Overweight Asia Looking for Growth

March 2018

Overweight Asia Looking for Growth

EM Asia - Still Room to Grow

Chinese and global demand is continuing to support exports for emerging Asia. Combined with moderate growth and low inflation it provides a buffer against recent market volatility and remains our preferred overweight position.

After robust economic growth of 6.1 per cent in 2017, emerging market (EM) Asia’s 2018 growth is likely to moderate marginally to 5.9 per cent – but remains at a healthy pace.

For China we expect growth this year of 6.5 per cent growth - although growth may be lower in the first quarter and build through the year.

"EM Asia remains one of Citi’s largest relative overweight positions."

Citi's Credit/Equity Clock

Key Impacts on Emerging Asia

  • Inflationary pressure may rise from 2.0 per cent in 2017 to 2.5 per cent this year, although it appears to be largely modest. Inflation has remained largely benign outside of the Philippines.
  • Despite these benign macro conditions, politics could put some pressure on policies in a few EM Asia markets. For instance, India’s 2019 budget already has tinges of populism that may keep the Reserve Bank of India on guard.
  • Equities: EM Asia remains one of Citi’s largest relative overweight positions as the region has seen currency strength even in the face of Fed tightening. This reflects balance sheet improvements since the Asian crisis period two decades ago and more recent actions to cap risks in China.
  • The Fed and US policy could still cause a setback, but solid domestic economic growth and low valuations are supportive.
  • Within EM Asia – Citi is overweight on China, Taiwan, South Korea, Indonesia, India, Malaysia and Thailand as the cyclical upturn in the world economy and structurally lower oil price are likely to favor Asian economies.
  • Higher relative yields, a better fundamental backdrop in EM economies and a USD that is likely to be near the end of a six-year bull market should all be supportive for EM bonds. Citi analysts remain overweight on EM Asian and EMEA local currency bonds.
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