Emerging Markets

Investors should maintain a conservative and defensive strategy until recession risks are clearly reduced.

China’s infrastructure investment growth rate will likely slow from its current nominal 14% to 4-6% in 2023H1, on a year-over-year basis. Funding constraints and a shrinking pool of good projects will cap the upside in China’s overall infrastructure fixed-asset investment (FAI) in the next six months.

This week we present our Portfolio Allocation Summary for December 2022.

Is China completely abandoning its dynamic zero-COVID policy? When will the economy start recovering? What are the implications for Chinese stocks and China-related assets?
Have authorities provided enough financing to property developers? Will developers be able to repay these loans and, if not, who would bear the cost of potential defaults?
What should be the strategy for Chinese onshore rates and the RMB?

We are revising our 4Q22 Brent forecast to $90/bbl, expecting December front-line Brent to average $85/bbl. On the back of this early weakness, we are lowering our 2023 forecast slightly to $115/bbl, with an upside bias, anticipating a successful – if chaotic – re-opening in China beginning in 1Q23. Our expectations for copper trading above $4.00/lb in 1Q23 and above $4.50/lb in 2H23 stand.