Southeast Asian Markets To Experience A “Bungee Jump” In 2023

According to JPMorgan, Southeast Asian markets would make a "bungee jump" in 2023, which means it will be falling before rising in the second half of the year.

Why the “bungee jump”?

Next year is believed to be defined by a severe fall followed by a fast increase in altitude (bear market rally), then another downfall until the market finally bottoms out. The reason for the decrease in purchasing power is attributed to tighter monetary policy, less savings and increased borrowing costs.

In the first half of 2023, JPMorgan predicts that the MSCI ASEAN Index will re-test this year's lows and probably fall substantially lower, due in part to declining foreign demand, tightening financial conditions, and a "fading" reopening boost.

Southeast Asian will go through a bungee jump in 2023

The MSCI ASEAN Index fell 22% from a February peak to a low point in October, 2022. After that, the index rose 10% with the expectation of China’s reopening and a change of direction from the US Federal Reserve.

The index tracks the performance of large and mid-cap stocks in four emerging markets, one developed and one frontier. It has 170 units in all, distributed throughout Singapore, Indonesia, Malaysia, Philippines, Thailand and Vietnam.

Trade-oriented economies

A US recession is expected at the end of the year, meanwhile Fed interest rates are expected to reach 5% by May. The equity market, however, has failed to properly price in a recession until it comes, contrary to investors' belief.

Trade-oriented countries, such as Singapore, Thailand, Vietnam and Malaysia, with slower future global growth and reduced demand for durable consumer products will be affected. Furthermore, the loosening of Covid restrictions in China is unlikely to offset the predicted decline.

In Thailand, for instance, exports, private investments, and manufacturing are predicted to experience a "substantial decrease," with JPMorgan analysts revising their prediction for 2023 GDP growth from 3.3% to 2.7%.

Singapore is predicted to face more difficult macroeconomic conditions. Even while the services sector offers some compensation, "We expect that the weakening in external demand will continue to slow Singapore’s goods producing sector even as the services sector provides some offset.". According to JPMorgan, the country will experience a tax hike on goods and services, from 7% to 8%, this will have a negative impact on demand and consumer sector outlook.

In the first half of 2023, JPMorgan predicts that the MSCI ASEAN Index will re-test this year's lows and probably fall substantially lower, due in part to declining foreign demand, tightening financial conditions, and a "fading" reopening boost.

Asia is still a good place to invest in 2023

The reopening of China

China's reopening is also expected to be limited given global recessionary conditions.

In December 2022, Mainland China loosened several of its Covid restrictions. National authorities announced a number of important amendments, including loosening domestic travel restrictions, keeping company operations and allowing Covid patients to be isolated at home.

According to JPMorgan analysts speaking to CNBC, "The benefits from China’s reopening will be offset by recessions in the developed markets", noting that Southeast Asian countries are heavily dependent on exports and demand from developed countries.

In that case, China's reopening to foreign tourism would be a good catalyst for Singapore's economy. Around 20% of all visitors to Singapore in 2019 were Chinese, and their subsequent return could create knock-on repercussions for Singapore's consumption and travel-related services sector.

However, JPMorgan predicts that improvement is likely to remain limited by the country's problems with external demand and global recession conditions. A full reopening of China's borders would also have "growth potential" for Thailand's tourism recovery.

It is also suggested that China reopening earlier than expected will cause inflation. However, experts note that while tourism can boost consumption and wage growth, it is not closely related to inflation in countries such as Thailand, where inflation is mainly supply-driven.

Relaxation of China’s Covid restrictions in 2022

Growth exposure of Southeast Asia in 2023

In 2023, investors won't have too much trouble finding growth prospects if they know how to seek for new opportunities. Southeast Asia could still be a prime destination for investment.

The Edge Markets featured Southeast Asia as a significant growing region. Given that emerging markets (EM) have generally struggled throughout much of 2022 due to a strong dollar and rising global inflation, it is unusual.

Southeast Asia has a unique reason for optimism in a global economy facing a protracted period of poor growth and rising inflation, with strong foundations, rapid growth, and a bright future.  Recently, the area showed its potential by hosting world leaders for the G20 Summit in Bali and the APEC summit in Bangkok.

For investors, especially those preparing their businesses for growth, this is a win-win situation. After a challenging 2022, there are value-extracting chances in the existing markets, particularly in countries outside of the United States like Southeast Asia.

Experts predicted Southeast Asia is ready for growth exposure in 2023. The Asian Development Bank's September Outlook raised its prediction for the region's GDP growth from 4.9% to 5.1% amidst a wave of global downgrades. Despite economic turbulence and uncertainty, we anticipate growth of 3.2% to 7.6% this year in Thailand, Singapore, Indonesia, the Philippines, Malaysia, and Vietnam. 

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