Author: admin

Asia’s Growth Amid Downturn in Developed World

China’s faster-than-expected reopening and consumption-led recovery have provided a notable lift to Asian economies, supporting a broad-based improvement in manufacturing and services PMIs across the region. Given that China is the single largest trading partner of 16 major economies in Asia, its demand recovery helps mitigate the drag from the global downturn for Asian exporters. New orders in Asia have already recovered to expansionary territory in January and have continued to improve in the first quarter. The pace of new export orders contraction has slowed considerably in the Asian exporting economies.

Upside surprises from China’s manufacturing and services PMI data reaffirm that the economy is on track to stage a strong cyclical recovery in 2023. We expect China will deliver a speedy growth acceleration from 2.2% y-o-y in Q1 to 7.4% in Q2, 5.5% in Q3 and 6.9% in Q4, lifting full-year GDP growth back to 5.6% in 2023 from 3.0% in 2022. We expect China can overachieve the conservative 2023 GDP growth target of “around 5%” set at the annual National People’s Congress in March.

In contrast to the growth downturn in developed economies, which is exacerbated by the tightening credit conditions caused by the banking sector turmoil in the U.S. and Europe, Asia stands out as the only region that is expected to deliver growth acceleration to 4.7% in 2023 from 3.5% last year. Alongside China’s recovery, India’s service sector boom is reflected by the surge of its services PMI to 59.4 at a 12-year high in February, adding momentum to Asia’s resilient growth in these uncertain times. The recent market turmoil triggered by Silicon Valley Bank (SVB) and related banking events have added to the market uncertainty. We believe a systemic banking crisis should be averted but the market volatility may persist. We see the Asian markets as relative safe havens in the volatile markets.

Asian Banking Sector Resilient to Contagion Risks

Against the backdrop of heightened banking sector volatility in the U.S. and Europe, the Asian banking sector has stayed resilient to withstand contagion risks. Thanks to the robust capital adequacy ratios, liquidity positions, diversified business models and the broad and stable retail deposit base, Asian banks stand out as relative safe havens amid the sector uncertainty. In Hong Kong and Singapore, the total deposits have increased significantly. Asian banks do not have mismatch in asset and liability maturity because they have been prudently regulated after the 1997-1998 Asian financial crisis.

In our view, Asian banks have built strong capital buffers to resist recent volatility in the AT1 bond market, thanks to their much higher CET1 capital ratios versus regulatory requirements. In particular, mainland Chinese banks are insulated from the banking turmoil in the developed economies due to their domestic-oriented business portfolios and loan book. ASEAN banks are also well diversified across different industries and geographies within the region.

Positioning in Reopening Winners in China and Asia

We are fully overweight on China and EM Asia equities due to their resilient domestic fundamentals, positive growth outlook and attractive risk-reward profile. China’s policy pivot towards growth stabilisation is strategic and supported through multiple policy levers, and is less prone to U-turns than many investors seem to fear. China’s consumption-led recovery will not only support Asia growth but will also reduce the risk of a global recession.

Our high conviction theme on Asia’s reopening winners position in the beneficiaries of China’s speedy reopening and resumption of international travel. We favour quality leaders in travel, airlines, mass consumption, hospitality, food and beverages and Macau gaming sectors. China’s rapid reopening should lead to broadening of economic recovery; we like blue chip Chinese internet leaders which will benefit from the more supportive government policy, asset restructuring and fundraising opportunities, better growth outlook and improving consumer confidence. China’s accelerating housing recovery will boost demand for metals and construction equipment.

In Hong Kong, we see positive recovery outlook for the retail landlords due to expected improvement in occupancy rates, positive rental reversion and additional revenue from turnover rents. We think the insurance sector in mainland China and Hong Kong can benefit from a normalisation of activity levels, just as banks and stock exchanges can.

The ASEAN economies also emerge as major beneficiaries of China’s border reopening, as Thailand, Vietnam and Singapore are the top three travel destinations in Southeast Asia most favoured by mainland Chinese tourists. In Thailand and Vietnam, Chinese tourists made up about 30% of their overseas visitors before the pandemic. In Thailand, the government targets 5 million tourists from mainland China to visit the country this year, implying total tourist arrivals will almost triple 2022’s levels. According to the United Nations World Tourism Organization, last year the return of international visitors to Asia Pacific only reached 23% of pre-pandemic levels, setting the stage for a strong recovery to take place in 2023.

Green Transition and ASEAN Growth

Asia’s green transformation continues to be our high conviction theme, focusing on opportunities from the energy transition and independence, green infrastructure development and innovation of new energy vehicles technologies in the region. According to McKinsey, the addressable market size for green businesses in Asia is expected to reach between US$4 trillion and US$5 trillion by 2030, as sustainability is increasingly valued by various stakeholders, including investors, customers and employees.

China’s transition towards renewable energy and electric vehicles is well underway, backed by strong policy support and catalysed by the global energy crisis. During the March National People’s Congress, the government announced fiscal stimulus measures, including targeted tax cuts and fee reductions for green transition and exemptions of purchase taxes for new electric vehicles. Following the normalisation of construction activities post-Covid, our 2023 solar installation forecast for China is now at 120 GW, translating into robust growth of 38% y-o-y. On the other hand, energy storage is gaining traction, in particular batteries that are used in new energy vehicles and the renewable energy industry.

Apart from cyclical catalysts, the ASEAN economies ride on structural growth tailwinds in the next decade with the economic gravity shifting to Southeast Asia. Our high conviction theme on “ASEAN Tigers” captures secular growth opportunities in ASEAN consumption companies, infrastructure plays, banks and Singaporean REITs. ASEAN economies were supercharged by robust domestic demand and reopening tailwinds in 2022. We expect consumption to stay supportive of growth, though with a smaller impact given slowing global growth and base effects.

Asian Quality Credit for Resilient Carry Opportunities

As the Fed is stepping closer to the end of its tightening cycle, we see an improving outlook for the Asian credit market. We are bullish on the theme on Asian quality credit as we see an opportune time to switch from time deposits to high-quality credits to lock in yields at attractive levels. Within Asian fixed income, our duration preference remains short to medium, taking advantage of the inverted credit curve.

In terms of high-quality corporate bonds in Asia, we find a few sectors offering attractive investment cases, including high-quality Hong Kong corporate bonds which enjoy reopening tailwinds, Chinese technology, media and telecommunications (TMT) bonds on the back of normalisation in regulatory environment and Indonesian quasi-sovereign high-grade bonds given the country’s improving fundamentals.

Within the China property credit market, we continue to prefer higher quality issuers including the state-owned developers which have much stronger financial positions compared to privately-owned and highly geared developers.

About Fan Cheuk Wan
Fan Cheuk Wan is a member of the Global Investment Committee for Global Private Banking and Wealth and Chair of the Regional Investment Committee in Asia. Fan has 28 years of investment experience and is responsible for developing investment strategies and themes across all asset classes for private banking and wealth clients in Asia. With her investment expertise and wealth of market knowledge, her views are always sought after by the media, including Bloomberg TV, CNBC, Cable TV, NOW TV and Channel NewsAsia.

In an increasingly complex market environment, entrepreneurs are faced with challenges not just related to running their businesses, but also managing their accumulated wealth.

Customized Solutions for Different Entrepreneurial Needs

Partnering with the right private bank and wealth advisor is pivotal in setting up a path to success for their businesses and personal goals. With a customized and holistic wealth and legacy plan, be it guiding them through transitions such as liquidity events, or realizing their philanthropic aspirations, entrepreneurs are able to focus on their day-to-day business operations and success.

J.P. Morgan Private Bank clients are able to leverage the bank’s established global network, as well as access its comprehensive services in corporate and investment banking, commercial banking and asset management, giving J.P. Morgan Private Bank the capability to customize solutions for every stage of an entrepreneur’s business life cycle and private wealth journey.

Narrowing the Accessibility Gap

J.P. Morgan caters to the needs of established entrepreneurs who have accumulated substantial wealth, as well as startup founders beginning to make their mark on the business world. Unsurprisingly, the needs of these two groups differ greatly.

For example, startups are looking for connections and networks that can help take their businesses to the next level of growth, including funding needs. This goal is more challenging for enterprises led by women, who are faced with higher hurdles compared to their male counterparts.

A J.P. Morgan report found that women-powered businesses—defined as businesses founded and led by women—represent only 5.7% of around 15,000 high-growth businesses identified across Asia Pacific (APAC).

“The study confirms our observations that women are severely underrepresented in high-growth businesses in APAC. However, even when faced with the challenges of Covid-19, there has been an increase in the absolute number of women-powered businesses in APAC compared to five years ago, much more progress can be made to accelerate the pace of growth,” says Kam Shing Kwang, CEO of J.P. Morgan Private Bank in Asia and the Vice Chair of Investment Banking for Greater China.

“The year ahead will undoubtedly be challenging with a global economic slowdown looming. However, we are confident that as more women come together—through networks and government-aided initiatives—this statistic will continue to see an upward trend.”

The report aligns with our firmwide commitment to empower and fuel women’s ambitions by advancing financial equality at J.P. Morgan and in our local communities. This mission is driven by our global initiative called “Women on the Move,” formed in 2013 to support women in both their personal and professional lives.

“At J.P. Morgan, we are committed to playing our part in addressing gender equality—beginning with setting the tone from the top. In APAC, we have a number of senior women leaders who lead by example and help set precedent—and it shows, as The Private Bank leadership team in the region has equal representation,” says Kwang.

Jumpstarting Connections

The same study highlighted that entrepreneurs and leaders prioritize the importance of having a strong network that can help them build their expertise, as well as find champions and mentors to help them in their journeys.

“Starting a business is not easy. Many entrepreneurs have shared that the barriers they face as women, especially in certain sectors that are male-dominated, are significantly higher,” says Karen Tan, Head of Wealth Advisory for Singapore and Southeast Asia at J.P. Morgan Private Bank.

“At The Private Bank we leverage our global connections to bring together entrepreneurs to facilitate network building, linking them up with not just like-minded individuals in the entrepreneurial space, but also our client network and family offices who are keen to diversify their portfolios. We are committed to fuel the ambition and success of all women and support them in our communities—creating platforms to facilitate networking, knowledge and advice for women entrepreneurs, with the report’s focus on high-growth businesses in APAC.”

“At J.P. Morgan, we are committed to playing our part in addressing gender equality—beginning with setting the tone from the top. In APAC, we have a number of senior women leaders who lead by example and help set precedent—and it shows, as The Private Bank leadership team in the region has equal representation,” says Kwang.

Supporting Evolving Needs

J.P. Morgan advises entrepreneurs to help them grow and preserve their wealth, and provides support in important areas such as succession planning and philanthropy, offering sound and practical advice on creating a lasting legacy for them and the families, and the causes that they are passionate about.

“The needs of entrepreneurs tend to evolve over time with changes in their business and family circumstances. J.P. Morgan advises them over the course of this journey, helping them to think about their portfolios, their succession plans and giving back to the community,” says Tan. She notes that with longer life expectancies, women have an even greater need for support in their long-term wealth planning.

J.P. Morgan does this with its differentiated “goals-based” planning approach to help entrepreneurs manage their wealth over their lifetimes, as well as craft strategies for wealth transfer to the next generation. This involves determining what a client wants to achieve with their wealth, who could be best suited to take responsibility for its management, how assets should be held and how to prepare them for any future transfer.

J.P. Morgan’s global connectivity and universal banking capabilities also ensure that The Private Bank is able to serve its clients’ business and personal wealth needs across multiple geographies. For instance, the Bank has a dedicated team, 23 Wall, that provides the world’s most prominent families with access to the firm’s entire intellectual capital, balance sheet and deal flow around the world.

These capabilities are also backed by the firm’s fortress balance sheet, which helps to assuage any concerns over security and safety in an uncertain environment.

Investing for Future Growth

J.P. Morgan prioritizes investing in talent and technology to ensure the effective and efficient solutions and services are available to entrepreneurs around the world. Coupled with The Private Bank’s tried-and-tested “Integrated Team Model,” which provides clients direct access to a suite of specialists and experts, entrepreneurs can then focus on growing their businesses and taking it to the next level.

Looking ahead, it is critical for entrepreneurs to work with the right banking partner that can help bolster their wealth aspirations amid ongoing market uncertainties.

Whether you’re a successful entrepreneur or just starting out, The Private Bank is fully equipped to help you through different stages of growth, to achieve even greater success. J.P. Morgan Private Bank has been a trusted partner to entrepreneurs in Asia and beyond and is well positioned to navigate the entrepreneurial journey ahead.



Establishing Philanthropic Purpose

Giving back to the community has become a priority for many entrepreneurs and family businesses in Asia Pacific. Even in their investing activities, they are not only thinking for profit, but also for purpose.

To this end, a rising number of family businesses in the region are keen to set up philanthropic foundations to support causes that are meaningful to them. Others are also eager to help startups, not just in terms of funding, but also providing advice and mentorship to these budding enterprises.

“In the U.S., we already see so much being done by entrepreneurs to give back, and we are seeing greater interest and activity in the region, especially in places like Singapore and Hong Kong. We have witnessed wealthy families and successful entrepreneurs finding new avenues to pass on their wealth meaningfully and thoughtfully—with impact,” says Karen Tan, Head of Wealth Advisory for Singapore and Southeast Asia at J.P. Morgan Private Bank.

To help them in this growing space, The Philanthropy Centre at J.P. Morgan tailors its advisory service for clients at different stages of their donor journeys. When working with first-time philanthropists, the team focuses on helping them identify and articulate their passions, with the aim of understanding their primary giving interests and the social issues closest to their hearts.

Sometimes it involves building on a framework passed on to them by their predecessors, and coming up with a refined plan with specific and measurable goals that address issues they are most passionate about. In addition to mapping out their philanthropic journey, the team at J.P. Morgan Private Bank has the capability to advise which vehicles could be adopted to effectively achieve specific charitable goals, as well as provide the access to collaborate across the private and public sector—to collectively move the dial.

Click here for more information

learn.more@jpmorgan.com

Southeast Asia (SEA) plays a pivotal role in the world’s net zero transition. Southeast Asia is rich in natural resources and at the heart of many supply routes across the globe. The region holds some of the most valuable natural biodiversity in rainforests, mangroves, and peatlands.

However, Southeast Asia is also extremely vulnerable to global warming. Asia has 99 of the 100 most environmentally at-risk cities and crop yields could fall as much as 22% by 2050.

The good news is that many Southeast Asian governments have pledged ambitious carbon neutrality plans backed by massive stimulus to push for green and sustainable industries. And for good reason as the stakes are high.

As part of wider response measures, Southeast Asia’s governments are pledging investment in green technology. These commitments not only seek to address the immediate climate issues but have the potential to create more than US$1 trillion in annual economic opportunities by 2030, according to Bain.

For investors, this is a nascent opportunity as an emerging thematic trend. But knowing where governments and industry will focus efforts could build resilience into your portfolio to grow in tandem with the markets.

Here are themes and market developments to look out for.

#1: Building sustainable smart cities:
Southeast Asia is expecting a population surge of 90 million in the next decade, which will put more stress on existing infrastructure. Cities are a key contributor to climate change, responsible for 75% of carbon emissions, with transport and buildings being the largest emitters. Smart building solutions can unlock cost savings by adopting efficient energy usage.

However, to solve climate change, the future of transport has to be electric, which is insignificant at under 1% of market penetration globally. Indonesia has an ambitious target of producing 20% of electric vehicles of their total production in the next five years.

Globally, electric vehicles are expected to grow by 36% annually, reaching 245 million vehicles in 2030—more than 30 times above today’s level. Southeast Asia, coming from a low base, is expected to see bigger exponential expansion. In the region, electric two and three-wheelers will represent the lion’s share of the total electric vehicle fleet, as this category is most suited to rapid transition to electric drive.

With such goals, there will be immense improvement s in electric vehicle infrastructure. For example, Singapore is aiming to deploy 60,000 charging points and require all newly-registered cars to be cleaner-energy models by 2030 and phase out internal combustion engines by 2040.

#2: Transitioning to greener energy:
In the region, resource extraction and energy generation are still very much coal-reliant and inefficient, and must be decarbonised in a sustainable manner. ASEAN has set a target of 23% share of renewable energy in primary energy supply by 2025.

It is not realistic to suddenly replace fossil fuels with renewables. However, the transition to natural gas is one low-hanging fruit. The advancement of green hydrogen technology can possibly be a solution, but solar and wind has the potential to grow significantly due to substantial land mass in the region.

In Singapore, the government has commit ted to quadruple solar energy deployment by 2025, including covering the rooftops of public housing blocks with solar panels. In another decade, the ambition is to deploy five times that of today, with at least a two gigawatt-peak, capable of powering over 350,000 households a year.

Singapore can also play a crucial role as a clean tech hub as a test bed of commercialisation for new green technologies—such as green hydrogen and battery storage capabilities—and scale these solutions in other markets.

#3: Securing sustainable food chains:
Agricultural practices are subsistence and inefficient in many parts of the region, however, employing technology and localising production are key to feeding a growing and large urban population in a sustainable manner.

Singapore, as a small city with limited land for traditional agriculture, wants to increase its local food production through vertical farms and sustainable aquaculture that can increase yield.

Also, take for instance the upside in development of alternative plant-based protein, which is estimated to generate US$14 billion by 2025, globally. Singapore can be the launchpad for alternative plant-protein research such as cell-cultured protein, and the development of a plant-protein production hub for the region.

Indeed, sustainable agriculture and food technology can be scaled across SEA improving yield, production and security significantly.

#4: Reconfiguring to more efficient supply chains:
SEA’s manufacturing hub can become a viable alternative to China—and supply chains can be reconfigured sustainability. As supply chains shift to this region, more robotics and automation will be employed to improve productivity and energy efficiency.

Furthermore, the implementation of the Regional Comprehensive Economic Partnerships (RCEP), will allow a standardisation of cross-border regulations, which will promote trade efficiencies, streamline logistics and eventually reduce carbon emissions.

Capturing Southeast Asia’s Green Transition

Southeast Asia’s green transition should not be ignored by investors.

The investment case for Southeast Asia’s green opportunities will evolve from a small set of pure play renewable and clean tech companies to a broader set of opportunities across the whole economy. All companies across all sectors will be affected by climate change and are pressured by their shareholders to become net zero and have an action plan in place.

There is growing evidence that investors in the region have recognised the importance of the net zero transition. In Indonesia, Southeast Asia’s largest economy, there is growing demand for ESG solutions from investors, including high net worth and ultra-high net worth (UHNW) individuals and families.

Like their peers in other parts of Asia, Indonesia’s wealthiest are allocating a greater portion of their portfolios to ESG products. This is expected to gain pace as wealth continues to accumulate in the country. According to Statista, the number of UHNW individuals residing in Indonesia is forecasted to increase to over 1,100 in 2025, from 630 in 2020. Meanwhile, HSBC research shows that it is projected that Indonesia’s aggregated financial wealth is expected to grow by over 120% from 2022 to 2030.

The trend will also be fueled by Indonesia’s sustainable transformation. A study by PwC found that ESG is a top business priority for Indonesia, with the government introducing regulatory changes to strengthen the sustainable investment landscape.

On this front, HSBC helps its UHNW clients in Southeast Asia build more resilient portfolios by delivering a range of ESG investment solutions; encompassing a biodiversity thematic discretionary mandate, sustainable core multi-asset solutions and private equity impact funds.

There is a need for investors to be aware of these trends and avoid companies that fail to adapt to these changes. At the same time, investors can gain exposure to Southeast Asia’s green opportunities either through global companies—with strong ESG scores that are adapting to these trends, or pure-play companies that are pushing the boundaries of green innovation.

As Southeast Asia’s transition into a green economy gains traction, knowing what lies ahead will position your portfolio to capture a golden value creation opportunity.

About James Cheo
Mr. Cheo is a member of the Global Investment Committee for Private Banking and Wealth Management and also a member of the Regional Investment Committee in Asia. In his role, he spearheads the development of investment strategies across all asset classes for global private banking and wealth management clients in Southeast Asia. With his knowledge and wealth of experience, his investment views are frequently sought after, with appearances on notable financial media including BBC, Bloomberg, CNBC, and Channel News Asia.