2024-10-14 07:04

Key takeaways As expected, the RBI changed its stance from “withdrawal of accommodation” to “neutral”, in order to buy itself more flexibility, while keeping rates unchanged. While the RBI will be carefully analysing the “inflation hump” expected in the September print, it expects one year-ahead-inflation at target levels of c4%. The sequencing is important; the stance was changed today, and we believe rate cuts will begin in the next meeting; we expect 50bp in rate cuts over December and February, taking the repo rate to 6%. In line with our expectation, the RBI kept the policy repo rate unchanged at 6.5%, but changed its stance from ‘withdrawal of accommodation’ to ‘neutral’. It further explained its intent to “remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth”. It also said that a neutral stance will give “greater flexibility and optionality” in monetary policy making. Five of the six MPC members voted for a pause in rates. The new MPC member, Dr. Nagesh Kumar, voted for a cut. All six members voted for the change in stance. As per Bloomberg consensus, a clear majority (40 out of 44 respondents) called for no change in rates. But it was rather divided house between those expecting a stance change, and those not. We believe that a bunch of softer growth indicators of late and our expectation that inflation will get to the 4% target by March 2025, made a case for a softer stance. But with key global uncertainties in the horizon such as US elections and oil prices, it would have been too soon for a rate cut. Careful sequencing We believe the RBI aptly put the horse before the cart. One, being an inflation targeter, it spoke more of upside inflation risks than downside growth risks. The animal analogy was not lost on us. The inflation elephant alluded to in past meetings had been sluggish, taking time to rein in. Meanwhile the inflation horse, mentioned in today’s meeting, had understandably been taken to the stables, but could bolt again if the stable doors were to be opened. We don’t particularly see this as hawkish. We see it aptly aligned with the RBI’s desire to remain close to the 4% inflation target. Two, the RBI seems to be sequencing its moves carefully, starting off with a softening of stance today. We believe the next move will be a 25bp rate cut in the December meeting. RBI style growth-inflation balance While the RBI mentioned that the balance between growth and inflation remains well-poised, we believe it fully acknowledged upside risks to inflation (namely adverse weather events, geopolitical conflicts, commodity price spikes), while not acknowledging the downside risks to its growth forecast. On inflation, Deputy Governor Patra spoke about the short term “inflation hump”, and RBI’s desire to see it pass. Indeed, September inflation is expected to come in at 5.2% y-o-y (versus 3.7% last month), led by base effects and select sticky food prices. On growth, the RBI continues to forecast GDP growth at 7.2% in FY25, which is higher than our forecast of 7%. In the Monetary Policy Report (MPR) which was released along with the policy statement, the FY26 growth forecast has also been kept at an elevated 7.1% (HSBC: 6.6%). But we are going to read between the lines. Even as the RBI highlighted upside inflation risks, the MPR unveiled a 4.1% inflation projection for FY26 (i.e. one year ahead inflation). Given the RBI is driven by future inflation expectations, this is another reason why we think a rate cut is coming up in December. Confident but not complacent The RBI sounded confident on many aspects of the macro economy: Liquidity has eased (after a tight second half of September), the term premium has been stable and transmission to credit markets has progressed satisfactorily (see exhibit 1). On the external front, the current account deficit is likely to remain at sustainable levels, portfolio flows have risen, and FX reserves are at record highs (of over USD700bn). Fiscal consolidation is also underway (though we believe that the centre’s consolidation may be partly offset by wider deficit at the states). But despite the confidence, the RBI was not complacent. In particular, it highlighted two areas of financial stability that need to be monitored. One, stress build-up in a few unsecured loan segments (like loans for consumption purposes, micro finance loans and credit card payments outstanding). And two, some NBFCs pursuing growth too aggressively with an “imprudent growth at any cost approach”. What next? We believe the recent softness in select fast moving growth indicators (PMI Manufacturing, motor sales, cement production, bank credit, corporate tax collections, GST revenue growth and goods exports) is more representative of sector rotation (from urban to rural) rather than a marked slowdown. Therefore, we think this will be a shallow rate cutting cycle, with an aggregate 50bp in easing. We expect a 25bp rate cut in December, followed by another one in February, taking the policy rate to 6%. This aligns with our real rate calculation of neutral rates at 1.75% (the average of the band the RBI communicated in the monthly bulletin), and our medium-term inflation forecast of 4.25%. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/2024-10/

2024-10-09 12:02

A sustainable future for beer Climate change affects the taste of beer, and firms in the industry need to ensure taste quality is maintained as demand rises. Brewers are also under pressure to be more sustainable in terms of water use, raw materials and packaging emissions. We think investor scrutiny of retailer commitments could help ensure beer is more sustainably enjoyable. In this issue of #WhyESGMatters, we discuss the climate and environmental issues associated with beer production and what brewers and investors can do to alleviate this impact. Did you know? Beer holds a volume share of 75% in the global alcoholic beverage market. An additional 55% primary energy is needed for one litre of beer packaged in glass vs. in aluminum cans. 90% of Europe’s aromatic hop field area is located in Slovenia, Germany and Czech Republic. Europe supplies 50-63% of hops globally. The average alpha acid content in hops decreased by 34.8% in Celje (Slovenia) between 1971 and 2018. Beer production accounts for 5% of the UK's total water demand. Did you know? Alpha acids are chemical compounds found in the hop plant, which are the source of bitterness, aroma and flavour in beer. Bitter hops have a higher alpha acid content and are generally used to extract bitterness. Aroma or finishing hops have a lower alpha acid percentage, but they contribute to the overall flavour profile. Changes in alpha acids affect the quality of aroma hops, which has an impact on beer’s flavour. Source: M Mozny et al., Climate-induced decline in the quality and quantity of European hops calls for immediate adaptation measures, Nature Communication, 10 October 2023; European Commission, Crop productions and plant-based products: hops and Hop report for the harvest year 2022; D Amienyo, A Azapagic, Life cycle environmental impacts and costs of beer production and consumption in the UK, The International Journal of Life Cycle Assessment, 2016, World Spirit Alliance, Spirits: Global Economic Impact study 2024. Climate change and beer Beer is one of the most popular drinks globally, accounting for 75% of total beverage alcohol volumes, compared to 10.4% for wine, and 9.9% for spirits. The beer industry sits just below spirits in terms of consumer spend, representing 40% of the alcoholic beverage market value. China, the US, and Brazil lead beer market share, accounting for 21.9%, 10.6%, and 7.8% of sales, respectively as of 2022, but Czechs consume the most beer per capita, over 6x China and 3x US, at 189 litres per year. Will climate change take the taste and aroma away? Hops: The growing consumer preference for beer flavours, which depends on high-quality hops, has led to increased focus on the impact of climate change on beer brewing. A recent study by the Czech Academy of Sciences and Cambridge University compared European aroma hops during two periods, 1971–1994 and 1995-2018, and found that rising temperatures associated with climate change delayed the start of the hop-growing season by 13 days from 1970 to 2018. This pushed back the critical ripening period towards the warmer part of the season, lowering the alpha acid content in hops and impacting the aroma and flavour of beer. Climate change is likely to continue to impact European and other top hop-growing regions globally, such as the US (Idaho, Oregon, and Washington), China (Xinjiang and Gansu) and Australia (Tasmania and Victoria). For example a decline of 20-31% in alpha acid content is anticipated in Europe by 2050, while overall yields are expected to shrink by 4-18%. Given that all G20 countries have seen rising temperatures, we expect hop cultivation in these other markets to face similar challenges. Beer production process Note: some techniques may vary, e.g., hops may be added at various stages of the process, such as mash hopping and dry hoping. Source: HSBC, Britannica. Malted barley: Climate change is also likely to affect malted barley crops, with big implications for the beer industry, given malt provides sugars responsible for alcohol concentration and proteins required for beer’s foaming properties. Indeed, one study shows that most of today’s barley harvesting areas will get warmer and dryer, resulting in sharp declines in yields, by 3-17%, depending on the environment. Research also suggests that increased temperatures and heat intensity can lead to significant rises in grain protein concentration, which reduces the starch concentration and enzymes necessary for high-quality malt and good beer production. What does this mean for the sector? We think investors should consider how hop and barley farmers, as well as firms in the sector, implement adaptation measures to ensure availability of high-quality crops. For example, some hop farmers are relocating their gardens to higher elevations and valley locations with higher water tables. They’re also building irrigation systems or protective shading structures and breeding more drought resistant varieties. Some commentators suggest that, ultimately, hop growing is likely to move to cooler locations, even such as Finland or Norway, due to cost considerations; this adaptation measure is proving to be effective in wine industry. For barley, similar adaptation measures can be done; researchers are also working on new strains of barley that can be grown in different conditions while maintaining malt brewing quality, such as ‘winter ready’ varietals. The environment and beer Throughout the lifecycle of beer, sustainability issues exist in the cultivation of raw materials, the production of beer by breweries, and in the packaging and delivering of beers to stores or other places. We discuss three key environmental impacts of beer below. Water Water is an essential component in farming beer’s key ingredients, barley and hops. According to the Water Footprint Network, malted barley required to produce one litre of beer needs nearly 300 litres of water. Water is also key in beer’s production processes, from the mashing of grains to washing and cleaning equipment after each batch is completed. The brewing stage itself consumes, on average, between 4-7 litres of water per litre of beer in smaller craft breweries. In the UK alone, the production of beer requires 185bn litres annually, c5% of the UK’s total water demand. Raw materials Malted barley encompasses a highly energy-intensive production process, so it’s unsurprising that among the raw materials used to make beer, it makes the biggest contribution to emissions. The use of pesticides and fertilisers not only releases further emissions but also raises biodiversity risks. Globally, 64% of agricultural land is at risk of pesticide pollution, and 34% of high-risk areas are high-biodiversity regions. Hops face similar challenges on top of the energy required to dry them before the boiling process. Contribution of different materials to beer’s overall emissions from raw materials Note: Hops are included in ‘Other’ Source: The International Journal of Life Cycle Assessment (2016) Packaging Emissions from packaging contribute the largest part of the beer industry’s carbon footprint, which is largely driven by the production and transportation of glass bottles. It’s estimated that one litre of beer packaged in glass requires 55% more primary energy, compared to the same volume in aluminium cans. Recycling and reducing the weight of glass packaging is key: a 10% weight reduction is estimated to save 5% of emissions. At the same time, kegs are the most sustainable option as they can have a useful life of more than 30 years and can be reused more than 150 times before being recycled. Emissions intensity of beer by packaging and life cycle stage Source: The International Journal of Life Cycle Assessment. Addressing sustainability issues Recent years have seen the rise of carbon-neutral and net-zero breweries. Carbon neutral breweries emphasise the use of carbon offsets, conversely, net-zero breweries take a more proactive approach by addressing emissions across production and supply chains, integrating renewable energy sources and efficient technologies. Brew without the buzz With the rise of health-conscious consumers, a rising number of consumers chooses non-alcoholic beverages. According to a 2023 UK survey, 44% of individuals aged 18-24 consider themselves either occasional or regular drinkers of non-alcohol alternatives, and 33% consider themselves non-drinkers. The industry is catching the drift: popular beer brands have started producing low and non-alcohol beers. Non-alcoholic beers require less processing and resources than alcoholic beers and are therefore more sustainable. But the environmental impact of barley and hops, which are still key to their flavour, remains significant. Flavours fading for craft brewers We think beer lovers should be aware that these flavoured or hop-forward beers come with a higher environmental impact; they require more aroma hops and are often more water and space intensive than other hop varietals. For example, in the US, it takes c70% more land and water to produce one kilogram of aroma hop pellets than for alpha hop pellets. Actions towards sustainable beer production Source: HSBC; Responsible Brewing: An Introduction to Water, Energy, and Waste Management in Breweries, Medium, 08 July 2023; R Nieto-Villegas et al., Effects on beer attribute preferences of consumers’ attitudes towards sustainability: The case of craft beer and beer packaging, Journal of Agriculture and Food Research, March 2024. 4. Conclusion As climate change continues to impact the beer sector, we think investors should also continue to scrutinise companies’ sustainability commitments in the beer industry; future improvements should focus on the raw materials stage, especially malted barley, as well as packaging and water use. An increased focus on adaptation measures is also required to meet beer demand without reducing its quality. We believe that over time, investors input could help make beer more sustainably enjoyable. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/2024-08-20/

2024-10-08 12:02

Key takeaways Surging exports are providing a powerful boost to growth across much of ASEAN… …while foreign direct investment continues to remain a bright spot for the region Easing inflation and interest rates should provide a cushion beyond the Year of the Dragon. Indonesia looks to pick up a little steam as well next year, though it will need to heed the pitfalls of easy choices and fiscal slippage to make gains stick for the long term. Things are also ticking up in Thailand, as a new government gets to work, and the tourism recovery continues apace. Malaysia is riding the wave of inward investment, though growth may cool at the margin over the coming year. Singapore, meanwhile, is chugging along, with its growth so far this year better than hoped, though slower global trade could soon add a little drag. The Philippines is taking a little breather this year, before revving up again in 2025 as inflation tumbles and spending power increases. Vietnam has overcome its dip in growth, helped by a robust external sector, while local demand is reviving. Economy profiles Key upcoming events Source: Refinitiv Eikon, HSBC Indonesia A new innings Following the election in February, the General Election Commission (KPU) announced in March that Prabowo Subianto has won an outright majority, garnering 58.6% of the votes, and is set to be Indonesia’s next president, starting on 20 October. All eyes are now on the key people and policies the new government champions. The continued presence of technocrats in key ministerial posts would signal a desire to push ahead with reforms, and the final legislative count will determine the parliamentary muscle power behind potential reforms. Prabowo has spoken at length about continuing current President Jokowi’s reforms – embarking on down-streaming 2.0 and continuing the infrastructure build-out. However, we believe there will be challenges along the way: for instance, slower global demand for nickel electric vehicle (EV) batteries, lowering Indonesia’s carbon footprint, and restructuring certain state-owned enterprises (SOEs). Prabowo has outlined plans to upgrade defence systems and enhance social welfare schemes (in particular a new free lunch programme at schools). The challenge is to keep a lid on the fiscal deficit and hold on to Indonesia’s well-maintained macro stability over the next five years. We do believe that a decade of reforms has put in place several buffers that would help keep the house in order, at least in the short term. For instance, better infrastructure and lower logistics costs will likely keep a lid on core inflation, as has been clear in recent months. Supply-side reforms could help further control the rise in food inflation. And rising exports of processed metals will likely keep the external deficits manageable. For now, however, growth is rather weak. Q2 GDP was 7.8% below pre-pandemic trend levels. The contraction in July and August PMIs suggest that activity weakened into Q3. As Bank Indonesia (BI) cuts rates, the new government takes over and announces its vision, thereby lowering policy uncertainty, and FDI inflows waiting on the side-lines flow in, we believe growth prospects could improve. We expect GDP growth to rise from 5% in 2024 to 5.3% in 2025 and 2026. Our growth model suggests that switching to loose fiscal and monetary policy could help raise growth, but only partially. Moving further up the manufacturing value chain, and graduating from exporting just ores and metals, to exporting EV batteries and EVs, and thereby reducing the impact of commodity price shocks on the economy, could push potential growth to 5.8% by 2028. PMI Manufacturing has slipped into contraction Source: CEIC, HSBC Inflation is well below BI’s 2.5% target Source: CEIC, HSBC Malaysia At full steam After slow growth in 2023, Malaysia’s economy has been roaring again, expanding by 5.1% y-o-y in 1H24. The momentum has also been impressive, hitting 2.9% q-o-q, seasonally adjusted, in 2Q. Beyond strong headline numbers, what is more encouraging is the breadth of the recovery. For one, the long-anticipated revival in manufacturing is rather outstanding. Albeit delayed compared to peers, Malaysia’s manufacturing and trade sectors have finally turned the corner, riding the global tech upturn. After a long stretch of annual declines, electrical and electronics shipments returned to growth on a three-month moving average basis, albeit this remains at a nascent stage. Meanwhile, there is a mixed performance in commodities, with palm oil and LNG exports leading. In addition to manufacturing, what was a great surprise is the performance of construction, which expanded by a double-digit y-o-y pace for the second consecutive quarter. Coupled with the expenditure side of the gross fixed capital formation data, this is not only related to the government’s recent increase in public investment but also reflects rising interest in FDI-related large-scale projects. Meanwhile, services continue to show strength. Not only has private consumption shown resilience, but tourism has also added much-needed fuel, as Malaysia has welcomed tourists equivalent to 90% of its pre-pandemic levels. Given the upside surprise in 2Q, we recently upgraded our GDP growth for 2024 to 5.0% (previously: 4.5%), while keeping 2025 growth at 4.6%. Outside of growth, inflation pressure remains largely muted, despite diesel subsidy rationalization in June. Headline inflation averaged around 1.8% y-o-y in the first seven months of the year. Even after taking into account unfavourable base effects, we expect manageable inflation. We forecast inflation at 2.3% in 2024 and 3.0% in 2025, though acknowledge uncertainty from the potential subsidy rationalisation on the petrol RON95. Our base case is for Bank Negara Malaysia (BNM) to keep its policy rate steady at 3.0% for a prolonged period. As long as inflation falls within BNM’s 2-3.5% forecast range, we do not expect the central bank to move. That said, the risk of a hike is higher than a cut in Malaysia, compared to regional peers. Malaysia has seen a near-full recovery in mainland Chinese tourists Source: CEIC, HSBC. Note: YTD is July for all except MA (June). Inflation has remained manageable, providing room for BNM to stay on hold Source: CEIC, HSBC Philippines Red-eye flight to easing The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), embarked on its easing cycle in August, cutting its policy rate by 25bp to 6.25% – even before the Federal Reserve (Fed) had lowered its policy rate. It is good to look back to see how impressive this was. From 2022 to 2023, not only was inflation in the Philippines the highest in ASEAN, but the economy’s current account deficit was as wide as it was in the run-up to the Asian Financial Crisis. Many, including HSBC, thought that monetary policy in the Philippines had the least independence from the Fed when compared to others in ASEAN. However, the Philippines in 2024 held itself together and turned the corner. The authorities cut the tariff for rice – the country’s most ubiquitous staple – from 35% to 15%, setting the stage for headline inflation to ease to below 3% y-o-y, or to within the lower bound range of the BSP’s 2-4% target band. The current account deficit is also moderating at a pace faster than expected, thanks to the economy’s Business Process Outsourcing (BPO) sector booming over the past year. This provides the BSP with inflows to help strengthen the peso and some support to wiggle away from the Fed. And, given how far inflation can still ease, the BSP already signalled that more rate cuts are to come. The easing cycle comes at a good time. Although growth in the Philippines has held up relative to the rest of Asia, some cracks are already showing. For instance, growth in household consumption dipped to its lowest level since the Global Financial Crisis, barring the COVID-19 pandemic, while growth in durable equipment investment has fallen for the second consecutive quarter. Credit in the economy also remains weak with the cost of borrowing high. That said, we expect the BSP’s easing cycle to reinvigorate small- to medium-scale investments and reduce the debt burden of households, bolstering growth in 2025 and 2026. We are even more bullish on next year’s prospects, with the tariff rate cut on rice potentially freeing-up 1.1% of the economy for growth. With inflation on its way down but nothing terrible happening to GDP, we expect the BSP’s easing cycle to be gradual. We expect only one more 25bp rate cut (to 6.00%) in 2024 and pencil in a total of 100bp worth of rate cuts in 2025, bringing the year-end policy rate to 5.00%. We think the easing cycle will end in 2025, so we expect the policy rate to remain at 5.00% throughout 2026. Due to the tariff reduction on rice, we expect inflation to be below 3% in 2025 Source: CEIC, HSBC. Note: Grey area represents HSBC forecasts. The services trade surplus widened in 2023-24 due to a boom in BPO exports Source: CEIC, HSBC Singapore A mixed bag Singapore has made good progress in its economic recovery in 2024. While the possibility of a technical recession was still on the cards in 2Q23, the recovery momentum continues, helping Singapore to emerge from a severe downturn in the trade cycle to see healthy growth of c3% y-o-y in 1H24. While manufacturing remained in contraction, the magnitude was much smaller, and it is also a mixed story. The culprit was falling pharmaceutical output, which is volatile in nature, and could swing back to growth later. Electronics output still saw a decent recovery, though the pace lags behind other tech-exposed economies like Korea and Taiwan. But this is because they have heavier exposure to Artificial Intelligence (AI)-related production, and Singapore is set to ride a broader recovery in consumer electronics. Despite still subdued manufacturing activity, better-than-expected services came to the rescue. But it is also a mixed bag. On a sequential basis, domestically oriented sectors fared better, while consumer-facing and travel-related ones saw large corrections in 2Q. But this was largely expected, as a busy line-up of large-scale international concerts was concentrated in 1Q. That said, there is still potential to grow further. Singapore has welcomed visitors equivalent to almost 90% of 2019’s level in 1H24. July saw for the first time the return of Chinese tourists exceeding the monthly 2019’s level. All in all, we recently upgraded our growth forecast to 3.0% (previously: 2.4%) for 2024 and maintain our 2025 growth forecast at 2.6%. In addition, the disinflation progress also continues with core inflation decelerating to 2.5% y-o-y in July. Services inflation like education and healthcare continued to trend down, but entertainmentrelated costs barely budged. Most importantly, fuel and utilities cost momentum was muted, and oil prices are likely to stay relatively range-bound for now. As such, we recently revised down our core inflation forecast to 2.8% for 2024 (previously: 3.1%) and 1.9% for 2025 (previously: 2.2%). Despite cooling inflation, we do not believe this will prompt the Monetary Authority of Singapore (MAS) to ease anytime soon; at least inflation trends on their own may not be enough to warrant an easing bias from the MAS. Singapore’s semiconductor NODX has rebounded to double-digit growth Source: CEIC, HSBC Core inflation has been consistently slowing Source: CEIC, HSBC Thailand It’s complicated Thailand’s GDP growth accelerated to 2.3% y-o-y in 2Q 2024, with its fiscal engines finally up and running, despite delaying the release of its budget for six months. The manufacturing production index in July also at last turned positive after falling for roughly 21 months, while goods exports leaped by 21.8% y-o-y as Thailand benefitted from the global tech upcycle. This coincides with the PMI new orders index, which just turned expansionary for the first time in 12 months back in July. All in all, it seems the economy is finally revving up. We expect Thailand to stage a V-shaped recovery for the remainder of 2024, growing 2.7% and 3.7% y-o-y in 3Q and 4Q 2024, respectively. However, a lot happened before the economy got to where it is now. Amidst tough competition from mainland Chinese imports, headline inflation dropped back to below the Bank of Thailand’s (BoT) 1- 3% target band, while the trade balance swung back into deficit. Thailand also saw its political landscape change quickly: in less than 48 hours after Srettha Thavisin was removed from office, parliament elected Paetongtarn Shinawatra as Thailand’s youngest Prime Minister in history. Although progress hasn’t been a straight line, the general direction is improving. In fact, amidst the political volatility, financial markets in Thailand finally ticked up after underperforming for 12 straight months. The SET index in September jumped for the first time this year, while the THB nominal effective exchange rate (NEER) is nearing its pre-pandemic levels. The Thai economy, however, isn’t all in the clear. Yes, government spending and tourism continue to fuel growth. But headwinds persist in manufacturing and consumption. Competition from mainland Chinese imports may limit how far manufacturing can improve while Thailand’s high household debt will likely be a major drag on private consumption. That’s the complicated part. Although headwinds are strong and inflation is weak, we do not expect the Bank of Thailand (BoT) to ease monetary policy from now until 2027. Keeping the policy rate at 2.50% should help guide Thailand’s much-needed deleveraging cycle, particularly on household debt. The SET index finally turned after the new government was formed in August Source: Bloomberg, HSBC Household debt is a structural issue that the authorities have prioritised to tackle Source: BIS, Macrobond, HSBC. CN – Mainland China, Em – Emerging, BZ – Brazil SA – South Africa, MX – Mexico, RU – Russia, and TU – Türkiye. Vietnam Waiting for further lift Vietnam’s economic recovery continues to firm up as the Year of the Dragon progresses. Growth improved and surprised on the upside in 2Q24, rising 6.9% y-o-y in 2Q24. The recovery in the external sector has started to broaden out beyond consumer electronics, although the pass-through to lifting the domestic sector still remains to be seen. For one, the manufacturing sector has emerged strongly from last year’s woes. PMIs have registered five consecutive months of expansion, while industrial production (IP) has registered a bounce-back in activity for the textiles and footwear industry as well. This has supported robust export growth at double digits, with structural forces, such as expanding market access for Vietnamese agricultural produce, also underway. However, the domestic sector is recovering more slowly than initially expected, with retail sales growth still below the pre-pandemic trend. Encouragingly, the government has put in place measures to support a wide range of domestic sectors that is expected to shore up confidence with time. Environment tax cuts on fuel and value-added tax cuts for certain goods and services will last until year-end 2024, while the revised Land Law effective from August will buttress the outlook for real estate. Albeit still early, the latter seems to have already contributed to a boost in foreign investment in the sector, with recent FDI showing broad-based gains. We believe the potential upside risks can offset the temporary economic disruptions from Typhoon Yagi. All in all, we forecast GDP growth at 6.5% for both 2024 and 2025. On inflation, price developments are turning more favourable in 2H24, as unfavourable base effects from energy have faded. An expected Fed easing cycle will also help to alleviate some exchange rate pressures. Taking all these into consideration, we forecast inflation at 3.6% in 2024 and 3.0% for 2025, both well below the State Bank of Vietnam’s target ceiling of 4.5%. Vietnam’s key exports continue to recover, with signs of broad-based growth Source: CEIC, HSBC Inflation moderated notably in August and is expected to remain well below target Source: CEIC, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/asean-in-focus/2024-10-08/

2024-10-08 07:05

Key takeaways US stocks and Treasury yields edged lower. European stocks fell; government bonds rose. Asian stocks traded lower. Markets US stocks ended mostly lower on Tuesday amid mixed US economic data releases. The S&P 500 fell 0.2%. US Treasuries rose modestly after mixed and noisy jobs data. 10-year yields fell 2bp to 4.15%. European stocks fell on Tuesday. The Euro Stoxx 50 closed 0.6% lower. The German DAX lost 0.6% while the French CAC fell 0.2%. In the UK, the FTSE 100 ended down 0.7%. European government bonds posted modest gains. 10-year German and French bond yields edged down 1bp to 2.84% and 3.55% respectively. Bucking the regional trend, 10-year UK gilt yields rose 3bp to 4.52%. Asian stock markets mostly fell on Tuesday amid investor caution ahead of US jobs reports. Regional tech shares declined on concerns over their US peers’ AI capex and lofty valuations. Japan’s Nikkei 225 lost 1.6% on a stronger yen, while Korea’s Kospi dropped 2.2%. China’s Shanghai Composite and Hong Kong’s Hang Seng fell 1.1% and 1.5% respectively. Elsewhere, India’s Sensex shed 0.6%. Crude oil prices dropped on Tuesday. WTI crude for January delivery settled 2.7% lower at USD55.3 a barrel. Key Data Releases and Events Releases yesterday In the US, nonfarm payrolls rose 64k in November after a 105k decline in October. The October reading was dragged down by a sharp drop in federal employment from the government’s deferred resignation programme. The unemployment rate rose to 4.6% in November from 4.4% in September. Retail sales were flat over the month in October, with headline sales held down by a drop in auto sales. Auto sales fell after consumers front-loaded purchases ahead of the 30 September expiration of electric vehicle credits. Excluding autos, retail sales rose 0.4% mom in October while controlled retail sales (ex-autos, gasoline, and building materials) posted a 0.8% mom gain. Meanwhile, the flash composite PMI dipped to 53.0 in December, from 54.2 in November, but remains in expansion territory. The Eurozone flash composite PMI fell to 51.9 in December, from 52.4 in November, below market expectations. The UK flash composite PMI rose to 52.1 in December, from 51.2 in November, exceeding the market consensus. Releases due today (17 December 2025) In the UK, CPI inflation likely moderated to 3.5% yoy in November, from 3.6% yoy in October. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-daily/id/

2024-10-07 12:02

Key takeaways “Safe haven” currencies should be supported amid heightened geopolitical concerns. The USD has bounced back; but both the JPY and CHF weakened, probably reflecting local dynamics. The USD may be a better “safe haven” than the CHF or JPY. The USD has strengthened recently, as markets are digesting heightened geopolitical risks in the Middle East. At the same time, the recent dovish developments related to the European Central Bank (ECB) and the Bank of England (BoE) have also supported the USD, from the yield differential’s channel (Chart 1). Markets are currently fully priced for 25bp cuts at both the 27 October and 12 December ECB meetings (Bloomberg, 3 October 2024). In the UK, BoE Governor, Andrew Bailey, said policymakers could be a bit more aggressive and activist if inflation continues to decelerate (The Guardian, 3 October 2024). Unlike the USD, both the JPY and CHF have weakened lately, reflecting local dynamics. In Japan, markets are digesting comments from the new Prime Minister, Shigeru Ishiba, who said the economy is not ready yet for further interest rate hikes (Bloomberg, 2 October 2024). At the same time, the Bank of Japan (BoJ) Governor, Kazuo Ueda, said he would move cautiously when deciding whether to hike further (Bloomberg, 2 October 2024). The BoJ is widely expected to keep rates unchanged at its 31 October meeting. The attraction of the JPY as a “safe haven” currency may have to contend with the less hawkish tone from Japanese policymakers. That being said, our economists expect the BoJ to hike its policy rate to 0.5% in January 2025. With the prospect of monetary policy divergence between the Federal Reserve and the BoJ, USD-JPY is likely to decline moderately (Chart 2) over the medium term, in our view. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, in his first speech as Swiss National Bank’s (SNB) president, Martin Schlegel, indicated that the central bank can intervene in currency markets if required and stands ready to lower interest rates again (Bloomberg, 2 October 2024). In other words, the SNB’s tolerance for CHF strength would likely have its limits. Perhaps, the USD is a better “safe haven” currency than the JPY and CHF amid heightened geopolitical risks, and in the run-up to the 5 November US elections. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2024-10-07/

2024-10-07 07:05

Key takeaways Recent stimulus announcements have sparked a dramatic recovery in China’s stock market – making it the top performing global market this year… and perhaps the strongest example yet of the great rotations we’ve seen in markets in 2024. Back in March 2021, Banco Central do Brasil (BCB) became one of the first major central banks to start hiking rates in response to the pandemic surge in inflation. As a global leader in the policy cycle, could September’s BCB rate hike be a cautionary tale for the Fed, just as it kicks off its easing cycle? European stocks outperformed their US peers in Q3, helped by the ‘broadening out’ trade and their strong exposure to China, with investors seeking value outside the US. However, there is an intriguing disconnect between country-level macro data and profit growth expectations. Chart of the week – Emerging markets are back There were some remarkable twists and turns in the macro and market environment in Q3, and one of the biggest was the recent Politburo-endorsed package of support in China. That sparked a stunning rally in the country’s stocks, which reversed China’s laggard status this year, and put the overall performance of emerging market stocks at +19% year-to-date, slightly ahead of developed markets. Policy was a major focus during the quarter, with the Fed finally joining the global easing cycle with a 0.5% rate cut. The backdrop to that move is that the economy remains on course for a soft landing. Despite some bumps, inflation continued its retreat, but growth also cooled, with mixed employment data causing volatility at times, particularly in early August. In markets, a ‘great rotation’ in leadership was a strong theme. In developed markets, the ‘Magnificent 7’ were robust – rising around 4%, but there were more signs of a broadening out of returns and profit growth expectations across sectors and markets. Japan, Europe, and UK indices largely outperformed the US. And in the US itself, the small-cap Russell 2000 beat the S&P 500. Meanwhile, emerging market regions accelerated on a weakening US dollar and anticipation of rate cuts, with Asian regions setting the pace (see Market Spotlight), but Latam markets continued to lag. Across other asset classes, high quality fixed income performed as the global easing cycle progressed. Market Spotlight Emerging Asian assets lead in Q3 Stocks in mainland China and Hong Kong set the pace in Q3 – with a remarkable rally late in the quarter delivering gains of 23% and 24% respectively for MSCI indices. But even before that, weakness in the US dollar as Fed policy easing got started (and rate expectations were repriced) sparked a pick-up in the performance of EM Asian markets. ASEAN was notable, with the region’s MSCI index up 19% in Q3. That was driven by a rebound in foreign inflows in response to the favourable FX environment, regional monetary easing, and a resilient macro backdrop. Thailand, the Philippines, and Malaysia led the gains. Year-to-date, China, India, and Asia (ex-Japan) now lead global performance. EM Asian credits were also strong during the quarter, with Asia high yield a leading performer globally. In part, that was driven by well-performing names in markets like India and Indonesia. And from here, some specialists believe the default outlook is favourable with good funding access, strong balance sheets and a resilient macro backdrop for a vast majority of Asian companies. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 11.00am UK time 05 October 2024. Lens on… China’s breathtaking rally Recent stimulus announcements have sparked a dramatic recovery in China’s stock market – making it the top-performing global market this year… and perhaps the strongest example yet of the great rotations we’ve seen in markets in 2024. The gains are impressive. But the starting point was one of serial underperformance, connected to concerns about nominal growth. On valuation measures like ‘earnings yield’, there had been a large ‘China discount’, which gave stocks room to move sharply on better-than-expected news. It meant the stimulus was ‘doubly good’ for the market because investor sentiment had been so bad. After a rally of historic proportions, some short-term caution is probably warranted. But the comprehensive liquidity measures mean that the ‘policy put’ is back. Further fiscal and credit stimulus will be crucial to make the market recovery sustainable, but China’s policy stimulus, combined with Fed jumbo cuts, improves the odds that the global economy will stick to a soft landing. Brazil – a warning for the Fed? Back in March 2021, Banco Central do Brasil (BCB) became one of the first major central banks to start hiking rates in response to the pandemic surge in inflation. As a global leader in the policy cycle, could September’s BCB rate hike be a cautionary tale for the Fed, just as it kicks off its easing cycle? Brazil’s recent switch to policy tightening came a year after the country’s leadership launched a public spending spree that fuelled domestic demand. Tight labour markets, a pick-up in wage growth, and a weaker Brazilian real have since proved inflationary. For some onlookers, there are similar risks lurking in the US. November’s US presidential election could result in a sizeable fiscal boost and shift tariff rates higher, while the US dollar remains on a weakening trend. The comparison is off the mark. The fiscal boost wouldn’t come until 2026, and the labour market and wider economy is cooling. But the potential shift in policies could mean a higher-than-expected endpoint for rates in this policy easing cycle, with consequences for longer-term investors. Conflicting signals for European profits European stocks outperformed their US peers in Q3, helped by the ‘broadening out’ trade and their strong exposure to China, with investors seeking value outside the US. However, there is an intriguing disconnect between country-level macro data and profit growth expectations. On the macro front, Europe is expected to grow in 2025, but recent activity data for Germany and France has been weak, with manufacturing PMIs well below 50. Germany’s auto sector is struggling in particular. By contrast, the same industrial confidence surveys in Spain have been more positive. Meanwhile, the big drivers of wider European profit growth – which is expected to jump from 2-3% this year to around 10% in 2025e – are pencilled in as Germany and France. Both are forecast to move from low single digits in 2024e to 10-13% next year. But Spanish EPS growth is set to fall. This apparent contradiction in the macro outlook and expected earnings growth implies scope for surprises. Past performance does not predict future returns. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 11.00am UK time 05 October 2024. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 11.00am UK time 05 October 2024. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Market review Heightened geopolitical concerns weighed on risk markets, with oil prices climbing on rising supply worries. The US dollar DXY index was little changed. Core government bonds were mixed, with US Treasuries weakening on comments by Fed Chair Powell that there was no urgency to ease policy. Bunds rallied on dovish ECB comments. Global equities softened, with US stocks falling across the board, and the small-cap Russell 2000 faring worst. The Euro Stoxx 50 fell on growing concerns about the eurozone’s economic outlook, while Japan’s Nikkei 225 was little changed despite a weaker yen following comments by new LDP president Ishiba on monetary policy. In emerging markets, the Hang Seng rallied further, Korea’s tech-driven Kospi index weakened, and India’s Sensex index also lost ground in a holiday-shortened week. Copper and gold both consolidated following recent rallies. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/2024-10-07/