CoreMacro

Special Report

This digest version of our Special Report contains its conclusion along with a high-level review of how we reached it. It is structured identically to the full document, but with less than half the word count, so a reader can swiftly absorb the punch line while easily moving between the versions to zoom in on the details most relevant to his/her process.

India’s lofty EPS growth expectations are set for a major disappointment. The RBI has overtightened monetary policy despite the absence of any genuine inflationary pressures in India. Fiscal stance is also restrictive. Stay underweight this bourse in EM and Emerging Asian equity portfolios.

Special Report

Workers have a cyclical wind at their backs as labor demand exceeds supply, but a wage-price spiral is no more than a remote possibility. The structural backdrop has turned significantly against them since the last bout of high inflation 40-plus years ago and they are no longer price makers.

Special Report

Find out the latest updates of our Combined Mechanical Valuation Indicators (CMVIs) and our Rotation Maps.

Relative to beaten-down expectations, global growth will surprise on the upside in 2023. Investors should overweight equities for now but look to turn more defensive in the second half of the year.

How to play China's reopening? What are the dichotomies in the performance of China's plays in financial markets? Why has the Chinese central bank tightened liquidity since October and what has been the impact on local rates and the RMB? Is global growth about to bottom? What is the outlook for EM stocks, currencies, credit markets as well as the broad-trade weighted US dollar?

China's economic recovery will be led by consumer spending on services rather than the industrial sector. The current equity market leadership – outperformance by tech stocks – is unsustainable. Persistent deflationary forces will compel policymakers to inject more liquidity and bring down interest rates to reflate the economy. Hence, the RMB will resume its decline against the USD soon.

The only feasible way for Brazil to stabilize its public debt-to-GDP ratio is by having nominal GDP growth meaningfully above government borrowing costs. This requires large fiscal stimulus to boost nominal GDP and much lower interest rates. These factors will constitute the economic policy anchor of Lula’s 3.0 presidency. When markets begin to price this in, the outcome will be chronic downward pressure on the currency.

Vietnamese stocks can remain shaky for a few more months. But they have cheapened considerably, and equity portfolios with longer terms investment horizon should overweight them in EM, Emerging Asia and Frontier Market portfolios.

Investors were heartened by the November CPI report, but the Fed said not so fast. Although it snuffed out the latest mini-rally, ongoing disinflation will set the stage for another one early next year.