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Prospects for emerging markets look better in the second half of 2022 - Manulife

20/01/2022 06:04 PM

KUALA LUMPUR, Jan 20 -- Manulife Investment Management (M) Bhd said prospects for emerging markets look better in the second half of 2022 as inventory rebuilds and the unwinding of supply chain disruptions are expected to fuel a more sustainable recovery than the pent-up rebound of last year. 

Head of Asia macro strategy Sue Trinh said once inflationary and growth pressures eased, global central banks were expected to make a dovish policy pivot to create conditions that would allow for an extension of the economic growth cycle.

She expects uncomfortably high levels of inflation in the first half of 2022, driven by global supply issues, could not be addressed with interest-rate policy.

"With the United States (US) Federal Reserve’s (Fed) plan to reduce its asset purchasing programme, potential volatility in the US dollar and US interest rates may weigh on global liquidity – an element that’s crucial to Asian growth," she said in a statement today. 

Sue added that emerging Asia equities and fixed income would be supported by accommodative monetary policy stances and were in a better position to withstand the Fed’s taper risks relative to 2013, thanks to stronger external positions, lower reliance on external funding and better-balanced positioning.  

She said the Asian region would see policy normalisation at a much slower pace and of lower magnitude relative to previous cycles and other emerging markets.

Meanwhile, Manulife chief investment officer, equities, Asia ex-Japan Ronald Chan said the emergence of the Omicron variant, China’s regulatory tightening cycle and central banks’ actions further impacted the growth in Asia heading into 2022.

Chan said some of the macro factors highlighted for this year were the COVID-19 variants, the US taper and China’s growth pattern, all of which represent growth headwinds for Asia but the impact was expected to be felt differently in North Asia compared to Southeast Asia.

"As such, we expect gross domestic product (GDP) growth in China to slow to five per cent this year from eight per cent last year, which is lower than the growth projection for Southeast Asia. Our positive outlook for Southeast Asia is further propelled by the 6 per cent to 7 per cent expected growth momentum in India. In addition, our positive view towards the sub region is further reinforced by the higher real yields in major economies, namely Indonesia and India, which are attracting capital flows,” he said.

Chan added that the “China Plus One” initiative has encouraged multinational companies to diversify their business lines and production bases into regional markets.

Meanwhile, Manulife deputy chief investment officer, fixed income, Asia ex-Japan Murray Collis said regional economies gradually recovered from the COVID-19 pandemic, while regulatory changes and idiosyncratic risk in some markets contributed to a divergence in performance between investment-grade and high-yield credits.

"We believe that Asian high-yield bonds offer particularly attractive valuations, with bond yield spreads well above historical averages, providing significant opportunities this year. Overall, we see global liquidity  remaining relatively accommodative from a historical perspective for Asian credits in 2022. We believe that some credits, especially in the high-yield segment, are excessively priced to the downside. 

"Indeed, price dislocations, particularly in the China real estate sector, that were experienced in 2021 do not reflect the underlying fundamentals of higher-quality developers,” he said. 


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