Viewpoints

Q1 2023 Update from the Asia Trade Floor

Asia Portfolio Manager Stephen Chang shares PIMCO’s outlook for the Chinese economy and the broader Asian region.

More from this section

Read Transcript

Text on screen: Stephen Chang, Portfolio Manager, Asia

Text on screen: What are the key takeaways from our latest Cyclical forum?

Chang: After a difficult 2022, bond investors should be rewarded with more opportunities in the year ahead. We expect the global economy to face headwinds, with a modest recession in 2023 across developed markets as central banks battle to contain inflation.

Text on screen:

Key takeaways from PIMCO’s latest Cyclical Outlook

  • Our baseline: modest recessions and moderating inflation across developed markets.
  • However, a soft landing – i.e. inflation moderates, while real growth remains positive – is still plausible.
  • Bonds are alluring again. We are focusing on high quality fixed income that offers attractive yields.
  • With a range of possible economic outcomes, we are preparing portfolios to be flexible and resilient.

That said, a soft landing is also plausible. Consumer and business balance sheets are strong, with elevated cash reserves. Pandemic-related supply constraints created large order backlogs, pent-up demand, and margin expansion, which are all likely to support business activity. China’s reopening may also provide a tailwind to the global economy.

In terms of asset allocation, we believe any recession could further challenge riskier assets such as equities and lower-quality corporate credit.

But we continue to see a strong case for investing in bonds, after yields reset higher in 2022 and with an economic downturn looking likely in 2023. Generally, we are focusing on high quality fixed income sectors that offer more attractive yields than they have in several years.

At the same time, we’re preparing portfolios to navigate with flexibility in case of a more severe downturn and to have liquidity to take advantage of emerging opportunities from changing expectations.

Text on screen: What is PIMCO’s outlook for the Chinese economy?

Chang: With the end of the zero-COVID policy and faster-than-expected economic reopening in China, our baseline 2023 growth forecast for the country is between 5 and 5.5 per cent. While we expect some short-term disruption, a stronger growth rebound should follow, likely late this quarter or early in the second quarter.

Text on screen:

5% - 5.5%
PIMCO’s baseline forecast for China’s 2023 annual GDP growth

China’s recovery will be led by pent-up consumption demand, especially in the service sector. Indeed, travel-related indicators and mobility data have already bounced back strongly pointing to positive momentum in retail sales and consumption. We expect China’s consumer inflation will rise from 2 per cent in 2022 to our baseline of 2.7 per cent for 2023, which is still benign and below the official target of 3 per cent.

Text on screen:

2.7%
PIMCO’s baseline forecast for China’s consumer inflation in 2023

On the property front, while housing-related indicators remain weak, the market may stabilize over the course of this year after a raft of coordinated policy measures, particularly for the stronger developers. From a growth contribution standpoint, housing investment can post more of a flat impact in 2023 versus a major drag in 2022.

Macro policy will likely stay supportive in the first half of the year and then begin to normalize. Our key policy projections include: continued credit easing to support SMEs, the property market, manufacturing, and green investment; front-loaded fiscal policy to support infrastructure; and continued relaxation in regulatory policies in sectors such as housing, education, tech and gaming, in order to stabilize growth.

Text on screen:

PIMCO’s key policy projections for China:

  • Continued credit easing
  • Front-loaded fiscal policy
  • Continued relaxation in regulatory policies

We are positive on China’s recovery in 2023 because its economic cycles tend to be policy-driven. As laid out by President Xi and his team at the Central Economic Work Conference in December, China’s economic agenda will be focused on one thing this year: growth. One area of headwinds to watch is the export sector, which has seen a sharp decline in demand in some of the major developed markets.

Text on screen: Looking at the broader Asian region, what is our macro outlook and the implications for portfolios?

Chang: Despite the global slowdown, growth is expected to remain relatively resilient in many Asian markets in 2023 as the recovery from COVID-19 continues. China’s reopening will also be marginally supportive, especially for Thailand and Malaysia.

Text on screen:

PIMCO’s outlook for the broader Asian region

  • Growth is expected to remain relatively resilient in many Asian markets in 2023
  • China’s reopening will be marginally supportive
  • Core inflation remains high and sticky
  • We broadly expect no rate cuts

Even though headline inflation across the region should continue to fall from its peak due to lower energy prices, core inflation remains high and sticky. As supply constraints further ease, core inflation could start to fall, but we may begin to see demand-driven pressures that have been absent thus far.

In some countries, such as Thailand and Malaysia, a relatively weaker external balance position compared to 2022 could put pressure on central banks to continue with their policy normalization. With the exception of Indonesia, most countries in the region have shown no signs of reducing their deficits, and we broadly expect no rate cuts.

For 2023, we expect duration turning to an underperformance but posting currency outperformance in Asia, reversing last year’s trend, as the region’s growth-inflation dynamics diverge from the rest of the world.

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Marcio Bogoricin
Head of Global Wealth Management, Asia ex Japan
Allison Boxer
Economist
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Jingjing Huang
Strategist
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Georgi Popov
Product Strategist
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
PIMCO
Seray Incoglu
Portfolio Manager, Commercial Real Estate
Ben Bernanke
Chair, Global Advisory Board
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Q2 2024 Update from the Asia Trade Floor (video)
Opportune Time for High-Quality Global Bonds
Today’s Historic Opportunity in Actively Managed Bonds (video)
Celebrating International Women’s Day
Credit Outlook – Time for High Quality Bonds and Leveraged Loans (video)
Unlocking the Power of Private Credit

Load more results Load {{cCtrl.fetchResults}} more results