The second half of the year also coincides with the expected timing of Chinas full re-opening.As China fine tunes its COVID policy and rolls outs more supportive measures for its beleaguered property sector,we believe

11、 that we are past the worst in terms of impact for investors.Asian and emerging economies have been relatively resilient in 2022 as regional tightening measures have been more moderate on the back of weaker inflation.Going into 2023,we see North Asian markets benefitting from Chinas gradual re-openi

12、ng.Meanwhile,India and ASEAN will continue to offer investors opportunities arising from the ongoing supply chain diversification and global decarbonisation cycles.In Japan,decades of corporate restructuring have borne fruit,Bill MaldonadoChief Investment Officer42023 Market Outlook Navigating the g

13、lobal reset 2023 Market OutlookMapping another new normal52022 was a tough year for most investors.2023 may be even more challenging.Slower growth and tighter financial conditions in the Developed Markets(especially the US and Europe)are clouding the global economic outlook.There is also a growing a

14、cceptance that inflation would be more durable than originally thought and that talks of a US Federal Reserve(US Fed)pivot at this point in time are a bit premature.GROWTH RISKS TO INTENSIFY -Continued declines in global PMI readings and a broad-based weakening of factory output across regions sugge

15、st that the global goods sector is in a recession,prompting comparisons to the 2000-2003 period during which there was a technology-led recession.Much depends on the inflation trajectory and the consequent impact on monetary policy in Developed Markets(DMs).While there are signs of inflation peaking

16、,tight US labour markets and strong wage growth may force the US Fed to remain hawkish for longer.Meanwhile,high energy prices which have been another inflation driver will likely face more upward pressure especially as China begins to re-open,and this could prolong central banks battle against infl

17、ation.On the flip side,exogenous factors leading to a decline in commodity prices could bring inflation down rapidly and end the monetary tightening phase earlier than expected.Nonetheless we believe the current conditions will likely extend into the first quarter of 2023.The US Fed is expected to c

18、ontinue tightening monetary policy into 2023,although the magnitude and frequency will depend on how quickly unemployment rises or how fast consumer prices fall.The median projections from the US Fed currently point to further rate hikes in 2023 before falling in 2024.As it stands,it is likely that

19、the US Fed will only reach its peak of the rate hike cycle mid-2023,barring a tail risk event in financial markets.2023 Market OutlookMapping another new normalAs we head into 2023,another new normal confronts us.Just as several pandemic-induced changes have become entrenched,inflation is likely to

20、be higher than what it used to be in the decades prior to COVID-19.Consequently,the era of easy money has ended while geopolitical tensions are at a high across the globe.Against this backdrop it is important to be nimble and proactive in ones portfolio choices and positioning.2023 Market Outlook Ma

21、pping another new normal6A better global economy is thus likely to emerge in the second half of 2023 as we navigate past peak inflation and US Fed hawkishness.Any impending US recession will probably be a mild one relative to previous recessions given that the US consumer balance sheets are much mor

22、e resilient today(even compared to the 2008 Global Financial Crisis).We acknowledge that equities have more room to decline in a recession,especially as US equities represent approximately 63%of global equities and given the large technology representation in key market cap indices.The extent is how

23、ever contingent on the magnitude of the recession(i.e.,the deeper the recession,the larger the equity drawdowns).That said,further easing of financial conditions on the back of the US dollar peaking will lead to better performance returns for risk assets in the second half of 2023.EMERGING ECONOMIES

24、 RELATIVELY RESILIENT -Central banks in Emerging Markets(EMs)have also tightened monetary policy,but generally not to the magnitude and pace seen in DMs.This is because for many emerging economies,domestic demand is typically weaker,wage growth is less robust,and hence inflation dynamics are relativ

25、ely weaker compared to the US.This can be seen in China,which is experiencing weak domestic demand and weak inflation dynamics,primarily due to COVID restrictions and a weak housing market,among other factors.Over in Asia,inflation has also been relatively benign partly due to the smaller fiscal sti

26、mulus response to the pandemic(unlike the US),less exposure to the energy shocks(unlike Europe),as well as more government subsidies,some of Global PMI new orders are falling Source:Refinitiv Datastream,Eastspring Investments,October 2022.A better global economy is likely to emerge in the second hal

27、f of 2023 as we navigate past peak inflation and US Fed hawkishness.2023 Market Outlook Mapping another new normal7which have been passed onto consumers.Meanwhile Asian central banks have been trying to manage their interest rate differentials to contain currency depreciation and imported inflation.

28、While Asian yields were pressured higher in tandem with higher core DM rates,markets struggled to price in much more tightening from Asian central banks amid a weakening economic backdrop and less sticky inflation.All said,the 2020s have also begun in a very different fashion to the 2010s for EM equ

29、ities.The 2010s was the perfect backdrop for growth and quality investing as investors were encouraged and rewarded to pay high prices for potential future earnings stability and growth,especially in the e-commerce space.In the early 2020s however,we have seen policy responses to COVID-induced slowd

30、own more focused on investing in the real economy with capital expenditure plans returning and decarbonisation efforts front of mind.Following a volatile year for EMs,we are ending 2022 with a very attractive valuation entry point on a historical context both in absolute terms,but also relative to D

31、Ms.OUR RISK CONSIDERATIONS-We believe the current market environment is quite challenging amid increasing tail risk events and geopolitical tensions(i.e.,US-China,Russia-Ukraine,China-Taiwan,Iran nuclear talks).Geopolitical risk is notoriously hard to assess because it is dependent on the unpredicta

32、ble behaviour of its actors.The Russia-Ukraine conflict in 2022 is perhaps a reminder to investors that following a decade of relatively peaceful geopolitical environment,we may be ushering in a new period of skirmishes caused by rivalry between great powers.Tighter liquidity conditions and higher b

33、orrowing costs are other key risks.As interest rates go up,companies that are not producing reliable profit streams will be most affected and vulnerable.US growth and tech stocks are quite susceptible to deteriorating valuations,and as such have seen some de-rating amid rising rates.Only companies t

34、hat can produce an economic return from their borrowings are going to be creditworthy institutions.EM non-financial corporate balance sheets are seemingly healthySource:Refinitiv Datastream,Eastspring Investments,October 2022.2023 Market Outlook Mapping another new normalInvestment implications8Fina

35、lly,there is a good chance that the US Fed may push the US economy into a recession if inflation persists.Investors need to remain very vigilant to that potential outcome.The US dollar which has strengthened considerably amid rising rates and souring global risk sentiment will likely remain strong i

36、n the near term.Emerging and Asian economies may be forced to intervene to reduce the volatility of their currencies.Rapid reserve drawdowns could increase uncertainty.Ultimately if the US Fed stamps out inflation by crushing aggregate demand,then we are going to see higher unemployment and slower g

37、rowth,and investors will likely favour fixed income solutions.On the other hand,if more supply-side measures help to ease inflation,then equities are likely to be in demand.In our view,it is very unlikely that inflation is going to be addressed through supply-side measures alone.Contributors-Craig B

38、ell,Head of Multi Asset Portfolio Solutions,Eastspring SingaporeAndrew Cormie,Head of GEM and Regional Asia Value Equities,Eastspring Singapore Danny Tan,Head of Fixed Income,Eastspring Singapore Rong Ren Goh,Portfolio Manager,Fixed Income,Eastspring SingaporeSource:Eastspring Investments.November 2

39、022.2023 Market Outlook Mapping another new normal92023 Market Outlook Navigating the global reset 2023 Market OutlookTracking Chinas re-opening10The Chinese government faces multiple policy trade-offs in 2023 as it seeks to create a more balanced and sustainable economy in the long term while ensur

40、ing social stability in the near term.This balancing act is further complicated by the countrys COVID policy,a slowing global economy and rising geopolitical tensions.THE CASE FOR CHINA -Despite Chinas recent macro and geopolitical challenges,we believe that there is still a case for holding Chinese

41、 equities in investor portfolios.Over the longer term,economic development remains one of the Chinese Communist Partys top priorities-GDP per capita is targeted to grow by a compounded average growth rate of+5%by 2035 according to the 20th Party Congress report.Higher domestic consumption,more diver

42、sified growth drivers and improved resource allocation should result in a more balanced economy.Despite recent restrictions imposed by the US to limit Chinese companies access to advanced semiconductor chips,we believe that Chinas pace of innovation will continue as the government focuses on innovat

43、ion and supply chain security.It is forecasted that over the next five years,Chinas foundry capacity will grow at more than twice the rate compared to the rest of the world,as China seeks to localise its semiconductor supply1.The Chinese A-share market is a large and diverse equity market which offe

44、rs investors significant portfolio diversification.China A has a correlation of 0.33 with Developed Markets and 0.49 with Emerging Markets2.Chinas bond market is also one of the largest in the Source:1Gartner.2Bloomberg.Weekly returns for the period of November 2012 to November 2022.2023 Market Outl

45、ookTracking Chinas re-openingChinas zero-COVID policy and the turmoil in its property sector had weighed on the Chinese economy and equity markets in 2022.We believe that we are past the worst in terms of impact for investors and with valuations,earnings expectations and investor positioning at extr

46、emely low levels,the potential upside is attractive as China moves towards re-opening its economy in 2023.There is still a case for holding Chinese equities.2023 Market Outlook Tracking Chinas re-opening11world.The low correlation between Chinese and global government bonds of 0.24 since 2013 offers

47、 diversification benefits to global investors3.With investors significantly underweight both these asset classes,the potential upside from a rise in allocations is compelling.ALPHA OPPORTUNITIES-Within Chinese equities,we believe that there are alpha opportunities in sectors that are aligned with Ch

48、inas strategic goals as well as in sectors that will benefit from Chinas structural growth trends.In the near term however,we see the services,industrials and materials sectors benefitting from Chinas re-opening and recovery.As most global central banks continue to hike rates into 2023,albeit at a s

49、lower pace,we expect Chinese policymakers to keep monetary policy accommodative,which would be supportive for Chinese bonds.We expect Chinas growth to bottom out in the first quarter of 2023 as the government fine tunes its COVID policy(reduced mass testing and fewer days of quarantine)and provides

50、more supportive measures for the property sector(lowered restrictions for funds in the escrow accounts and financing support for private developers).Fundamentals may remain depressed in the short term given the lagged impact from policy easing.A full re-opening would probably take place around the f

51、irst half of 2023 and Chinas GDP growth is likely to rebound to 4-5%in 2023,up from 3-4%in 2022.That said,a disorderly re-opening and a rise in inflation as the economy rebounds would be key risks for China.PROPERTY TURNAROUND ONLY IN LATE 2023-In the fourth quarter of 2022,the government had announ

52、ced several measures to help alleviate the liquidity pressure within the property sector.RMB250bn of financing was set aside to support the private developers while the Peoples Bank of China and the China Banking and Insurance Regulatory Commission issued a“16-point plan”regarding the delivery of co

53、mpleted units,refinancing and risk management.For the first time,the plan acknowledged the importance of supporting companies and not just projects.The grace period for banks to reduce their exposures to the property sector was also lengthened.That said,execution is still key and a recovery in physi

54、cal property sales is needed for the sector to normalise.At the point of writing,primary sales and property investment remain weak and it would take time for homebuyers confidence to return.As such,we are unlikely Opportunities within Chinese equitiesSource:Eastspring Investments,November 2022.Sourc

55、e:3Bloomberg.Weekly returns for the period of January 2013 to October 2022.2023 Market Outlook Tracking Chinas re-opening12to see a turnaround in property fundamentals till late 2023.As the government seeks to reduce systemic risks and bolster market sentiment,the property-related sectors may enjoy

56、a re-rating although the upside would be capped by still-weak fundamentals.Against this backdrop,we continue to favour state-owned developers over private developers.We see the Local Government Financing Vehicles(LGFVs)continuing to play a key role in supporting the economy as infrastructure will be

57、 an important growth driver in the near term.LGFVs are fully owned by the respective local governments and are set up to finance,invest in and operate local public infrastructure and social welfare projects.Although the downturn in the property sector has raised concerns over the financial health of

58、 these vehicles,their deep linkages with the local governments and the potential damage to the regional funding environment from any default suggest that there will be government support to help resolve LGFV debt issues.In addition,the local governments fiscal balances are likely to improve in 2023

59、as China gradually re-opens.Investment implicationsSource:Eastspring Investments,November 2022.CONTRIBUTORS-Michelle Qi,Head of Equities,Eastspring ChinaPaul Chong,Portfolio Manager,Equities,Eastspring SingaporeWai Mei Leong,Portfolio Manager,Fixed Income,Eastspring SingaporeJanet Lu,Head of Fixed I

60、ncome,Eastspring ChinaJingjing Weng,Head of Research,Eastspring China2023 Market Outlook Tracking Chinas re-opening132023 Market Outlook Navigating the global reset 2023 Market OutlookEmbracing a different Asia14Growth in Asia Pacific is expected to decelerate to 4.0%in 2022 before rising to 4.3%in

61、2023 amid an uncertain global environment.1 Apart from the risks discussed in“Mapping a new normal”,the slowdown in China is also a headwind to Asia.Still,there are bright spots and growth drivers in other Asian countries that present attractive opportunities.OLD AND NEW GROWTH AREAS-A key theme in

62、recent years has been the diversification of global supply chains out of China,mostly into the rest of Asia.Within ASEAN,countries that have been key beneficiaries of such migration include Vietnam and Indonesia.India is also starting to see the benefits of this move with the electronic manufacturin

63、g services and Electric Vehicle(EV)supply chain emerging as high growth areas.Stocks in these sectors are winning market share against competitors outside India.Manufactured exports are thus likely to become an additional growth engine for India.But as of now,Indian exports represent less than 15%of

64、 GDP.Thus,the impact of the global slowdown is likely to be lower compared to Asian peers.In response to the growing demand for stainless steel and EV battery materials,Indonesia is actively leveraging its rich resource base to develop an EV supply chain ecosystem.There are currently 138 smelters(mo

65、stly nickel)and about 6 industrial parks under development.These initiatives have the potential to materially revamp Indonesias external trade landscape in the coming years.2023 Market OutlookEmbracing a different AsiaAsias long-term investment attributes remain intact despite a reset in the growth

66、trajectory due to the scarring from the pandemic.The investment universe is also becoming more diversified.Various countries are leveraging different competencies in the ongoing supply chain diversification and global decarbonisation cycles,offering opportunities in both developed and emerging Asia.

67、Source:1IMF Regional Economic Report,October 2022.A key theme in recent years has been the diversification of global supply chains out of China,mostly into the rest of Asia.2023 Market Outlook Embracing a different Asia15Meanwhile,Thailands economy continues to benefit from the resumption in interna

68、tional travel and tourism.Consequently,tourism and consumer stocks offer attractive investment possibilities.In Malaysia,there will likely be a moderation of growth in 2023,not a recession,as export sectors i.e.,oil and gas and electrical and electronic products should continue to do well.Vietnams e

69、conomy has recovered strongly post pandemic with GDP growing at 8.8%in the first nine months of 2022.Based on Vietnams growth drivers,consumer-related and manufacturing sectors present good opportunities.Across Asia,sustainability is another growth driver.Green infrastructure required to reduce carb

70、on emissions offer many investment opportunities as discussed in“Charting sustainability pathways”.With more countries,companies and investors going green,we see opportunities for investors to align their investments with their sustainability views.IMPACT OF THE TECH DECOUPLING-The global semiconduc

71、tor chip industry is the latest victim of the US-China rivalry.The recent US semiconductor restrictions will to some extent force major players in the semiconductor supply chain i.e.,Taiwan,Korea,and Japan to decouple from China.In Taiwan,however,the impact will be limited as most of Taiwans semicon

72、ductor manufacturers focus on the advanced semiconductor processes and the revenue contribution from China is low.Short-term geopolitical risks and rising cross-strait tensions with China have caused volatility in Taiwan stocks,but there is no obvious sign of a rise in the risk premium of Taiwan sto

73、cks.The competitiveness of the national economy and key industries are the most important factors affecting the evaluation of Taiwans stock market.Meanwhile Korean semiconductor companies will face short-term inefficiencies arising from difficulties in upgrading fabs in China.But we see this develop

74、ment as a long-term positive as Korean companies have started to redesign their existing fab location strategy.WHERE WE SEE OPPORTUNITIES-The risk of a global economic slowdown,higher rates,and higher inflation will present opportunities for stock pickers focused on quality growth at a reasonable va

75、luation.North Asian markets(Korea,Taiwan,China,and Hong Kong)look very cheap given that they have declined some 20%to 30%Indias manufactured exports could add 2.4%to GDP in five years Source:Credit Suisse estimates,January 2022.2023 Market Outlook Embracing a different Asia16in 2022.Moreover,most wi

76、ll experience a positive spill over impact from Chinas re-opening discussed in“Tracking Chinas re-opening”.Another area that offers interesting opportunities especially in Taiwan is the Cloud&Hyperscale Data Centre supply chain segment.Companies that make connectors,circuit boards,etc.will benefit f

77、rom the growing number of such centres.According to Synergy Research Group,there were 728 hyperscale data centres in operation worldwide by the end of 2021.By 2026,this number will reach 1,200.The US will continue to be the largest single market for such facilities.On the other hand,ASEAN markets(pa

78、rticularly Singapore and Indonesia)and India stayed positive in local currency terms in 2022 and do not look cheap on valuations,both in absolute terms and versus its own history.Active stock selection will be needed to identify the winners.Across ASEAN and even within India,we are seeing selected b

79、anks that are looking attractively valued.There is potential here for margins to pick up with strong nominal GDP growth and asset quality improvement coming off a low base in 2021 that can support earnings into 2023.Separately as Asia lagged the rest of the world in opening up post COVID,the full-ye

80、ar benefit of re-opening may only be seen in 2023 for the services sectors across the region.Japanese corporates warrant a standalone mention as their earnings have remained resilient despite the pandemic.Corporate restructuring over the last decade has resulted in higher operational efficiency and

81、improved trend profitability.The weaker Yen has been a headwind for domestic companies that import raw materials,but a boon for exporters,especially auto names.Domestic and defensive stocks would likely have the most upside sensitivity to any Yen strengthening.Japanese equities are cheap both versus

82、 its own history and other Developed Markets and there are many opportunities for double digit returns over the coming years.Within the Asian bonds segment,we see opportunities in high-quality fixed income as the absolute yields are at their most attractive levels in over a decade.Investors can lock

83、 in positive real returns by allocating capital to short-term investment grade securities backed by healthy issuers that are yielding above inflation.Most Asian markets are cheaper than the USSource:Refinitiv Datastream and MSCI for all except China”A”as at 31 October 2022.Z scores calculated based

84、on the standard deviation from the 12-year rolling price to book value.2023 Market Outlook Embracing a different Asia17Meanwhile Asian high yield bonds are currently amongst the cheapest of risks assets.However new investors may wish to see if the US Fed is mostly done with its hiking cycle,and for

85、signs of China re-opening.For existing investors shaken by the selloffs caused by the turmoil in the Chinese property sector,we suspect a few things need to happen to bring these investors confidence back:a)some semblance of a bottoming out or turn in Chinas physical property market together with su

86、pportive policies on the financing front,and b)successful restructuring of some private developers with large offshore bond holdings.CONTRIBUTORS-John Tsai,Head of Growth Equities,Eastspring SingaporeSundeep Bihani,Portfolio Manager,Equities,Eastspring Singapore Anand Gupta,Portfolio Manager,Equitie

87、s,Eastspring SingaporeIvailo Dikov,Head of Japan Equities,Eastspring SingaporeDanny Tan,Head of Fixed Income,Eastspring Singapore Wai Mei Leong,Portfolio Manager,Fixed Income,Eastspring Singapore Investment implicationsSource:Eastspring Investments,November 2022.Doreen Choo,Head of Investments,Easts

88、pring MalaysiaLiew Kong Chian,Head of Investments,Eastspring Indonesia Bodin Buddhain,Asset Allocation Strategist,Eastspring ThailandNguyen Thi Bich Thao,Head of Equities,Eastspring VietnamRebecca Lin,Head of Investments,Eastspring TaiwanPaul Kim,Head of Equities,Eastspring Korea2023 Market Outlook

89、Embracing a different Asia182023 Market Outlook Navigating the global reset 2023 Market OutlookCharting sustainability pathways19Asia scored a few wins during COP27 although the failure to agree on greater emission cuts or to put an end to fossil fuel use disappointed many delegates.At the climate s

90、ummit,it was agreed that a fund will be set up to cover the climate-related losses and damages that“particularly vulnerable”nations experience.This could be good news for some parts of ASEAN,such as Philippines and Thailand,where severe weather events in 2022 had resulted in a significant loss of ag

91、ricultural output and disruption of livelihoods.In addition,a coalition led by the US and Japan announced that it will provide USD20bn to help Indonesia shut its coal power plants and bring forward its peak emissions date by seven years to 2030.THE RISE IN GREEN INFRASTRUCTURE-It is estimated that U

92、SD4 to 6tr per annum would be needed globally this decade and beyond to transit to a low-carbon economy.Asia has a big role to play given that it accounts for five out the worlds ten largest greenhouse gas emitters.Asia alone would probably need USD1tr per annum to help high carbon emitting sectors

93、such as the power generation,transportation,property,agriculture,and manufacturing industries in their net zero transition.This has multiple implications for investors.Asias sustainable bond market will play a pivotal role in funding sovereigns and corporates in their transitions.We expect to see mo

94、re Green,Social and Sustainability bonds being issued by property companies to build and refurbish energy-efficient buildings.Power generating companies are also likely to raise funds to invest in renewable energy.Meanwhile governments and quasi-governments will seek debt financing to build low/zero

95、 carbon transportation infrastructure.Multilateral development banks as well as supranational developmental institutions can support issuances in domestic debt markets by providing guarantees and sponsorships.Meanwhile,the rise in transition capital expenditure(green capex)is extremely commodity int

96、ensive,which should benefit the Emerging Markets.2023 Market OutlookCharting sustainability pathwaysAsia has a big role to play in the global transition to net zero as it accounts for almost half of the worlds greenhouse emissions.The rise in green capital expenditure to meet climate challenges will

97、 mean significant bond issuances.Asias innovative companies within the Electric Vehicle and renewables energy ecosystems also offer investors interesting opportunities in the race to net zero.2023 Market Outlook Charting sustainability pathways20GETTING TO NET ZERO -Asia is leading innovation in the

98、 Electric Vehicle(EV)battery and renewable energy ecosystems.China is a world leader in solar manufacturing and dominates the worlds EV supply chain.Indonesia is planning to build the worlds largest green industrial park in North Kalimantan(solely powered by hydropower and solar),which will house hi

99、gh-tech green industries that will produce solar panels,green aluminium,and lithium-ion batteries.There are also companies within Malaysias vibrant Automated Test Equipment and Outsourced Assembly and Test industry that are designing innovative systems and equipment to detect abnormalities in produc

100、tion lines.Besides saving manpower and energy,detecting defects early significantly reduces e-waste that ends up in landfills.All these present exciting opportunities for investors.Climate challenges are also impacting companies that are not operating in zero/low carbon sectors.The energy price hike

101、s in 2022 have led some corporates to review their future energy demands and develop plans to manage these risks.While Asia may have lagged the Developed Markets in terms of Environment,Social and Governance(ESG)policies,investment and reporting,more Asian corporates are making efforts to improve th

102、eir sustainability roadmaps and policies.The number of ESG policies in Asia has doubled since 20161.Within Asia,investors are also embracing a more balanced approach when considering ESG factors,with a move away from exclusions to greater engagement.In particular,we see room for greater engagement e

103、specially on environmental and governance issues to drive long-term value amongst Japanese corporates.According to MSCI ESG Research,only 10%of Japanese companies are rated as ESG Leaders(ESG ratings of AAA,AA),far behind European companies.ASIAS BIG ROLE IN CARBON TRADING-The demand for carbon cred

104、its has increased as more companies make carbon neutral or net zero commitments.According to a McKinsey study,global carbon offset demand is set to grow 15x by 2030 and 100 x by 2050.Global initiatives to drive more transparency,standardisation,and detailed verification of carbon credit projects wil

105、l help develop more robust carbon markets.At COP27,the Global Carbon Engagement favoured over exclusion policiesSource:Morningstar Direct,Barclays Research.September 2022.Source:1PRI,data compiled by Goldman Sachs Global Investment Research.Cumulative capital market ESG regulations and amendments,Ja

106、nuary 2000 to August 2021.The number of ESG policies in Asia has doubled since 2016.2023 Market Outlook Charting sustainability pathways21Trust agreed to create standardised contracts for carbon credits,embed third-party monitoring and verification of project performance,as well as provide arbitrati

107、on mechanisms for projects that fail to meet targets.Asia can play a significant role as a carbon trading hub.There have been efforts to grow Asias carbon offset ecosystem with the establishment of the Climate Impact X,a Singapore-based global carbon exchange and marketplace,in 2021.Hong Kong also l

108、aunched a carbon trading platform in October 2022,while Malaysia has expressed similar ambitions.The regulatory environment is also becoming more favourable for growing the carbon offset market with Singapore allowing 5%of carbon tax to be met by carbon offsets.Meanwhile,Asias high quality natural e

109、cosystems mean that more than 50%of nature-based carbon offset supply(using plants,trees,soil or the ocean to remove carbon from the atmosphere)resides in Asia,potentially making Asia a key supplier of nature-based carbon offsets.The average price of carbon offsets rose by more than 50%from 2020 to

110、2021 with high quality nature-based credits commanding more than a 200%premium at USD8/tCO2e.Therefore,Asian companies that are able to supply high quality offsets can benefit from offset price increases although specialised resources and knowledge will be needed to develop nature-based solutions(in

111、cludes conservation,afforestation,reforestation,forest management,grasslands).Only high-quality carbon offsets can help with offsetting residual emissions that cannot be reduced and enable companies to better meet their net zero commitments.This may help to improve ESG ratings in the long term,altho

112、ugh it is still early days.Source:2C live carbon price:https:/ implicationsSource:Eastspring Investments.November 2022.CONTRIBUTORS-Joanne Khew,ESG Specialist,Eastspring SingaporeRong Ren Goh,Portfolio Manager,Fixed Income,Eastspring SingaporeBryan Yeong,Portfolio Manager,Equities,Eastspring Singapo

113、reSteven Gray,Portfolio Manager,Equities,Eastspring SingaporeSundeep Bihani,Portfolio Manager,Equities,Eastspring SingaporeSamuel Hoang,Portfolio Manager,Equities,Eastspring Singapore2023 Market Outlook Charting sustainability pathways222023 Market Outlook Navigating the global reset 2023 Market Out

114、lookPursuing resilience amid volatility23Predicting precisely which events or themes will drive volatility in 2023 might be challenging.Although markets seem to have priced in balanced views on whether inflation will revert to more tolerable levels quickly or remain at high levels,we expect future m

115、arket reactions to be strongly news flow driven.The path ahead is thus likely to be choppy but there are options to reduce the overall levels of volatility in investors portfolios.BUILDING DURABILITY WITH MULTI ASSETS -Our multi asset team uses a few strategies to optimise risk-adjusted returns in t

116、heir portfolios over the short-term and long-term horizons and across all market cycles:namely diversification,tactical overlays and risk prudent derivative strategies.Asset class diversification from a traditional perspective consists of combining assets with different correlation profiles.However,

117、as we have seen this year,strong inflation dynamics(and strong initial valuations)have made the equity-bond correlations less negative and less reliable than before.In the current new environment in which inflation(and interest rates)are likely to stay higher for longer,we believe that less traditio

118、nal diversification methods,such as investment style factor diversification in equities,become increasingly important and valuable.That said,the team continues to have faith that the historical relationship between equities and bonds will reassert themselves in time.After all,it is when both equitie

119、s and bonds are reasonably valued that they provide the most diversification benefits.2023 Market OutlookPursuing resilience amid volatilityPortfolio resilience is going to be very important over the next 12-18 months as we transit from an inflation dominant regime to a more uncertain environment.Ca

120、n the US Fed engineer a soft landing or is a recession upon us?Regardless,we expect volatility to remain very elevated.The best way to cope with this type of uncertainty is to build a lot more diversification into portfolios.The path ahead is likely to be choppy but there are options to reduce the o

121、verall levels of volatility in investors portfolios.2023 Market Outlook Pursuing resilience amid volatility24Tactical overlays are another option.These are typically designed to either limit a certain risk or to take advantage of market sentiment.In the current market environment,investors need to h

122、ave exposures to defensive assets that can help pre-empt violent reactions in the markets.Lastly the team believes that risk managed derivative strategies can be beneficial to portfolios.In multi asset portfolios where guidelines permit the use of derivatives,the team has taken advantage of volatili

123、ty curves to add portfolio hedges.For example,amid this years downtrend in US equities,the team put on a long calendar put spread strategy in certain portfolios to hedge against a downside scenario in US equities.GOING DEFENSIVE WITH QUANT STRATEGIES -Smart beta and multi-factor equity strategies ha

124、ve performed well this year relative to broad parent equity indices.Low volatility strategies tend to fare well relative to the broader market during periods of uncertainty and market volatility.By owning stocks and ultimately building a portfolio that is less influenced by the swings in market sent

125、iment,low volatility strategies are by nature more defensive.They also tend to give up less performance as the market falls,and as a result do not need to participate as much in the upside to stay ahead.A well-diversified approach to low volatility is key though as it will be important to ensure wid

126、e representation from all sectors of the market to avoid missing some of the key themes that may take hold in 2023.A multi-factor strategy is designed to have a similar level of volatility to the broader market and hence less defensive than low volatility.However,by design,this strategy is well dive

127、rsified across various factors(or styles)and better risk controlled relative to the market benchmark.As a result,it tends to fare well(relative to the broader market)in most environments,regardless of which style is dominant at the time.This should be a useful characteristic to investors in an uncer

128、tain environment like we expect in 2023.BUFFERING VIA AN INCOME APPROACH -As per our narrative in“Mapping another new normal”,we expect inflation and interest rates to remain higher for longer.In such conditions,investors will be on the lookout for inflation hedges and higher yields.Listed real esta

129、te is normally seen as good inflation hedge.In general,the overall return and dividend growth have been consistently ahead of inflation over the long term.In some markets such as Australia,UK,and Europe,rentals are linked to an inflationary measure which will provide some earnings buffer for the ass

130、et owner.Asian high dividend yield index returns mostly exceed US inflationSource:Bloomberg,Eastspring Investments,30 September 2022.Numbers have been rebased to 100 with starting date 31 January 2001.2023 Market Outlook Pursuing resilience amid volatility25CONTRIBUTORS-Craig Bell,Head of Multi Asse

131、t Portfolio Solutions,Eastspring SingaporeBen Dunn,Head of Quantitative Strategies,Eastspring InvestmentsDanny Tan,Head of Fixed Income,Eastspring Singapore Katerina Irwan,Portfolio Manager,Equities,Eastspring SingaporeBonnie Chan,Portfolio Manager,Equities,Eastspring SingaporeInvestment implication

132、sSource:Eastspring Investments.November 2022.Source:1Bloomberg.Weekly data from November 2012 to November 2022.Indexes used:MSCI Asia Pacific ex Japan High Dividend Yielding Net Return Index,JACI Investment Grade Total Return Index,JACI Non-Investment Grade Total Return Index.In USD terms.Likewise,s

133、electing stocks that have stable dividend payouts will ensure a steady stream of regular income which can result in positive real yields.In Asia Pacific ex Japan,the high dividend total return index usually delivers superior returns to US inflation across most periods.Asian high dividend yielding eq

134、uities also have a low correlation to Asian bonds at 0.30 and 0.47 against Asian investment grade and non-investment grade bonds respectively.1 This is a plus for investors seeking to build a diversified portfolio of income producing assets.Short-term government securities are another income option

135、for investors.This is especially so if the country enjoys a solid AAA rating;Singapore government securities have hit multi-decade highs this year with yields above 4%compared to the 1%at the start of the year.Investors no longer have to actively seek risk to obtain meaningful returns on their savin

136、gs.We are likely to see money continuously flock towards short-term government securities with interest rates remaining high.Furthermore,investors can lock in positive real returns by allocating capital to short-term investment grade securities backed by healthy issuers that are yielding above infla

137、tion.The outlook for high-quality fixed income has turned more favourable and their absolute yields are at their most attractive levels in over a decade.2023 Market Outlook Pursuing resilience amid volatility262023 Market Outlook Navigating the global resetContact usSingaporeEastspring Investments(S

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