Malaysia and Sngapore seen as outperformers in 2022

PETALING JAYA: Whereas rising markets are, on steadiness, weakened by the consequences of the Russia-Ukraine battle, the economies that may take up increased meals and power costs (equivalent to Singapore and Malaysia) or these with least publicity to liquidity shocks (equivalent to Indonesia and the Philippines) might be outperformers.

In a market observe, Manulife Funding Administration international chief economist and head of macroeconomic technique Frances Donald stated as a result of battle, it was additionally possible that international export momentum slows considerably, and so these economies much less reliant on international demand could get pleasure from a light relative benefit .

Donald stated the battle and its repercussions quantity to a stagflationary financial shock, which is hitting the worldwide financial system at a second during which it was already affected by painful inflation and indicators of a progress slowdown to return.

She identified that the battle added conviction to the worldwide wealth and asset supervisor’s current name that the primary half of 2022, notably the second quarter, might be mired in stagflationary dynamics (decrease progress, increased inflation), persistent volatility, and extra frequent bouts of danger aversion.

Malaysia, Singapore in a position to take up increased meals and power costs.

“It additionally lowers our conviction that the second half of 2022 might be a simple return to a Goldilocks situation (secure progress and decrease inflation),” stated Donald.

Citing a current market observe by Manulife Funding Administration head of macro technique (Asia) Sue Trinh, Donald famous that Russia has a important position in commodity markets.

Russia is the world’s main exporter of pure gasoline (17.1% of worldwide manufacturing) and the second-largest exporter of crude oil (12.1%). For context, Saudi Arabia accounts for 12.5% ​​of the crude market.

Russia and Ukraine are additionally vital agricultural producers: their mixed wheat, barley, and maize exports signify 21% of the worldwide complete, and collectively they provide 60% of the world’s sunflower oils.

Russia and Belarus additionally account for 20% of complete fertilizer exports, which is important for international meals manufacturing.

In the meantime, Russia is likely one of the world’s largest producers of important metals. It is the largest exporter of palladium (20.7% of complete quantity) and ranks second after Chile when it comes to refined copper (7.1%).

The nation additionally holds the third place for nickel (11.2%) and aluminum (9%).

Donald defined that the second-order affect of sharply rising power and meals costs is a progress shock, as power demand has notoriously restricted elasticity.

“That’s, even when gasoline costs or heating prices soar, we nonetheless have to get to work and to remain heat, and customers both have to make use of financial savings or reduce in different areas of spending. That is on prime of adverse actual wage progress and weak shopper confidence knowledge in most main economies,” she stated.

Donald added that the US’ private revenue knowledge, additionally out this week, confirmed revenue rose 0% month-over-month, and spending solely rose off the again of declines within the financial savings charge.

“That’s not a wholesome shopper backdrop for experiencing one other value shock. We anticipate to be pondering far more concerning the international shopper’s publicity to power within the weeks forward,” she stated.

Donald stated whereas expectations are that top prices would cramp progress, the Russia-Ukraine battle compounds the difficulty and is in line with ongoing yield curve flatteners.

“It additionally probably throws a wrench into our expectation that inflation would start cooling after February and would sharply decline to 2% in most main economies by yr finish. We’re nonetheless comfy with the trail of that decline, however its pace could also be affected by these tensions,” she added.

Donald famous that mixed with provide chain disruptions that will restrict stock rebuilds that we hoped would gasoline progress within the second half of 2022, the worldwide wealth and asset supervisor’s name for a return to Goldilocks by yr finish is trying lower than stable.

In the meantime, Donald continues to imagine the US Federal Reserve (Fed) can hike 3 times this yr in complete, together with quantitative tightening, whereas the market remains to be pricing in six to seven hikes within the subsequent 12 months.

She famous that the Fed is as soon as once more in a state of affairs during which inflation is coming from international and supplyside developments, and interest-rate hikes will do little to chill energy-driven inflation precipitated by geopolitical developments.

“The largest cause we anticipate the Fed to pivot extra dovishly this yr is as a result of we anticipate the narrative to show away from excessive inflation towards low progress.

“And if we’re right that the Russia-Ukraine battle will compound the expansion shock, then we now have much more conviction in our name that the market is overpriced – each in that it nonetheless has a 20% likelihood of a 50-basis- level hike priced into March but additionally due to how a lot tightening it believes the Fed will have interaction in over 2022.

“Ought to the Fed pivot, it is going to be in a position to re-stepen the curve, which is desperately wanted, and help an extension of the cycle,” she stated.

Donald additionally expects the theme of worldwide desynchronization to turn into extra necessary over the course of 2022.

Whereas the stagflationary shock emanating from the Russia-Ukraine battle is international in nature, its results might be felt inconsistently all over the world. When it comes to main macro economies, Europe is most uncovered to the expansion destruction from increased power costs, given its pure gasoline publicity and current weaknesses.

“Certainly, recession odds for Europe will climb within the coming yr (though recession is not our base case),” she stated.


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