Page 6 - DIY Investor Magazine | Issue 36

Dec 2022 6
DIY Investor Magazine ·
ASIA:
THE IMPACT OF A SLIDING GLOBAL ECONOMY
• Asia is emerging from the pandemic later, which is providing an economic tailwind.
• We can see a stable, if unexciting, economic picture for the twin giants of the Asian economy – China and India.
• The strength of the region’s economy is reflected in Asia’s corporate sector.
James Thom, Investment Manager, abrdn New Dawn Investment Trust plc
The global economy is in significant disarray. Inflation has reached a 40-year high for some economies, interest rates are rising and growth is slowing, or non-existent. For many of the world’s major economies, recession appears an inevitability. This will certainly have an impact on Asia, but should investors be fearful?
Asia cannot be immune to the weakness seen elsewhere in the global economy. However, it has certain elements in its favour that may mitigate the impact. The region is emerging from
the pandemic later, which is providing an economic tailwind. Optimism in the corporate sector remains relatively high.
The risk to economic activity from inflationary pressures isn’t nearly as profound. In some parts of the region, inflation is more or less trending in line with central bank targets. That gives policymakers far greater scope to support their economies. The outlook for the region’s twin behemoths – India and China – is mixed. Growth in China has been slowing in response to the country’s zero-Covid policy with lockdowns continuing to have an impact on economic activity.
‘ASIA REMAINS THE FASTEST GROWING REGION IN THE WORLD, ALBEIT IN AN UNCOMPETITIVE FIELD’
India’s vulnerabilities are on the oil price and its impact on currency exchange rates. There is a risk that this will import more inflation. However, for the time being, inflationary pressures are not acute. Interest rates are higher, but not materially.
At the same time, the domestic economy is robust. It is experiencing a recovery after its Covid-related downturn. Core sectors such as housing, the construction and infrastructure sectors are all enjoying a strong recovery, underpinned by a supportive government framework.
Together, this builds to a stable, if unexciting, economic picture. Asia remains the fastest growing region in the world, albeit in an uncompetitive field.
ASIA’S RESILIENT CORPORATE SECTOR
This weakness is likely to persist in the near-term, though in the
The resilience of the region’s economy is reflected in Asia’s longer-term, the country may see a wave of growth once new
corporate sector.
vaccinations and treatments emerge and the country reopens
fully. The timing of this is difficult to judge with accuracy, but
While earnings growth has been falling, and higher interest analysts are suggesting the second half of 2023 would be a
rates have inevitably affected margin, we still expect Asian realistic target. In the meantime, inflation in China is low, giving
companies to deliver resilient earnings growth for the year its central bank significant headroom.
ahead, with some – such as the Indian market – particularly high. In general, Asian corporate balance sheets are strong, ‘THE REGION IS EMERGING FROM THE PANDEMIC LATER,
with lower debt. Valuations reflect many of the potential WHICH IS PROVIDING AN ECONOMIC TAILWIND’
headwinds, with Asian markets trading below their 10-year average.