2023 outlook: selectivity to fuel performance in Asia ex-Japan fixed income and equities | Partner Content

After finally emerging from a world-changing pandemic, economies and markets have been subject to an array of stressors: more persistent inflation than expected, rising policy rates, war-induced supply chain and energy security disruptions, escalating geopolitical tension and, to top it off, a looming global economic slowdown. Sizable and front-loaded monetary policy hikes to tame inflation in much of the world, led by the US Federal Reserve (Fed), are now fueling growth concerns.

Monetary policy across much of Asia has followed or pre-empted moves by the Fed. Critically, however, Asian central banks have generally been much less aggressive – and we expect this trend to continue.

To start with, monetary policy in the region was not as accommodative as in the major developed markets. The u-turn is therefore less extreme. Additionally, inflationary pressures in Asia are relatively subdued, and we expect headline inflation to peak by the end of 2022 in most economies.

Our base case is that monetary policy will move closer to neutral but not into restrictive territory for most Asian countries. India, for instance, continues to see credit and real estate growth despite recent rate hikes.
 

Asia’s rate hikes have been moderate

_{Source: PineBridge Investments, as of 31 October 2022. For illustrative purposes only. We are not soliciting or recommending any action based on this material.}

Not surprisingly, these hikes have contributed to the weakening of Asian currencies,…