It is noteworthy that Malaysia is Asia’s only net oil and gas (O&G) exporter and the world’s second-largest palm oil exporter.
PETALING JAYA: Global economic growth is anticipated to slow down this year, with United States rate hikes moderating in the second half amid lingering energy shocks and supply chain disruptions, says HSBC Global Private Banking.
It estimated that global gross domestic product (GDP) growth will decline to 3.4% and 2.9% in 2022 and 2023, respectively, down from 5.8% in 2021.
In a statement yesterday, HSBC chief investment officer for Asia and global private banking and wealth, Fan Cheuk Wan, said the Covid-19 crisis coupled with the Russia-Ukraine war and sustainability revolution were disrupting “supply chains, labour markets, energy sources and infrastructure”.
“These structural changes will require significant investments that will ultimately help boost growth, but this will also push up costs and cause inflation to become stickier than witnessed in the past decade,” he added.
As such, HSBC Global Private Banking expects global energy shocks and supply chain challenges to push up world-wide inflation to 7.5% this year before moderating to 5.1% in 2023.
Citing April US consumer price index data, Fan said inflation may be slowly peaking from its 41-year high in March.
However, he foresees US core personal consumption expenditure inflation moderating from 4.9% in April to 4.2% in the fourth quarter of this year (4Q22) and further down to 2.8% in 4Q23, paving the way for a pause in the US rate hiking cycle in 1Q23.
Considering the structural shocks that the world has faced, Fan said investors need to reposition their portfolios to adapt to these challenges.
In the second half of this year (2H22), he anticipates the investment outlook for risk assets to gradually improve with the support of a soft-landing for the global economy and easing stagflation fears.
That said, HSBC Global Private Banking maintains a “neutral” exposure to risk assets with a focus on quality earnings, income strategies and risk diversification, which would dampen volatility.
Fan said that investors’ investment strategy should entail quality companies that have the ability to adapt to disruptive changes and structural shocks, as well as companies with a strong environmental, social and governanc or ESG performance.
“As we expect limited scope for hawkish surprises from the US policy tightening, we see attractive value in short dated bonds and remain ‘overweight’ on global investment-grade and high-yield credit, emerging markets and Asian hard currency bonds.
“We stay bullish on the US dollar and commodity currencies in the US rate hiking cycle,” he said.
For Malaysia, HSBC Global Private Banking believes that the country is on a “solid growth path” given its well-diversified export base that will offset supply chain disruptions.
“While disruptions to supply chains are likely to affect Malaysia, the country will benefit from surging natural gas and palm oil prices, and an increase in production volumes for both commodities,” it said.
It is noteworthy that Malaysia is Asia’s only net oil and gas (O&G) exporter and the world’s second-largest palm oil exporter.
For natural gas, Fan pointed out that new fields are expected to come online and key pipelines will boost export volumes, while palm oil export volumes are likely to improve as the reopening of the economy accelerated.
Moving forward, HSBC Global Private Banking expects the country’s domestic demand to accelerate further in both this quarter and the next, supported by the tightening labour market.
It also foresees the ringgit stabilising against the US dollar in 2H22, moving to RM4.28 to a dollar by year-end once the market sentiment improves globally.
Overall, Fan anticipates Asian markets to remain resilient to withstand stagflation risks and global disruptive changes.
“We expect an improved investment outlook for Asian equities and credit in 2H22, as moderating US inflation and Federal Reserve rate hike expectations, China’s policy stimulus, supportive Asian central banks and accelerating economic reopenings in Asean should support the rerating of Asian equity markets,” he said.
