2017 – The Return of Growth
With the return of growth, the year 2017 has seen an economic upswing that has lifted both global and regional markets in terms of asset returns and earnings recovery. Accelerating growth, but benign inflation has kept policy tightening at bay, creating the right conditions for risk-assets to perform well under a ‘Goldilocks’ environment.
Marked by global reflation, as well as a recovery in trade and manufacturing PMI – Asia scored top marks and appeared as one the best performers this year.
In Asia, the MSCI Asia ex-Japan Index advanced +37.8% (local currency terms), compared to the MSCI AC World Index which had gained +19.5% YTD (as at 29 Nov 2017).
The MSCI Asia ex-Japan performance was primarily driven by North Asia, with tech emerging as the key outperformer, across China, Korea and Taiwan.
China’s 9M’17 GDP growth has come in ahead of consensus expectations growing by 6.9%, with the MSCI China Index outperforming other Asia ex-Japan country Indices, increasing by almost +50% (USD terms) as at 30 November. The outperformance of China this year was the result of a potent combination of government stimulus, targeted regulation and SOE reforms.
An acceleration in public-private partnership (PPP) projects drove infrastructure spending demand, whilst supply-side and SOE capacity reforms helped reflate raw material and commodity prices which spurred restocking activities.
Whilst, rising household consumption and increased urbanisation through strong wage increases will place the planks for a long growth runway for its new economy sectors.
Although, we now see growth moderating for China in 2018, as it seeks to attain a more balanced economic model, after years of loose monetary policy that left its financial system flushed with liquidity and knee-deep in leverage.
Growth to Broaden in 2018
Going forward, the macro outlook looks promising with growth expected to remain robust and other global economic growth indicators revised upwards in 2018. The global growth cycle could now broaden-out across sectors and countries, aided by a revival in the capex cycle.
Improving business sentiment, a rebound in profits and benign credit conditions are driving new business investments and would lead to a pick-up in capital spending.
We believe the earnings recovery in China, Korea, Taiwan and India would continue to broaden towards South East Asia, which has been a laggard this year. Singapore, Thailand and Indonesia should begin to catch-up in 2018 from a low base effect in 2017.