Insights

Much like this report in 2023, global conditions will remain unique and defy a confident overall summary; thus, here are ten predictions on some particularly noteworthy factors.

We believe ASEAN will offer good pockets of growth and quality opportunities, as well as earnings resilience and protection amid some of the prevailing global macro headwinds.

We believe that our “New Singapore” narrative focusing on sectors and companies that represent the future of the city-state will remain relevant in 2024. Energy transition has risen to prominence within the New Singapore narrative in addition to data, technology, healthcare, logistics, tourism and food solutions.

We expect 2024 to be a year of higher returns and lower volatility for Asian local government bonds as US Treasury yields are seen stabilising. We also see Asian currencies firming against the dollar in 2024 as the Federal Reserve’s rate hike cycle comes to an end.

The just-released 3Q CY23 data on Japan’s aggregate corporate profits was a bit mixed, but the overall corporate recurring pre-tax profit margin surged to a record high on a four-quarter average. The non-financial service sector rose to another record high, but the manufacturing sector fell further from its record high.

We have held on to our view that the “higher for longer” narrative is not necessarily bad for equities, as robust earnings are supported by a US economy that continues to grow at above-trend rates. However, we are also sympathetic to the de-rating process where earnings look simply less attractive compared to higher rates across the yield curve.

In the transition to net zero, the focus is on impact and engagement. We are actively engaged in the global fixed income markets, and support green and sustainable investments in the transition towards overall sustainability in order to meet net zero targets. We are particularly trying to focus on those companies with ambitious targets for net zero and carbon reduction.

We expect macro and corporate credit fundamentals across Asia ex-China to stay resilient with fiscal buffers, although slower economic growth appears to loom over the horizon.

The last few quarters have been a good reminder that we are in a changing world. As a result, we need to focus always on investing in enduring franchises and we would suggest that our Future Quality approach is soundly placed in that regard. We also need to approach monetary policy with an open mind—sometime soon the central banks could change the game again. In surfing parlance, be ready with your trusted board and make the most of the conditions.

Recently many fixed income investors have experienced steep price declines in their bond portfolios. We have argued that it is not only duration that explains the interest risk of a portfolio, but that convexity needs to be accounted for as well. In this paper we point out that credit risk measures also have to be adjusted in an environment of declining bond prices.