Asean markets to benefit from favourable macro conditions in 2022: Manulife

Megan Cheah

Published Fri, Jan 21, 2022 · 11:31 AM

EMERGING markets in South-east Asia have good prospects in the second half of 2022 in spite of macro headwinds including US inflation, geopolitical tensions and appearances of new Covid-19 variants, said Manulife Investment Management in a news release on Thursday (Jan 20).

The wealth and asset management segment of Manulife Financial Corporation noted that rebuilding inventories and lower supply chain disruptions will help boost a more sustainable recovery this year, compared to the "pent-up rebound" of 2021.

Overall, macro conditions are expected to be more favourable this year due to the reopening and recovery of Asian economies including some Asean markets, said Sue Trinh, Manulife Investment Management head of macro strategy (Asia).

"The biggest concern remains weak consumer demand which will be exposed by the looming downturn in export growth. On the other hand, Asia's milder inflation expectation comes down to one simple factor - trade surpluses. Maximising export production remains the marginal growth driver through the pandemic," she said.

However, the report warned of potential challenges in the first half of 2022 as inflation is set to remain "uncomfortably high" for the early months of the year.

Trinh observed that high inflation cannot be addressed by interest rate policies as they are likely to be driven by global supply issues and may rest on global liquidity, which is "crucial for Asian growth".

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"We think emerging Asia's equities and fixed income will be supported by accomodative monetary policy stance and are in a better position to withstand the US Federal Reserve System's taper risks relative to 2013, thanks to stronger external positions, lower reliance on external and better balanced positioning," she added.

Ronald Chan, chief investment officer of equities (Asia ex-Japan) at Manulife Investment Management said that South-east Asian markets in particular are likely to be key growth drivers and beneficiaries for Asian equities as a whole, given previous tensions between China and US.

The emergence of Omicron, US taper risks and China's growth pattern will impact all Asian markets - but South-east Asia's growth is projected to be higher than China's as it will benefit from 6 to 7 per cent growth momentum in India, higher real yields in India and Indonesia's economies and foreign direct investment in various sectors, he said.

Chan highlighted Indonesia's battery suppliers, Thailand's auto manufacturers and Malaysia's IT supply chain as possible beneficiaries of such investments.

Reopening economies and easing of travel restrictions will also allow South-east Asia to "play an important post-pandemic role in Asia's economic trajectory," he added.

Meanwhile, Asian fixed income markets will have significant opportunities, despite regulatory changes and idiosyncratic risk in some markets creating a divergent performance between investment-grade and high grade yield, making for a challenging 2021, the report noted.

Murray Collis, deputy chief investment officer of fixed income (Asia ex-Japan) at the Manulife Investment Management said that Asian high-yield bonds offer "particularly attractive valuations" above the historical average, while environment, sustainable and government (ESG) bond issues are expected to grow in 2022, as issuers from more sectors and countries begin to offer ESG bonds following the 26th United Nations Climate Change Conference in October and November 2021.

While Collis acknowledged that the "challenging 2021" for Asian credit gives investors reason to remain cautious, he believes the low asset prices in high-yield bonds presents a "compelling opportunity" for the sustainable fixed-income market, as its environment continues to offer historically low interest rates.

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