Speyside’s Predictions for 2023: Asia Pacific

As 2022 draws to a close, the Speyside team would like to wish all our partners and friends the very best for the holiday season, and of course a prosperous and peaceful 2023.

As has become tradition at this time of year, our teams around the globe have summarised some of their thoughts on the outlook for the year ahead across global emerging markets. We hope you find this an enjoyable and useful read.

Global Outlook

The debate still rages:

The bulls point to inflation slowing, China opening, energy prices easing, and the US economy increasingly likely to have a soft landing.

The bears point to the commitment of central banks to bring down inflation, the prospect of a long war in Ukraine, tech and crypto shocks and uncertainty around China.

Much of this discussion centers (understandably) on North America and Western Europe, but from our EM vantage point, there are reasons for optimism.

• China is opening fast and appears on a one-way track, releasing huge pent-up demand domestically and easing supply chain pressures globally.
• India is posting stronger than expected GDP numbers and the fundamentals look good, with the government poised to stimulate growth further ahead of 2024 elections.
• Latin America is a mixed bag, but there are reasons for optimism in Mexico which is benefiting (like India) from from “friendshoring” and strong fundamentals

None of this is to doubt the IMF, World Bank, OECD and others who are forecasting a very difficult global outlook with a global growth rate of around 1.2% in 2023, on par with 2009, when the world was only beginning its emergence from the financial crisis.

However, opportunities do exist, and many of them sit within global emerging markets, especially in Asia and Latin America.

Asia Pacific

India

With a string of nine state elections leading up to the 2024 general election, the incumbent Modi government is likely to implement popular pro-welfare schemes, along with their key themes like ease of doing business, infrastructure development, digital India and renewable energy. However, hard-to-sell necessary economic reforms are likely going to take backseat, especially for early 2023. India’s G20 presidency, taking place at the end of the year, will help Narendra Modi to further strengthen his reputation as a leader of international stature. This, and the recent election successes in Gujarat for Modi’s BJP, make a Modi election win in 2024 likely without significant surprises.

The Indian economy will remain relatively resilient, despite global economic uncertainty and high commodity prices. With estimated growth of almost 7% in 2023, it remains one of the fastest growing major economies in the world. Against this positive backdrop, in February the government will announce its last full budget before the general election which will likely focus on investment and spending. This will however need careful navigating by the government as they try to find the right balance given the high inflation being experienced nationally.

This year, the government entered into a record number of trade deals, and we expect further deals to be confirmed with other major economies including UK, EU, Gulf Cooperation Council, Israel, and Canada in 2023. The upcoming union budget is also expected to announce cuts in customs duties to align with multiple ongoing negotiations.

We expect the Indian economy will stabilise further in the next few months, although a mixed picture still remains. Although trade may improve and unemployment may stem, underlying issues on manufacturing pick-up will continue. This will continue to keep both the Reserve Bank of India and the rupee under pressure.

Indonesia: 2023 Projections—Navigating the Political Year amidst the Looming Economic Crisis

Building on the Indonesia’s successful G20 Presidency in 2022, the government will be ambitious in leveraging its ASEAN Chairmanship in 2023 to further position the country as an international player. However, front of mind for many policymakers will be 2024’s presidential election and securing economic stability.

The political contest has already heated up this year and will only intensify in 2023 as the February 2024 election comes into focus, which has the potential to create political turbulence and instability. It is currently unclear who the presidential nominations will be, let alone the next president. There are at least three scenarios that will play out. If popular opinion is followed, then two quite divisive candidates who use identity politics to garner support will be nominated, Ganjar Pranowo and Anies Baswedan. However, as nominations are made by political parties and require a lot of political wrangling, so the three largest parties (PDIP, Gerindra, and Golkar Party Leaders) will likely build their own coalition and compete in the election, with Prabowo Subianto from Gerindra Party standing out as the strong contender. Finally, the current President may extend his term despite major public criticism of him.

Meanwhile, the government has acknowledged that 2023 will be a challenging year, with a potential economic crisis looming. Economic stability will be core to the national policy agenda with a focus on protecting local industry, giving subsidies for the bottom of the economic ladder, and creating more economic opportunities domestically. However, the government is also likely to pursue policies that provide more substantial control of economic activities by the government and lean toward economic nationalism, which may be counterproductive. The soon-to-be-adopted Omnibus Law in the Financial Sector, for instance, would allow the finance minister, through the Committee for Stability of the Financial System (KSSK), to determine the economic direction that the Central Bank (BI) and Financial Regulators (OJK) should follow. This would potentially undermine the independency of the two financial regulators. Not to mention that the law also solidifies the financial burden sharing between BI and the Ministry of Finance, that BI would be a standby buyer for government bonds in times of crisis.

China 2023: Uncertainty Persists, but Trade Offers the Ultimate Route by Which Normalisation Can Return

The five-yearly Communist Party Congress, where President Xi Jinping was confirmed to be continuing into a third term as leader, sends a clear message to those who want to thwart China’s rise: You will fail. Taking to the stage to thunderous applause, Xi declared the “rejuvenation of the Chinese nation is now on an irreversible historical course” and more forcefully offered China up as an alternative to the US and its allies.

As the world’s two foremost economic and military powers, the US and China are uniquely placed to help combat many of the international community’s most pressing challenges, from Russia’s invasion of Ukraine to the devastation of climate change. But the question is to what extent both sides are willing to cast aside their differences to work together to address such challenges. China’s economy is slowing and there has been a dogged reluctance to move away from a zero tolerance COVID strategy all of which has had a profound impact on international trade and diplomatic relationships. Without a significant change in policy and direction, it is difficult to see how China will rebuild bridges.

In recent months, we have seen widespread public discontent over COVID restrictions and unusually a government response that has been to loosen those restrictions and work towards opening up. However, this has subsequently seen an exponential outbreak of positive COVID cases being reported, which has caused alarm. Cases continue to increase putting pressure on the health infrastructure compounded by an aging population that has resisted the vaccination programme. As of yet, there have also been no approvals for domestic mRNA vaccines and a reluctance to use the internationally WHO approved international options.

Trade will be the ultimate route by which there may be a normalisation. But the challenges remain, and the rest of the world has changed their perception on China. There has no doubt been a drifting apart, and it has sown a seed of uncertainty for investment, business, and governments alike that will persist well into 2023. But it is easy to overlook a very important fact: China is a very large market. Most companies still perform better in China than elsewhere, and moving forward, perhaps a more nuanced approach is required.