​ ​US

While earlier concerns over the confidence crisis in the banking sector seems to have ebbed out, ne worries have kindled with the weaker economic data as of late. Major equity indices in the US had a mixed week, with the S&P 500 and the Dow gaining 0.98-1.90% over the past 4 days ending Wednesday, while the NASDAQ edged 0.14% lower. Cleveland Fed President Loretta Mester reemphasised that controlling inflation remains a key focus of the Fed, and suggested that rates should stay above 5% and hold. However, markets remained on the fence regarding whether the Fed will hike rates in the May meeting, and futures are pricing in around 3 rate cuts before the end of the year. Longer end treasury yields have fallen further amidst concerns over recession, with the 2Y yield falling to the 3.75% level, and the 10Y yield as low as 3.3%. Amidst the concerns on the economic health, OPEC announced a surprise production cut in response to the falling crude demand, WTI futures jumped to the $80 level, and this raises concerns over inflation possibly going higher.

As for the economy, both ISM PMIs in the US were weaker than expected, ISM manufacturing PMI was 46.3 in March, missing expectations and hit the lowest level since May 2020, ISM non-manufacturing index was 51.2 in March, missing market expectations of 54.5 by a far margin. JOLTs job openings in February was 9.931M, which fell below 10M for the first time, and was the lowest since June 2021. ADP employment change in March was 145K, missing expectations of 200K, both data points are now seemingly hinting at easing of the labour market. Next week, all eyes will be on the March CPI data releases, the US will also release the University of Michigan Sentiment for April, as well as March data on NFIB business optimism, industrial production, and retail sales data. The usual labour market data on the latest initial and continuing jobless claims will also be released, and the Fed will publish their FOMC meeting minutes for the March meeting.

 ​Europe

Trading week on European markets were cut short due to the Easter holidays, indices were mixed, with the German DAX slipping 0.01% lower over the past 4 days ending Wednesday, while the UK FTSE and French CAC gained 0.56-0.73% over the same period. More ECB officials have commented on the monetary policy outlook, with a majority of them agreeing that the majority of rate hikes are completed and further hikes might be limited. As for the economy, both German factory orders and industrial production grew MoM in February, surpassing market expectations. Eurozone Services were slightly revised downwards from 55.6 to 55.0 in March, but is still at the highest level since May 2022, manufacturing PMI was revised higher to 47.3, but remains in the contraction zone. Next week, there will only sparse economic data releases in Europe, Eurozone will release the retail sales and industrial production data for February, Germany and France will release the final CPI for March, and the UK will publish the industrial production data for February.

​China

Hong Kong markets had a really short trading week due to Ching Ming and Easter, markets reassess the current situation of the Chinese economy after mixed data releases. Over the past 4 days ending Thursday, the CSI 300 gained 1.13%, while the Hang Seng Index lost 0.34%. Regarding geopolitical tensions, Taiwan President Tsai Ing-wen had an unprecedented meeting with US House Speaker in the US. On the other hand, French President Emmanuel Macron and European Commission President Ursula von der Leyen were in China on a state visit, China’s blueprint for the Ukraine conflict resolution will likely be a key discussion topic. As for the economy, Caixin Manufacturing PMI was 50.0 in March, lower than the market expected 51.7, Caixin Services PMI on the other hand was 57.8 in March, which is the highest since November 2020. Next week, China will be releasing more data on the March CPI and PPI, as well as exports data and new home prices for March. Financial conditions data on Money supply M2, new loans, and aggregate financing data is also scheduled to be released in the week.

   ​ ​US

US equities had a mixed week amidst the recent volatility and uncertainty surrounding the banking crisis, the S&P 500 and Dow were down 0.29% and 0.44% over the past 5 days ending Thursday, while the NASDAQ gained 0.60% on the back of easing rate hike expectations. Financials remained under pressure, Treasury Secretary Janet Yellen reassured markets that further actions could be taken to support banks, following her earlier statement that the Treasury is no planning to provide blanket support to all bank deposits. The Fed announced a 25 bps hike during the week as widely expected, but softened the tone on future rate hikes, suggesting that rate hikes might be near its end, depending on future economic data. Fed President Jerome Powell reiterated that rate cuts are not in the Fed’s base case for the year, interest rate futures however ignored Powell and continued to price in 3 rate cuts before the end of the year. The latest Dot Plot also suggested a more divergent Fed, with close to half of the members estimating year end rates to go higher than 5.1%, rate cuts are also expected to arrive in 2024.

As for the economy, housing market data were mixed, new home sales in February were 640K, lower than the expected 650K, existing home sales on the other hand was 4.58M, beating market expectations of 4.19M by a far margin, building permits of 1.55M were also higher than the estimated 1.524M. The labour market data is equally mixed, with initial jobless claims of 191K coming in lower than expected, while continuing claims of 1,694K were higher than market consensus. Next week, the US will publish the Conference Board consumer confidence index for March, PCE data for February, alongside housing market data including mortgage applications and pending home sales. The latest labour market data on initial and continuing jobless claims will also be released.

 ​Europe

Credit Suisse was deemed unviable and was taken over by UBS through a government brokered deal, market regained footing later in the week as contagion risk seemed under control. Over the past 5 days ending Thursday, the UK, French, and German indices gained 1.21-1.63%. The CS takeover deal saw AT1 bondholder value completely wiped out, which roiled the European AT1 CoCo market. The Bank of England hiked rates for another 25 bps, citing that inflation ‘surprised significantly on the upside’ and the economy was stronger than expected, the bank also suggested that future rate hikes could be warranted if price pressures prove to be persistent. As for the economy, Eurozone consumer confidence of -19.2 in March missed market expectations and was lower than the February figure. German ZEW survey expectations and sentiment both missed market estimates and were lower than the previous figure. Next week, Next week, Europe will publish the latest CPI and economic confidence data for March, Germany will release the IFO business climate and expectations for March, and the UK will publish the finalised GDP data for 2022 Q4. The ECB will also release the latest edition of the Economic Bulletin.

​China

Hong Kong and China equities stabilised over the week, equity gains were led by the recovery in the tech sector. Over the week, the CSI 300 index gained 1.72%, the Hang Seng Index is 2.03% up, while the Hang Seng Tech Index was 6.16% higher. President Xi met Russian President Vladimir Putin during his state visit to Russia, both sides pledged closer ties, while China calls for a ceasefire in Ukraine, but the details were not well received by the Ukrainian side. More leader across the global have scheduled visits to China in the coming few weeks, including Spain, Brazil, and France, the Ukraine situation is expected to be a main point of discussion. In Hong Kong, Evergrande, the epicenter of the China property sector crisis, have announced the details of the debt restructuring plan, investors will receive new notes or a combinations of debt and other instruments. China announced no changes to the LPR as widely expected, but yet cut RRR by 0.25% from 27th March onwards to release further liquidity back into the market. Next week, China will release the NBS manufacturing and non-manufacturing PMIs for March, as well as the industrial profits data in February.

   ​ ​US

Market confidence faltered at the start of the week, but later regained as the Treasury and Fed provided guarantee and support to markets. Over the past 5 days ending Thursday, the Dow dipped 0.03%, while the S&P 500 and NASDAQ gained 1.07% and 3.34% respectively. The Silicon Valley Bank fell into FDIC receivership after a bank run, raising concerns that other regional banks might meet the same fate. Later in the week, it was reported that First Republic will receive funding from the large banks to relieve the liquidity stress, potentially bringing an end to the biggest financial confidence crisis in the US since 2008. The failure of SVB also raised speculation on the Fed’s monetary path for the year, market had diverged opinion on the monetary implications, interest rate futures showed that markets are on the fence over whether the Fed will hike 25 bps in the March meeting, and futures are now pricing in the possibility of rate cuts before the end of the year.

As for the economy, the important CPI data fell largely in line with market expectations, headline CPI in February was 6.0% YoY, core CPI was 5.5% YoY; the core CPI MoM figure was 0.5%, which is slightly higher than the market expected 0.4%. NFIB business optimism improved to 90.9 in February, though retail sales fell 0.4% MoM, which was a larger contraction than the expected 0.3% fall, after the upward revision of the January figure from 3.0% to 3.2%. As for the labour market, both initial and continuing jobless claims came in lower than market expectations, suggesting that the complete easing of the labour market is still not here yet. Next week, the US will be releasing the March data on Markit manufacturing and services PMIs, durable goods orders for February, alongside February housing market data on new and existing homes sales. The usual labour market data on initial and continuing jobless claims will also be a market focus. The US Fed will also hold their March FOMC meeting.

 ​Europe

Concerns over risk contagion in the banking sector spread to Europe, European equities came under pressure and investing sentiment deteriorated. Over the past 5 days ending Thursday, the UK, French, and German equity indices lost 3.97-5.96%. Concerns over Credit Suisse grew later in the week, CDS and bond spreads for Credit Suisse widened to default levels, and despite the open support from Swiss National Bank and regulator that CS will receive liquidity support if needed, prices remain depressed. Markets will continue be lookout for contagion risk in the market. Despite the turmoil in the markets, the ECB also went ahead with their earlier promise of a 50 bps hike in the March meeting, citing that inflation is ‘projected to remain too high for too long’. ECB President Christine Lagarde stated that the Bank has the tools to contain the situation in the banking sector, and showed their continued determination to fight inflation. However, the Bank did not offer forward guidance, citing that future decisions will depends on upcoming economic data. Next week, Eurozone will be releasing the Markit PMIs for March, as well as the Consumer Confidence data for March, Germany will release the latest ZEW survey expectations and sentiment. The Bank of England will also announce the latest monetary decision.

​China

Hong Kong and China equities had a relatively flat week, although the global bank rout hurt market sentiment. Over the week, the CSI 300 index was down 0.21%, while the Hang Seng Index was 1.03% higher. On geopolitics, US national security adviser Jake Sullivan mentioned that US President Joe Biden is expected to talk to President Xi, while Xi will visit Russia on a State visit over 20-22 March. China and Ukraine Foreign ministers talked over the phone, and Xi will also speak with Ukraine President Zelensky after the Russia trip. As for the economy, fixed asset investment grew 5.5% YoY in February, beating market expectations, retail sales 3.5% higher YoY in the month were in line with estimates, while industrial production growth of 2.4% YoY fell short of the market expected 2.6%, home prices also posted a gain for the first time in 18 months. Next week will once again be a quiet week for Chinese data, with the latest 1 and 5 year Loan Prime Rates (LPR) to be announced, markets expect the rates to remain unchanged.

   ​ ​US

Rate hike jitters continued to affect market sentiment, anticipation of further monetary tightening ahead pressured markets, with the 3 major equity indices losing 1.09-2.27% over the past 5 days ending Thursday. US Fed President Jerome Powell testified in front of Congress during the week, suggesting that the Fed sees higher interest rates for longer than previously thought. Markets reacted to the comment, according to interest rate futures, markets are now pricing in a higher probability for a 50 bps hike in the March FOMC meeting, and raised terminal rate expectations for the year to 5.625%. President Joe Biden presented the 6.8 trillion Budget proposal, which included more taxes, aiming to reduce government deficit by 3 trillion over the coming years. The administration also expects inflation to fall to 4.3% by year end, and unemployment to hit 4.3%, GDP growth is also expected to slow to 0.6% YoY for the year.

As for the economy, ADP nonfarm employment was 242K in February, higher than both market expectations and the January figure. On the other hand, Challenger reports showed that job cuts grew by 410.1% YoY in February, initial and continuing jobless claims also came in higher than market expected, initial jobless claims in particular were at the highest level since last December, which could be a sign that the labour market is easing. Next week, the US will be publishing more economic data, including the February data on the all-important CPI, leading index, NFIB business optimism, as well as the University of Michigan Sentiment index for March. Sectorial data on retail sales, industrial production, and housing starts will also be published alongside the regular labour market data on initial and continuing jobless claims.

 ​Europe

Contrary to the US markets, European equities had mixed performance over the week, the UK FTSE fell 0.81% over the past 5 days ending Thursday, while the French CAC and German DAX gained 0.43-1.99% over the same period. The Dutch government followed the US on China restrictions, announcing export controls on advanced microchip technology, which includes ASML made machines, Sino-European relations will remain a market focus. As for economic data, the final Eurozone GDP figures for Q4 2022 were downward revised to 0.0% QoQ from the earlier 0.1% growth, while Eurozone retail sales data in January contracted 2.3% YoY, which missed market expectations of a 1.8% fall. German factory orders grew 1.0% in January, higher than the expected 0.9% contraction; industrial production grew at 3.5% MoM, which also beat market estimates. Next week is a relatively quiet week on European data, with the only notable release on European industrial production data in January. Eyes will be on the ECB monetary meeting, with a 50 bps hike largely in the books, the OECD is also expected to publish the Interim Economic Outlook.

​China

Hong Kong and China markets continued the weak form since the end of January, partially due to the weaker sentiment. Over the week, the CSI 300 index is down 3.96%, while the Hang Seng Index is 6.07% lower. The Two Sessions were held over the week, Premier Li Keqiang mentioned in his government work report that China’s GDP is expected to grow by around 5% this year. On the other hand, President Xi was unanimously elected President and Chairman of the Central Military Commission, and Han Zheng returned to the center stage as the new Vice-President. As for the economy, exports fell 6.8% YoY in February, which was better than the expected 9.4% fall. Inflation data on the other hand came in lower than expected, February CPI in particular was 1.0% YoY, much lower than the market expected 1.9%; the PPI in February fell 1.4% YoY, also lower than both market expectations and the January figure. Next week, China will be publishing the February data on industrial production, retail sales, as well as fixed assets and property investments.

   ​ ​US

Positive economic data drove the expectations of further monetary tightening higher throughout the week, hitting market sentiment and compressed valuations. Over the past 5 days ending Thursday, the 3 major equity indices lost 0.45-1.1%. In response to the hotter data, several Fed speakers including Boston Fed President Susan Collins and Governor Christopher Waller suggested that more tightening could be needed to get inflation under control, Atlanta Fed President Raphael Bostic on the other hand agreed that data suggests that the Fed Fund Rates could be required to go higher, but he still prefers a 25 bps hike in the next FOMC meeting. The yield curve across the board shifted higher, even 30Y treasury yields breached the 4% mark during the week.

As for the economy, ISM manufacturing PMI for February came in at 47.7, which was slightly lower than market expected, Conference Board consumer confidence index for February was 102.9, which was significantly lower than the market expected 108.5 and January’s 106. Core durable goods orders in January grew 0.7% MoM, which was higher than both the market expected 0.1% and December’s 0.4% fall. The labour market on the other hand remains tight, as both the latest initial and continuing claims came in lower than market estimates and the previous figure, potentially intensifying core inflationary pressures. Next week, more US labour market data will be released. Apart from the usual initial and continuing jobless claims, the February data on ADP employment change, nonfarm payrolls, as well as the unemployment rate will be released.

 ​Europe

European equities had a mixed week, over the past 5 days ending Thursday, the UK FTSE edged 0.46% higher, while the French CAC and German DAX lost 0.45% and 0.96%. The ECB released their minutes of the February meeting, which showed that members aren’t too concerned about overly restrictive monetary policy at the moment, and the next point of contention will be to whether hike 25 or 50 bps in the May meeting. As for the economy, inflation data was the center of focus in the week, where the Eurozone CPI was 8.5% YoY in February. While the figure was slightly lower than January’s 8.6%, it is higher than the market expected 8.2%, and equates to a 0.8% gain MoM. The core CPI raised further eyebrows with the 5.6% YoY figure, which is yet another new record high. Next week, the Europe will release their final GDP figures for Q4 2022 and retail sales data in January, German will release their factory orders and industrial production data for January, and the UK will release their industrial production data for January.

​China

Hong Kong and China equities posted a slight rebound this week, market sentiment were lukewarm as the National People’s Congress is just around the corner. Over the week, the CSI 300 index gained 1.71%, while the Hang Seng Index gained 2.79%. PBOC Governor Yi Gang suggested that the current interest rate is appropriate at the press conference, and sees less room to cut bank reserve requirements, while Deputy Governor Pang Gongsheng reiterated the notion that housing is for living not speculation, the PBOC emphasized that stability remains the primary goal of the Bank. As for the economy, all PMIs came in higher than market expected in February, with Caixin Manufacturing PMI in particular also returned to the expansion zone. Next week, China will be releasing their exports data for February, alongside the CPI and PPI data for February, they are also poised to release the latest aggregate financing and money supply M2 figures for February. The National People’s Congress will also commence on Sunday.

   ​ ​US

US markets had a shorter trading week due to holiday, but continued see further correction as concerns over the stronger than expected economy and the Fed’s monetary pathway weighted on markets. Over the past 4 days ending Thursday, the 3 major indices lost 1.61-2.24%. The US Fed published the February FOMC meeting minutes over the week, although most officials agreed to the 25 bps hike, a few members favoured a larger 50 bps hike. Minutes also showed that officials anticipate more rate hikes ahead to bring down inflation, the terminal rate could end up higher than earlier indications. At the time of writing, interest rate futures showed that markets expect 3 more hikes in the year, and rates will peak at 5.25-5.5% around July.

On the economy front, both the Markit PMIs in February have surprised to the upside. Markit services in particular surpassed the 50 mark, surpassing market expectations and the January figure, and was the first expansion since June last year. Labour market data echoed the positive business sentiment, with both initial and continuing jobless claims coming in lower than both market estimates and the previous figure. With the labour market still red hot, concerns over inflation and further monetary tightening will likely linger. Next week, the US will be releasing ISM manufacturing and services indices for February, Conference Board Consumer Confidence index for February, as well as durable goods orders for January. The usual high frequency labour market data on initial and continuing claims will also be published.

 ​Europe

European equities also followed global markets and fell over the week on weaker market sentiment. Over the past 5 days ending Thursday, the UK, French, and German indices lost 0.37-1.31%. The final core CPI in Eurozone has been revised higher to a new historic high, markets are now pricing in close to 5 more rate hikes from the ECB for the year. However, Bank of France Governor Francois Villeroy de Galhau pushed back on the notion that ECB is committed to raising interest rates, suggesting that interest rates in Europe are already at a restrictive level. On the economy, Germany IFO business Climate in February was 91.1, which was slightly lower than market expected. Eurozone consumer confidence was -19, in line with market expectations. Eurozone PMI on the other hand was mixed, services PMI in February was 53, much better than the expected 51, manufacturing PMI on the other hand came in lower than expected and remained in the contraction zone. Next week, the Eurozone and member countries will be releasing the CPI data for February, while the European Commission will also publish the economic confidence for February.

​China

Hong Kong and China equities had a mixed week, the CSI 300 index posted a slight gain of 0.66%, while the Hang Seng Index lost 3.43%. Chinese recovery seems to be on track, as traffic congestion index hits a new high since the start of 2022. President Xi also reiterated the goals to support economic growth, and the China Securities Regulatory Commission announced a pilot scheme that PE funds can invest in property projects, in bids to further improve liquidity in the still struggling property sector. On foreign affairs, China State Councilor Wang Yi visited Moscow and met Russia President Vladimir Putin, while earlier talks between Wang and US Secretary of State Anthony Blinken in Munich turned sour, with the US warns China against providing lethal aid to Russia. Next week, China will release the latest NBS manufacturing and non-manufacturing PMIs, alongside the Caixin manufacturing and services PMIs.

   ​ ​US

US equities continued to move sideways, markets gave up nearly all gains after the higher PPI came out on Thursday. Over the past 5 days ending Thursday, the Dow posted a slight loss of 0.01%, while the S&P 500 and NASDAQ edged 0.22-0.56% higher. PPI was 0.7% MoM in January, much higher than the market expected 0.4%. Fed hawks suggested that rate hikes could continue further after the data came out, Cleveland Fed President Loretta Mester said she supported a 50 bps hike back in the February meeting, and said the Fed still have more work to do. St. Louis Fed President James Bullard stated that he also opted for a 50 bps hike last meeting, and sees a case for a 50 bps hike in the March meeting. According to Bloomberg, interest rate futures shifted higher, markets has priced in some possibility for a larger hike in March, and expects Fed fund rates to hit the 5-5.25% range by May.

The earnings seasons nears its end, with 404 out of 500 S&P 500 index reporting at the time of writing, 71% of reporting constituents reported sales growth, with overall growth averaging at 5.4%. Earnings on the other hand was worse, with over 36% of members reporting an earnings contraction, and overall earnings came in at a 2.73% contraction on average. As for the economy, apart from the PPI surprise, the January CPI also came in higher than expected. Retail sales grew 3.0% MoM in January, higher than the expected 1.8%. Labour market remains mixed, continuing claims were higher than expected, while initial claims came in lower. Next week, the US will release the latest Markit PMIs for February, PCE data for January, alongside housing market data on new and existing home sales in January, as well as the usual labour market data on initial and continuing jobless claims. The Federal Reserve will also publish the FOMC meeting minutes for the February meeting. 

 ​Europe

European equities performance varied, but the rally continued. Over the past 5 days ending Thursday, the UK, French, and German equity indices gained 0.07-2.47%. The first economic bulletin for the year was released earlier, projecting that the Eurozone economy will grow by 0.9% in 2023, while inflation will be at 5.6%, the report also suggests that the economy might be more resilient than earlier estimates. ECB chief economist Philip Lane suggest that the effects of tightening have yet to hit the economy, and he estimates that the tightening has lowered Eurozone inflation by 1.2% for the year. As for the economy, the preliminary Q4 Eurozone GDP grew 0.1% QoQ. The UK CPI was 10.1% YoY in January, which was lower than market estimates of 10.3% and the previous month figure of 10.5%. UK retail sales in January also grew 0.5% MoM, beating estimates of a 0.3% contraction. Next week, the Eurozone and the UK will release the latest PMI figures for February, the European Commission will release the latest consumer confidence data for February, and Germany will publish the IFO business Climate in February. 

​China

With a lack of positive news, China and Hong Kong markets fell over the week, led by selloff in the tech sector. The CSI 300 index lost 1.75%, while the Hang Seng Index was down 2.22%. Ever since the balloon incident, Sino-US tensions has remained elevated, but US have showed the intention to mend relations, it was reported that US Secretary of State Anthony Blinken is planning to meet China State Councilor Wang Yi in Munich, US President Biden also indicated that he would like to speak to President Xi over the matter. In other news, it was reported that current Chairman of China Securities Regulatory Commission (CSRC) Yi Huiman will take over the role of the chairman of the China Banking and Insurance Regulatory Commission (CBIRC), while current Vice Mayor of Shanghai Wu Qing will be the new Chairman of the CSRC. Next week will be another one light week on Chinese economic data, the latest 1Y and 5Y Loan Prime Rate (LPR) will be announced, and the market expects rates to remain unchanged.

Japanese markets started off the New Year in line with global markets, investment sentiment has improved on the back of more benign inflationary figures, as well as improving economic fundamentals. Over the month of January, the Nikkei 225 gained 4.72% (5.38% in US$ terms), while the TOPIX was 4.42% higher (5.07% in US$ terms)

The BOJ purchased a record number of bonds in January, reflecting market’s expectations for a gradual shift in the monetary policy. Market expectations for a hawkish shift is supported by the change in data. In the latest reading, inflation and wages in Japan have surpassed BOJ original targets, with the CPI coming in at 4% and cash earnings hitting a 4.8% growth in December. With reflation underway, the BOJ has more grounds to follow the path of monetary policy normalisation, which could take place after Haruhiko Kuroda steps down in April. 

The transition away from the current dovish policy could bring more pain to investment markets, as financing conditions tighten and valuations fall. We also note that economic fundamentals in the country remain mixed, household spending continued to fall on YoY and MoM basis, and PMIs missed expectations, with manufacturing PMIs remaining in contraction since November. While the Japanese economy is still expected to be supported by the re-opening across Asian and the economic recovery in China, headwinds remain that would likely pressure investment markets, we would not suggest overweighting Japanese equities considering the recent rally.

Fixed income posted decent gains at the start of the year, as markets expect inflation to ease over the year, and in turn monetary policy tightening are likely ending soon. In the month of January, Bloomberg Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds gained 3.28%, 4.01%, 3.81% and 3.20% respectively.

Inflationary pressures in major economies apart from China and Japan continued to ease, as energy and goods prices fell. Given the expectations of a gradually easing inflation, we tend to agree with the market’s view that further global monetary policy tightening is expected to be limited. At the time of writing, markets are pricing a slower pace of rate hikes, and would only take place in the first half of the year. Henceforth, our outlook for bonds is largely unchanged, we maintain our call to overweight in IG bonds, and lean slightly positive on duration.

With global rates close to the terminal rates, we expect less downside in bond prices. We also do recognise the risks of inflation staying higher for longer, which could increase further interest rate risks in the market, hence our mere slight positive tilt on duration. On the other hand, the slowdown in the economy, and the risks of recession, could boost the performance of IG bonds, while being relatively insulated from the widening credit spreads. We continue to recommend holding more IG bonds in the short term before opportunity presents itself in the equity space.

Overall emerging markets have performed reasonably well in the New Year, as markets shifted back to risk-on mode. Major EM equity markets apart from India posted gains, as expectations of a global recession have somewhat reduced. Over the month of January, the MSCI EM index gained 7.85%.

The global macro backdrop has improved over the month, economic fundamentals remain steady, while global inflation eased; the weakness of the US Dollar also provided further support to EM equity performance in the short term. That said, our view on EM equities has not materially shifted from our previous view, the many headwinds that would hinder the medium term outlook remained largely unchanged: Inflation remains high despite marginally easing; EM currencies have rebounded, but still faces the prospects of the Dollar rebounding upon monetary expectations shifts; external demand is also poised to further weaken as global economy slows down.

Hence, ex-China EM equities are expected to remain under more pressure overall. High inflation leads to a weaker consumption for internal markets, while EM governments are unable to answer with fiscal stimulative policies due to inflationary risks. Monetary policies will likely remain restrictive, hindering local economic growth. External market demand will likely remain weaker, until the global economy recovers. The China re-opening should boost demand and trade for neighbouring Asian economies. Hence, considering various factors, with the limited upside in the economy, EM equities are not exactly attractive at the current price point, we would opt to stay conservative in the short term, and only consider Asian EM if opportunity arises.