Low Han Seng

Executive Director and Deputy Chief Investment Officer

2023: US vs China

What surprised me most about 2023 was the contrast between US and Chinese stock returns. Year-to-date, the S&P 500 index is up almost 20 percent, compared to the MSCI China and Hong Kong indices, which are down around 10 percent.

During the year, in the midst of one of the most rapid rises in US interest rate history, all of us continued to weigh up the possibility of a hard landing in the US. The Fed had embarked on quantitative tightening (QT) and we also saw the fall of SVB and Credit Suisse. So, even in a soft landing scenario, it was hard to believe that the market could go on an expansion-driven rally.

On the other hand, China was expected to rebound strongly based on the reopening playbook of other countries. But markets succumbed to geopolitical uncertainties and a slower than expected economic recovery. This created an overhang in spite of more attractive valuations and positive long-term economic prospects.

2024: Delayed China recovery

Some investors are expecting the Chinese equity market to outperform next year, but they may be disappointed. The fundamentals are quite attractive but confidence of overseas and domestic investors remains fragile.

I think there will be an overhang of fears about the outbreak of hostilities over Taiwan. Also, the Chinese leadership appears to be focused on making the economic adjustments necessary to deflate the country’s asset bubble, regardless of the time it takes. In the medium term, this will likely continue to be a strong disincentive for investors who do not need to be invested in China.

Joyce Tan, CFA

Senior Director and Head of Fixed Income Asia/Singapore

2023: China

For me, 2023 reminded me that there are no sacred cows. Until this year, the common belief was that China had the prowess to prop up anything it so determines.

Markets started the year expecting China to show economic recovery from its post-Covid reopening. There were also strong hopes that the waves of support policy support would aid the slow-motion train wreck of its property sector. But something did not add up, this did not happen and remains elusive.

2023 was the year when investors recalibrated their vote of confidence for China as an economic powerhouse, and going forward, I think analysts will be more circumspect about China’s prospects.

2024: Asian high yield

My advice for investors going into 2024 is to be greedy when others are fearful. At UOBAM, we think Asian (ex-China) high yield bonds will be the surprise performance driver of Asia fixed income in 2024.

This is against market consensus that the global economy will slow in 2024, increasing the risk of idiosyncratic credit events amid higher refinancing costs.

However, there are pockets of opportunity in short-dated, quality non-investment grade investments that UOBAM, given our emphasis on credit bottom-up research, will be able to harness.

Dharmo Soejanto

Head of Investment Partnerships & Solutions; Chief Investment Strategist, UOBAM Invest

2023: AI

One of the biggest surprises this year must be the rise of generative artificial intelligence (AI). I like to call this the ‘iPod’ moment for AI. Back then, techies were already “ripping” CDs and downloading songs off illegal sites. But Apple’s iPod’s ease of use and iTunes ecosystem brought digital music to the masses.

Similarly, AI has existed for a long time. But generative AI software like ChatGPT has put AI into the hands of average consumers. Now anyone can write an essay, draw a picture, or create a presentation deck with just a few lines of plain language instructions.

This is really powerful, and explains why ChatGPT reached one million users in just five days. By comparison, Instagram took 2.5 months while Facebook took 10 months to reach the same million user mark. From an investment point of view, NVIDIA, the largest maker of semiconductors used in AI, has more than tripled in value this year. Meanwhile the Global X Artificial Intelligence & Technology ETF gained almost 50 percent, about three times the performance of the broad global market.

2024: Sustainability

The biggest surprise I predict for 2024 is that sustainable or climate change themes will make a comeback in a slightly different form.

ESG and Sustainable funds were the rage in 2021. But in the wake of the Russia-Ukraine war, energy and commodity prices escalated, causing these funds to underperform.Then this year, the dominance of seven large tech companies (aka the Magnificent Seven) further diminished ESG funds’ ability to outperform. Moreover, electric vehicles (EVs) - a favourite ESG investment sub-theme - retreated amid waning EV subsidies, price wars and oversupply issues.

I believe the sustainable theme will re-emerge in 2024, but this time recognising the need for a transition period whereby both fossil fuel and renewable energy solutions co-exist. Investor focus will be on those fossil fuel companies that can genuinely become cleaner and more efficient, rather than avoiding them altogether.

Paul Ho

Head of Invest Tech and Senior Director, Asia Equities

2023: Taiwan AI

One of the biggest surprises that our AI-Augmentation approach highlighted this year was in the Taiwan AI sector.

AI-Augmentation is a stock-picking methodology based on a combination of analyst research and AI-driven insights. 2023 is the third year that this approach has been put to work, and companies like Wistron and Quanta were flagged up by our AI model towards the middle of the year.

Both companies are involved in contract manufacturing and services for large corporations, and offer a number of smart AI-based solutions. The US stock market outperformance has been driven by only a few mega-cap tech stocks, so it was surprising that our AI model highlighted a number of mid-sized, AI-focused stocks in Taiwan.

However, their potential was verified by our on-the-ground analyst research and these stocks have since become some of the best performers in Asia. In fact, their stock prices quadrupled in just five months so the upside was easy to miss. The fact that our model picked up this trend early has further reinforced our confidence in the real world applicability of our AI-Augmentation approach.

Jan 2024: China weakness

Our AI model does not look forward into the whole of 2024 as it is programmed to identify the best picks one month at a time.

However, for January 2024, the model remains underweight on China and Hong Kong. This may be surprising to investors as there has been lots of positive policy stimulus news coming from the Chinese government in recent weeks. Nevertheless, our research bears out the model’s short term bearishness on China.

On the other hand, the model is still positive on India where we already have an overweight position, and also overweight on some Asian energy companies.

Choo Chian

Director, Macro and Multi-Asset Strategy

2023: Asian currency weakness

I would say that Asian currencies have been surprisingly weak this year. Historically, Asian assets are perceived as a high beta play on global growth, so we would expect strong global equity returns to be accompanied by a weaker USD and stronger Asia currencies.

In fact, almost all Asian currencies have depreciated against the USD. However, JPY and RMB stand out in terms of their USD underperformance. They have weakened by 10 percent and 3.5 percent respectively, despite their strong current account positions relative to other Asian markets.

Much of this is driven by the rate differentials between these currencies and the USD. In 2023, the Bank of Japan (BOJ) kept its short-term policy rate at a negative 10bps and has been gradually phasing out its Yield Curve Control (YCC) policy. Meanwhile, China’s central bank, the PBOC, has been cutting rates. Its 1-year MLF rate is down by a cumulative 25 basis points this year to 2.50 percent.

In contrast, the US Fed has raised its Fed Funds target rate by a cumulative 100 basis points year-to-date, more than most strategists were forecasting at the start of the year. “US exceptionalism” is becoming an increasingly common refrain.

2024: Asian currency strength

Turning this year’s weakness on its head, I think there is room for Asian currencies to surprise in 2024 by appreciating meaningfully against the USD.

There are a few reasons for this. Firstly, from a macro perspective, Asian economies and especially Japan could continue to grow at above-trend growth rate.

Secondly, Asian central banks including the BOJ and PBOC could enact more forceful market interventions. They will want to avoid sustained currency mismatches from fundamentals, and limit the potential adverse impact on both businesses and households.

Thirdly, Asia equity markets could start to outperform the US, increasing demand for their currencies. Maybe in 2024 we will be starting to talk instead about “Asia exceptionalism”.