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Investment Outlook 2018
RIGHT BY YOU Personal Financial Services
United Overseas Bank (Malaysia) Bhd (271809-K)
UOB Investment Outlook 2018 Nature does not hurry, yet everything is accomplished. —Lao Tze
Contents
4 5
Editorial 06
Our Macro Outlook 08
Our Roadmap
Macro Outlook
Risk and 2018 Key Events 16
Key Risks and Calendar
Key Events Around the World
Investment Flow Trends 22
and Asset Classes
Themes and Ideas
Asset Class Focus
Fixed Income
Equities
Foreign Exchange
Country Focus 36
Singapore
Malaysia
Thailand
Indonesia
China
Editorial Team Regional
Chung Shaw Bee Calvin Nico Herlambang
Contributors
Singapore and CFA
Regional Head, Singapore and Leong Wei Ji
Deposits and Regional Head, Malaysia
Wealth Management Investment Strategy
and Communications Kitiwat Nanthawatsiri
Joyce Lim Thailand
CFA, CAIA, CFP Grace Qu
Regional Head, CFA Erricky Soh
Funds and Advisory Investment Strategist Indonesia
Abel Lim Nicole Tsai Lily Huang
Singapore Head, Investment China
Wealth Management Research Associate
AdvisoryEditorial 06 Investment Outlook 2018 07
Editorial
commodity prices. Local bond yields could
drift higher in-line with the 25 bps Overnight
Policy Rate (OPR) hike by Bank Negara
Malaysia (BNM), but expect demand for local
bond to remain supported by attractive real
yields.
As we enter into 2018, this is the year to be
more selective of our investment strategy. We
at UOB Malaysia will continue to help you by
taking a risk-first approach in your investment
strategies and achieve your desired returns.
We hope that this publication will be of
assistance to you. Do feel free to contact
your dedicated Client Advisors/Relationship
Managers to see how we can guide you in
your wealth journey.
I wish you a successful and prosperous 2018.
2017 has been an exuberant year for
many investors who have invested
and remained invested having reaped
from the benefits of the buoyant global
market.
Global growth is likely to remain Ronnie Lim
resilient in 2018. In Developed Markets, Managing Director
growth is expected to remain positive
though momentum may moderate. As Country Head, Personal Financial Services
for Emerging Markets, growth could Malaysia
accelerate as structural reforms in key
economies bear fruit.
Locally, Malaysia’s compelling growth
in the first half of 2017 outpaced
regional performance being lifted
by private spending and exports and
current growth momentum is expected
to sustain into 2018. We maintain a
constructive view on both local equities
and currency (MYR), underpinned by
a strong economic backdrop and rising08 09
Our Macro
Outlook
Identifying the fundamental drivers and
understanding the macro environment
are essential. This knowledge helps us
ground our investment views and forms
the basis of our strategies.
Earth and Metal
A tower of nine storeys
begins with a heap of earth.
—Lao TzeOur Macro Outlook 10 Investment Outlook 2018 11
Our
Resilient so far Continued tightening
The economy took recent Central banks are likely to
hikes in its stride. At the continue tightening, especially
Roadmap
same time, diminishing when inflation comes through.
output gaps and heightened
asset valuations are causing
The macro environment concern among central banks.
will shift in 2018. Conditions
could be more challenging Monetary Policy
Central banks are moving
than before and the winners away from QE, with the
are unlikely to be the same. Fed leading the way.
Inflationary pressure
Further reduction Demand support for
in output gap commodities prices
Economy Rising sentiments Continued growth
Synchronised growth Robust growth is prompting Improving sentiments
expected to continue a rise in both consumer are precursors for higher
Rotation
and broaden. Political and business sentiments, spending and investments, A reflationary
headwinds dissipated particularly in DM. which are important environment is likely
in DM while EM reforms for sustaining growth. to benefit equities
are coming to fruition. over bonds while rich
valuations are likely
to drive a rotation
between countries
and sectors.
Markets
A strong rally in
markets have created
richer valuations
across bond and
equity markets.
Risk assets surge Refocus on laggards
Investors, confident in the Cheaper laggards, some
durability of the cycle, reach of which actually have
for higher returns. Valuation good fundamentals, finally
concerns become prevalent. appear on investors’ radars.Macro Outlook
Our Macro Outlook 12 Investment Outlook 2018 13
for 2018
Growth: another expectations that easy monetary to steer away from an accommodative
good year and fiscal conditions are likely to stay. stance. Leading the pack is the Federal
While the growth outlook of DMs Reserve (Fed), which began its Balance
Key takeaways Synchronicity and low dispersion consumption, higher corporate
remains positive in 2018, the momentum Sheet Reduction (BSR) operations in
Global growth is likely to remain of growth were the hallmarks of CapEx and stimulating fiscal policies.
may not be as strong compared to 2017. October 2017 and is projected to hike
resilient in 2018. In DM, growth 2017. Not only did overall economic
Cyclical economic indicators, such as interest rates in December 2017 for the
is expected to remain positive expansion accelerate, both developed Job markets remain relatively tight,
the Purchasing Managers Index (PMI) third time since the crisis. The European
though momentum may moderate. markets (DM) and emerging markets as unemployment rates in the US,
are registering elevated levels and are Central Bank (ECB), although lagging
In EM, growth could accelerate (EM) registered higher growth for Europe and Japan fell to post-crisis
setting a ceiling for upside surprises. the Fed in terms of policy normalisation,
as structural reforms in key the first time since 2010. Improved lows. With consumer confidence and
has announced its schedule for tapering
economies bear fruit. consumer and corporate confidence household incomes increasing at a
Structural reforms its quantitative easing (QE) program in
in DM helped spur domestic healthy pace, domestic consumption
bearing fruit in EM 2018. Though the Bank of Japan (BOJ)
Monetary policy is likely to consumption and private investments. is expected to stay robust and form
On the other hand, EM growth remains committed to accommodation,
tighten especially if inflation Meanwhile, a resurgence in global the support for continued DM growth.
rates are forecast to outpace growth its ownership of more than 40% of the
picks up. However, central trade and stability in China provided Corporate CapEx has been subdued
in DM and further accelerate in 2018. local bond market could limit the scope
banks are expected to act a constructive backdrop for EM until recently. Higher profit margins
The improvements are likely to be for continued purchases. (Figure 02)
gradually and therefore sudden equities and bonds to outperform and improved business prospects
driven primarily by structural reforms
spikes in yields are unlikely. the broader market. resulted in bigger CapEx investment
in key economies such as China, Subdued inflation,
to increase production capacity and
India and Brazil. but trending higher
Market valuations have become Heading into 2018, our outlook for drive productivity. Fiscal policies
Inflation, or the lack thereof,
rich. While economic fundamentals global growth remains optimistic such as the US tax reform can further
China is expected to continue the has restrained central banks from
have been improving, fledging and the global economy is expected support growth in the US economy.
gradual and controlled process of pursuing an aggressive tightening
signs of exuberance in certain to remain resilient. (Figure 01) In Europe, improving current accounts
rebalancing its economy. With President policy. Although unemployment
regions and sectors are starting are providing governments with room
Xi increasing his influence during the has been trending lower, inflation
to appear. DM growth remain positive for higher fiscal spending. Finally, in
recent 19th Party Congress, the policy continues to remain subdued. This
but could moderate Japan, Prime Minister Abe’s victory
direction for China is likely to remain is particularly so for the US, where
Our strategy for 2018 centres In DM, growth is expected to hold in snap election is breathing life
unchanged while the pace of reform unemployment is low, at 4.1%, while
around the idea of rotation. up, underpinned by robust domestic back into Abenomics and anchors
is likely to strengthen. India’s economic inflation remains benign at 2%.
We favour investments that benefit
growth is projected to improve
from a reflationary environment
Figure 01—Outlook for global growth Emerging Economies significantly from 6.7% in 2017 to Though mild, inflation has been
and those that have lagged against
remains positive for 2018. EM are likely World Economy 7.4% in 2018, according to projections picking up and broadening across
the broader market but possess
to lead growth. Developed Economies by the International Monetary Fund regions. In DMs, inflation is expected
strong fundamentals.
(IMF). In 2017, the Indian economy to rise from 1.5% in 2017 to 1.9%
was affected by demonetisation and in 2018. Meanwhile, inflation in EMs
uncertainty related to the introduction is projected to remain roughly stable
of the Goods and Services Tax (GST). at 4.2% in 2017 and 4.4% in 2018.
However, GST is helping to unify Stronger economic activities and
India’s vast domestic market and commodity prices can eventually
set the grounds for stronger growth drive higher inflationary pressure.
in 2018. Brazil is also expected to
see higher growth in 2018 due to the Markets underpricing
implementation of key reforms to drive rate outlook
fiscal sustainability and a gradual Markets are currently pricing in low
restoration of confidence among expectations for rate hikes, in particular
consumers and business spending. the path of rate hikes from the Fed.
Although the Fed undershot its own
Central banks: projections in the past, the economy
readier than ever has been on firmer footing and recent
2010 2011 2012 2013 2014 2015 2016 2017F 2018F
A synchronised pickup in the global communications seem to suggest a
Source: IMF World Economic Outlook October 2017, Bloomberg, 22 October 2017 economy prompted key central banks lower dependency towards rate hikeOur Macro Outlook 14 Investment Outlook 2018 15
Figure 02—A slow move towards the exit from QE
ECB
Fed Milestones BOJ
decisions on inflation data. Should providing the perfect environment for
inflation show sustained growth, the both equities and fixed income markets
Fed would have a stronger mandate to perform. Strong investor sentiments
to continue its tightening. Subsequent further drove markets higher, causing
re-pricing of expectations by markets valuations to soar.
2008 2015 Start of QE 2011 is likely to cause yields to drift.
Expensive equities,
Higher interest rates over time expensive bonds
While we have explained the reason As of end November 2017, the
for higher interest rates in 2018, the total return for US equity markets
pace of this increase, and by extension was 20.5%, outperforming other
a growth in yields, is likely to remain DMs such as Europe and the UK.
2010 2016 Expansion 2013
gradual. Barring an inflation overshoot, As a result, valuations in US equities
of QE the Fed is expected to remain cautious, appeared to be stretched. In the
hiking rates slowly and conducting fixed income markets, spreads
Balance Sheet Reduction (BSR) continued to tighten on expectations
according to the announced schedule. of positive growth and dovish central
The same should hold for European bank policies.
2013 2017 Taper ? Central Bank (ECB) when it tapers its
talks QE program over the course of 2018. While economic fundamentals have
Based on projections from Bloomberg, improved over the course of 2017
net purchases from key central banks and earnings have been strong, there
should remain positive in 2018, thereby are some fledging signs of exuberance.
reducing odds of market shocks and According to surveys, a record-high
2014 2018 Tapering ? sharp spikes in yields. percentage of investors see equities
as overvalued yet cash levels are
simultaneously falling. Meanwhile,
Markets: high high yield spreads globally are hovering
valuations to at post-crisis lows, around the same
continue climbing levels as late-2005.
Although 2017 started on a tepid note,
2015 ? 1st rate ? initial headwinds, mainly political, soon
hike faded. Growth accelerated while key
central banks remained relatively dovish,
2016 2nd rate ?
?
hike 2018 strategy: Rotation
Entering 2018, our key strategy is built around the idea
of rotation. With reflation in the global economy picking up,
equities are likely to be favored over fixed income. Heightened
2017 ? 3rd rate ? valuations in the US markets could drive a switch into ex-US
hike & BSR markets which are earlier in the economic cycle and have
improving fundamentals. A lot of the focus this year has been
on the technology sector. Going forward, we expect other
cyclical sectors, such as financials, which could benefit from
a reflationary environment to receive more attention.
Source: UOB Investment Strategy, 22 October 201716 17
Key Events and
Risks for 2018
Anticipating key events as well as identifying
potential sources of risk are paramount to
strategic investment positioning.
Fire
The flame that burns twice
as bright burns half as long.
—Lao TzeKey Events and Risks for 2018 18 Investment Outlook 2018 19
January February March
Key Events
1st Quarter
22—23 Jan 3 Feb 8 Mar 18 Mar
BOJ Meeting New Fed chair ECB Meeting Russia Presidential Elections
Calendar Powell is expected to be the
30—31 Jan new Fed Chair after Yellen’s term 8—9 Mar 20—21 Mar
FOMC Meeting expires in February 2018. Powell’s BOJ Meeting FOMC Meeting
appointment likely means continuity
Knowing the timeline of events for 2018
25 Jan to the Fed’s policies. The Fed is 3—15 Mar
helps guide our positioning through the ECB Meeting projected to hike rates three times China National People’s Congress
year. Attention in the first half of the year in 2018. and Chinese People’s Political
is likely to be focused on central bank ECB scheduled to reduce monthly Consultative Conference
decisions. Political events, however, are asset purchases Confirmation of positions for new
spread throughout the year and dates Starting from January, the ECB is members of the Politburo Standing
scheduled to reduce its monthly asset Committee. Successor to PBOC
remain fluid. purchases from EUR 60 billion to EUR Governor Zhou Xiaochuan could
30 billion. The asset purchase program be appointed during the meeting.
will end in September 2018. Decisions
regarding future monetary actions are
likely to be data dependent.
April May June July August September
2nd Quarter 3rd Quarter
26 Apr 1—2 May 12—13 Jun 1 Jul 24 Aug 13 Sep
ECB Meeting FOMC Meeting FOMC Meeting Mexico General Election Deadline for Malaysia ECB Meeting
General Election
26—27 Apr 20 May 14 Jun 26 Jul 18—19 Sep
BOJ Meeting Deadline for Italy General Election ECB Meeting ECB Meeting BOJ Meeting
End of term for BOJ Governor The populist party, Five Star Movement
Kuroda (M5S), has been running neck-and-neck 14—15 Jun 30—31 Jun 25—26 Sep
with the ruling party. However, the populist BOJ Meeting BOJ Meeting FOMC Meeting
TBC stance of M5S has recently moderated.
IMF World Economy Outlook 31 Jul—1 Aug
FOMC Meeting
October November December
4th Quarter
Central Banks 15 Oct 6 Nov TBC 13 Dec
ECB Meeting US Mid-Term election UK parliamentary vote on ECB Meeting
Political Events Given the low approval rates for Brexit deal (around year-end)
18 Oct Trump, the mid-term election is likely UK is due to leave the European 18—19 Dec
Economic Events Brazil General Election to be rocky. Union in March 2019. If no deal FOMC Meeting
is reached, the UK economy may
7—8 Nov face heightened uncertainty. 19—20 Dec
FOMC meeting BOJ Meeting
TBC
Thailand general electionRisk Hotspots
Key Events and Risks for 2018 20 Investment Outlook 2018 21
Identifying associated risks is necessary
to make informed investment decisions.
Risks can represent both upside and downside
catalysts. However, as we enter the late period
of the economic cycle, investors should exercise
more caution as tail risks loom larger. Inflation overshoot Geopolitical
The low unemployment rates and political risks
may indicate that the economy Geopolitical risks remain
is approaching full capacity. heightened, particularly in
This could soon translate to wage North Korea and the Middle
growth. Coupled with stablising East. Although the probability
commodity prices, inflation may of conflict is low, it has been
surprise on the upside. As markets creeping up.
have been underpricing inflation,
inflation surprise could cause Meanwhile, a number of elections
yields to rise sharply and result are scheduled to be held in the US,
in a sell-off of risk assets. Europe and some key emerging
economies. The results could
Data points: Wage growth,
change the political landscape.
global Consumer Price Index (CPI),
personal consumption Data points: News flow,
election polls
Central bank missteps
Key central banks are beginning China’s hard landing
to wind down their unprecedented China concluded its 19th Party
monetary experiments. Without Congress and President Xi’s
precedence to rely on, they run influence was strengthened.
a higher risk of misjudging the real The country’s focus on stability
impact on economy when they and deleveraging is likely to
unwind their policies. continue, but overly aggressive
policies could raise default rates
Data points: Central bank
and hard landing concerns.
meetings
Data points: China Purchasing
Managers Indices (PMIs),
retail sales, monetary supply,
property sales
North America Europe Japan Asia Pacific excluding EM excluding Asia
Wage inflation has been The Italian general election, JPY is viewed as a safe-haven Japan Tensions have been rising
rising gradually but steadily. due to be held by May 2018, asset and hence it is sensitive between Saudi Arabia and Iran.
China’s structural reforms
could lead to political to risk events. A strong yen could
could cause short-term pains
The Fed may tighten too uncertainties. negatively affect the Japanese Russia is expected to hold
and spark hard-landing concerns.
aggressively and cause stress equity market. its presidential election in
to the market and the economy. German Chancellor Merkel March 2018.
North Korea is likely to continue
continues to work out a
with its missile and nuclear tests.
US President Trump’s low coalition with other parties. Mexico is expected to hold
approval rate may lead to a more its general election in July 2018.
Malaysia is expected to
uncertain mid-term election. Brexit talks are progressing
hold its general election before
slowly. If no deal is reached, Brazil is expected to hold its
24 August 2018.
the economic and political general election in October 2018.
ramifications could be significant.
Thailand is expected to
hold its general election in
ECB could normalise policies
November 2018.
too quickly and kill the fragile
economic recovery.22 23
Asset Class
Outlook and
Strategy
In formulating our asset class outlook,
we consider the macro environment as well
as specific attributes of the particular asset
class. This helps us to construct our investment
strategies and select suitable opportunities.
Water and Wood
All streams flow to the sea
because it is lower than
they are. Humility gives it
its power.
—Lao TzeOur Strategy
Asset Class Outlook and 24 Investment Outlook 2018 25
Strategy
We expect 2018 to be dominated by a
reflationary environment and heightened
valuations. Hence, we prefer opportunities
with attractive relative valuations and
strong secular drivers that can benefit
from reflationary environments.
01 Equities: Reflation 02 Equities: Tap 03 Equities: Secular 04 Fixed Income &
Theme
and rotation in DM into EM growth developments Foreign Exchange:
Heightened valuations and Synchronised global Secular developments Converging policies,
reflationary impulses in DM growth provides a stable could drive long-term but still divergent
means it is timely to rotate out backdrop for accessing growth in specific industries,
Key DM central banks
of expensive, late-cycle markets higher growth opportunities even in times of slower
agree on the need to
and interest rate-sensitive sectors. in EM economies. global expansion.
reduce excessive monetary policy
accommodation,
but disagree on the pace.
Sectorial play in the US Ex-US opportunities Limelight on reforms Everyone needs Rates are important,
Strategy
Rich valuations and a hawkish Focus on opportunities in and commodity plays healthcare but so are other factors
Fed could limit the upside Europe and Japan. Their Focus on regions where The industry benefits from Aside from rates, supply-
for equities. Focus on sectors economies are at earlier past and ongoing reforms rapidly aging populations demand dynamics and foreign
that could benefit from a stages of economic recovery, are coming to fruition. in DM and rising income exchange are also important
reflationary environment. while monetary policy is Stable commodity prices in EM, which could drive contributors to absolute returns
likely to remain easy. could also provide tailwinds. sustained demand for in fixed income products.
its products and services.
US bank equities European equities EM equities Global healthcare Local currency EM debt
Solutions
Higher rates help improve Attractive valuations compared Structural reforms are setting equities The asset class offers yield
interest margins for banks. to the US, while recovery the stage for higher quality The sector trades at an pickup over DM debt. Better
Potential deregulation in the is firm. Cyclicals sectors like growth in Asia. Ex-Asia, attractive discount to the current account balances are
financial sector could provide Banks and Autos could benefit commodity exporters could broader market. Subsectors supportive of currency strength.
additional tailwinds. from the current environment. benefit from commodity price with strong innovation
recovery. For China, sectors capabilities could continue AUD bonds
Japanese equities that benefit from economic to see earnings growth. A less hawkish Reserve Bank
Attractive valuations compared reforms could offer attractive of Australia (RBA) and positive
to DM peers. The market has opportunities. commodity outlook bodes well
been under-loved by investors for AUD and AUD bonds. The
but fundamentals and an asset class also offers yield
accommodative policy are pickup over similar USD bonds.
in its favor.
Asia IG
Spreads are compressed,
but yield pickup is still positive
over DM debt. Reduced
issuances coupled with robust
demand should support prices.Equities
Asset Class Outlook and 26 Investment Outlook 2018 27
Strategy
Equities remain our most preferred asset
class. Returns could moderate but should
remain positive in 2018. Being selective is
the key.
Key takeaways Regional views
Within the DM space, we prefer Neutral on US equities as interest margins widen with a pickup
opportunities outside the US, such with preference to financials in yield and credit demand. Domestic
as Europe and Japan. European We maintain our neutral view on economic recovery could translate to
equities could play catch-up US equities. Despite the positive better sales for Autos. Valuations for
with their US counterparts while earnings momentum and possible both sectors are undemanding while
Japanese equities are supported tax cuts, the upside could be limited prices on index levels are well below
by valuation and strong earnings. by rich valuations. In addition, the their cyclical highs.
Although we are neutral on US Fed is poised to tighten further
equities, we see opportunities with BSR and three rate hikes. Some risks remain for the region.
in the financial sector. The combination of rich valuations Excessive euro strength could hurt
and the tightening policy could earnings, but we take comfort that
EM equities are likely to continue cause valuation multiples to contract. the currency’s strength is backed
their winning streak in 2018. by improving economic conditions.
The cycle in EM equities is still However, financials appear to be Meanwhile, we remain cautious about
early and valuations are attractive attractive and the sector trades at political risks that could threaten the
against DM equities. an attractive discount to the overall EU’s integrity. Finally, the European
US market. Furthermore, as the debt issue could rear its ugly head
Secular trends for healthcare Fed tightens and rates move higher, again next year when Greece’s bailout
will continue and the sector is banks could see their interest program ends.
trading at attractive discounts margins improve. The sector also
to the broader market. Overview stands to benefit from potential Upgraded Japanese equities
2017 was a stellar year for equities As such, equities remain as our deregulation. Finally, if tax reforms after snap election
and marks the ninth year of the equity preferred asset class. Returns are implemented, corporate tax rates The recent victory of Prime Minister
bull run. As of end-November, global could moderate but should remain may be reduced from 35% to between Abe in the snap election removed
equities registered total returns of positive in 2018. Given the relatively 20% to 25%. This could translate a crucial risk for Japanese equities.
21%. While sentiments remain generally full valuations, investors need to to significant tax savings for financials, With Abe’s party retaining its dominant
upbeat, investors are increasingly be selective and be prepared for which currently have one of the highest position, Abenomics is likely to continue
questioning how much more the aged higher volatility in the markets. tax rates, at 33%. and BOJ is likely to remain highly
bull can advance. Indeed, the current In the DM space, we prefer markets accommodative. Meanwhile, the
bull market is the second-longest bull and sectors with relatively lower Constructive on macro backdrop looks favourable,
market on record, but a bull market valuations that are earlier in the European markets with GDP expanding for the seventh
cycle is not determined by its duration. economic cycle. Meanwhile, we In Europe, economic activities have straight quarter in 2017 Q3.
Past bull markets were usually brought continue to be constructive towards firmed over the course of 2017 while
to an end by economic recessions the growth story in EM. political headwinds have receded Valuations for Japanese equities are
or external shocks. significantly. On the policy front, very attractive relative to its DM peers,
ECB has stated that it would keep even after the recent rally. In addition,
Looking ahead, although the 2017 rates accommodative until well after earnings could benefit from the weaker
growth surge may be hard to replicate, its QE program ends. JPY, as policy divergence with other
recession risks remain low for 2018. key central banks is likely to temper
The macro environment remains Entering 2018, European equities JPY strength even amid sporadic safe
constructive. Synchronised global could play catch-up with US equities, haven trades. Fund inflows have picked
growth, rising corporate earnings and especially as markets seem to be up strongly in recent months and look
relatively accommodative monetary underpricing economic growth in the well supported. Finally, improvements
policies are all supportive drivers of European region. Fund flows moderated in corporate governance, spearheaded
equity outperformance. While external in recent months but remain positive by Abe, could encourage companies
risks, such as geopolitical tensions, and supported. On a sectorial basis, to return cash to investors through
continue to be present, they are cyclical industries, for example Banks dividends or share buybacks. This could
unlikely to derail markets. and Autos, are likely to outperform. trigger a rerating of Japanese equities.
The former could see earnings improveAsset Class Outlook and 28 Investment Outlook 2018 29
Strategy
Japanese equities could be vulnerable, Potential headwinds for EM equities
Figure 03—In the DM space, European and Japanese equities have Highest PER in five-year history
if BOJ changes its policy stance and include unexpected USD strength,
more attractive valuations against US equities and their economies Lowest PER in five-year history
begins tapering in 2018. Geopolitical especially if the Fed hikes interest
are earlier in the cycle +1/–1 standard deviation range
risk surrounding North Korea lingers rates more aggressively than expected. of five-year PER history
and could weigh on sentiments. Commodity weakness could affect
Current PER
EM commodity exporters, while stability
Average PER
Positive on EM equities of the Chinese economy continues
After years of soft performance, to be a concern.
EM equities finally outpaced their DM
peers in 2017. A confluence of factors
contributed to the outperformance, Structural
such as synchronised global growth, opportunities
Valuation based on price-to-earnings ratio (PER)
improving global trades, stabalisation Global healthcare
of China economy and revival of The secular story of healthcare
commodity prices. continues in the background. Rapidly
aging populations in DM and rising
EM equities are likely to continue their incomes in EM could drive the demand
winning streak in 2018. The cycle in for healthcare products and services.
EM equities is still early and the growth The sector has been trading at a
differential between EM and DM discount to the broader market in the
is expected to widen further in 2018. last two years, due to uncertainties
Meanwhile, valuations for EM equities surround US healthcare policy.
are still attractive against DM equities.
Fund inflows have been strong and While policy risks remain, investors
positive, in contrast to negative to can focus on subsectors such as
flat flows in the last four years. Key biopharma, which have strong
economies, namely China and India, innovation capabilities that could
are undergoing structural reforms, continue to propel earnings growth. Japan Europe US Economic cycle
which could help set the stage for The subsector has seen drastic
higher quality growth in the future. increase in innovative drug approvals Source: UOB PFS Investment Strategy
A number of countries, for example in 2017 and a strong pipeline could
Brazil, Thailand and Malaysia, are drive earnings in 2018.
holding elections in 2018 and these
events could be catalysts for economic
reforms. For Chinese equities, the
sectors benefitting from economic
reforms, particularly large banks,
offer attractive opportunities.Fixed Income
Asset Class Outlook and 30 Investment Outlook 2018 31
Strategy
Valuations are tight for the broad fixed income
market. Monetary policy normalisation is the
key development to monitor. Investors should
focus on the basics of bond investment.
Key takeaways yield, identifying issues with EM local currency bonds supportive to the inherent strength
Asian investment-grade bonds reasonable valuation, assessing with high real yield and of the currencies. While EM countries
are supported by favourable the supply and demand mechanics, underpriced currency have relatively higher inflation compared
supply-demand dynamics. and holding bonds in currencies Total returns of EM bonds are driven to DMs, it is mitigated by the high level
with appreciation potential. by income yield and potential currency of nominal yield. In India, Russia and
AUD-denominated bonds could appreciation. EM currencies are well Brazil, central banks may even have
benefit from a neutral central bank positioned due to the improvements in room to cut rates. A spike in USD
policy and improving commodity USD-denominated the countries’ current account balances is the main risk. However, we believe
prices support the currency. bonds and a recovery in commodity prices. that USD is likely to remain sideways
Higher global trade and rising foreign as the currency is expensive.
Supply-demand dynamics
High real yield and underpriced direct investments have also been
support Asian investment-
currencies help EM local currency
grade bonds
bonds stand out.
Despite the relatively tight valuation
of USD-denominated investment-grade
bonds, opportunities are still present.
Asian investment-grade bonds shine
among higher quality bonds, supported
by supply-demand dynamics. The Figure 04—Supply-demand dynamics, high real yields and potential
issue of Asian investment bonds has currency appreciation will be the main drivers of total returns for
been subdued, while local demand fixed income
remains strong as investors continue
Overview searching for yields. At the same
Credit spreads for fixed income markets time, default risks are kept low by the
have tightened in 2017. Across the US, positive economic outlook. Although
Europe and Asia, credits spreads for Asian investment-grade bonds are
both investment-grade and high-yield exposed to a Fed rate hike risk, their
bonds have reached post-financial crisis credit spreads have reflected low
lows. Although the spread compression correlations to rate hikes in previous
High real yields
was partially driven by improving tightening cycles.
fundamentals such as declining default Comparable
Comparable
yields to
rates and improving credit metrics, the
Non-USD
yields to USD-
IG bonds
denominated
extremely tight spreads offer a limited issued by US
cushion in a rising-rate environment. denominated bonds corporates
IG bonds
AUD bonds supported by central
2017 also marks the start of monetary bank and global trades
policy normalisation across major In contrast to the Fed’s hawkish bias,
central banks. The Fed has already the Reserve Bank of Australia (RBA)
embarked on rate hikes and balance is well-positioned to be in a neutral EM Local AUD IG
Asian IG bonds currency bonds bonds
sheet reduction plans. The ECB state as inflation is relatively low.
has announced plans to taper its AUD-denominated bonds could have
QE program, though any exit will the potential for capital gain should
remain gradual. Only BOJ is likely yield decline. In addition, the yield
Favourable Potential Potential
to continue easing. for AUD-denominated bonds is still supply-demand currency currency
relatively competitive compared to dynamics appreciation appreciation
Against this backdrop, to achieve USD-denominated bonds. AUD is Low inflation
gives RBA more
positive total return, investors should likely to appreciate against the USD, flexibility to
revert back to the basics of bond supported by recovery in commodity remain neutral
investment. The factors investors exports supported by recovery in
should consider include finding the commodity exports, stabilisation in
right balance between quality and China’s economy, and global growth. Source: UOB PFS Investment StrategyForeign Exchange
Asset Class Outlook and 32 Investment Outlook 2018 33
Strategy
Diverging returns among G10 and
Asian currencies against USD in 2018.
Key takeaways
G10 currencies
Commodity currencies are against USD
likely to strengthen against USD. AUD and NZD likely EUR to be stable
AUD is supported by a recovery to strengthen with upside bias
in commodity prices. NZD AUD will likely be supported by By the end of November 2017,
could see some upside, as the recovering oil and industrial metals EUR strengthened 12% against USD
currency is oversold and the prices. With the Reserve Bank of year-to-date with upside bias, and
central bank’s guidance suggests Australia (RBA) widely expected is expected to be stable in 2018.
hawkish preference. to keep rates on hold, commodity Fundamentally, economic recovery
prices are likely to be the key driver has been broad-based in Europe,
EUR is expected to be stable for AUD movements. with PMIs and sentiments at a multi-
against USD with supportive year high. Current account balances
economic fundamentals and A recovery in commodities prices have improved significantly since
a gradual normalisation of is expected to continue into 2018. 2011, and have already turned positive
the ECB’s monetary policies. Demand for oil has improved as in most countries. However, a
global growth picked up pace, and consolidation is expected in 2018
Outlook for GBP and JPY supply is expected to be tight next after the strong rally. Despite the
remains bearish. Dovish BOE year with OPEC likely to extend its ECB’s reduction of its monthly
policy and Brexit talks could supply cut beyond March 2018. Oil purchases, the recent communication
weigh on GBP. JPY could inventory is forecasted to decrease suggested a more gradual pace.
stay weak as BOJ continues its slowly, albeit steadily. For industrial Yield differential between 10-year
accommodative monetary policy. Overview metals, improving manufacturing US Treasuries and 10-year German
At the start of 2017, many investors normalising their monetary policies. activities, higher infrastructure bunds has also decreased, putting
Asian currencies could see expected a stronger USD. However, Going into 2018, we hold a neutral spending and supply-side reforms downward pressure on EUR. In addition,
more mixed performances it turned out to be a lacklustre year. view on the dollar index. Instead in China may drive prices higher. the speculative net long positioning
against USD in 2018 due Though the Fed kept to its plan and of a broad-based USD strength, in EUR/USD looks stretched and
to idiosyncratic factors. hiked rates three times, USD weakened G10 and Asian currencies are expected NZD has been volatile as a result could be prone to reversion.
against most G10 currencies. The to deliver diverging returns against of a change in government in 2017.
divergence has narrowed between the USD, influenced by the stage of the After the general election in September, GBP and JPY to weaken
Fed and other major central banks, as monetary cycle and the currency’s the currency lost 5% against USD Although the Bank of England (BOE)
synchronised global growth has steered idiosyncratic risks. within two months. However in 2018, hiked rates by 25 bps in the November
central banks such as the ECB to start NZD is expected to strengthen against meeting, this does not necessarily
USD. Growth has been robust, signal a new hiking cycle. The dovish
supported by strong global trade and statement after the monetary decision
a tight job market. The Reserve Bank hinted at only two hikes in the future:
of New Zealand (RBNZ) is to modify one in late 2018 and another in 2020.
its mandates. As RBNZ has indicated Uncertainties surrounding Brexit
in recent meetings that the market’s negotiations and a weaker government
interpretation about its future policy further adds downward pressure
path may be overly dovish. Although on GBP.
political uncertainty could continue
weigh on NZD, at the current level,
NZD/USD is likely to see more upside.Asset Class Outlook and 34 Investment Outlook 2018 35
Strategy
JPY is likely to stay weak against RMB is likely to remain firm against
Figure 05—Focus on total returns when investing in bonds—
USD. PM Abe’s landslide victory USD. Economic growth momentum
consider both yield and capital appreciation perspectives
in the snap election ensures the in China is expected to soften,
continuity of Abenomics and but at a controlled pace. Improved
accommodative monetary policies. foreign reserves could help keep
The core inflation in Japan is still RMB anchored. SGD is expected
below 1% and BOJ has no pressure to be stable against USD. Further
to normalise its policies any time soon. tightening from the Fed could
put downward pressure on SGD.
Strengthen against USD
However, the Monetary and Authority
Asian currencies of Singapore (MAS) is increasingly
against USD likely to hike rates during its April
AUD
Higher oil and metal prices,
A mixed bag 2018 meeting as Singapore’s growth RBA on hold
Supported by improving global and activity have gathered pace.
NZD
trades and a stable RMB, Asian Oversold, hawkish guidance
currencies have made decent gains However, some Asian currencies USD
from RBNZ
of 5% to 10% in 2017. Going into could face downward pressure, Diverging returns
2018, Asian currencies could see for instance IDR and INR. Due to EUR for currency pairs
more mixed performances. lower inflation, central bank policies Improving economic fundamentals,
but dovish ECB guidance could Neutral against USD
could remain relatively easy. limit the upside
MYR could see further gains in 2018 SGD
as economic indicators are turning MYR MAS to tighten but gradually
increasingly positive for MYR. Bank Better economic data, higher
oil prices, hawkish BNM CNY Weaken against USD
Negara Malaysia (BNM) turned more
Growth momentum to slow down,
hawkish and could hike rates by 25 bps IDR, INR
but at a controlled pace.
in early 2018. Improving economic Improved foreign reserves Central banks likely to stay dovish
data, including better growth, higher stabalises currency
inflation, stable current surplus and GBP
BOE dovish, Brexit risk
growing FX reserves, could provide
a constructive backdrop for MYR to JPY
strengthen. Furthermore, the rising oil BOJ continues with easy policy
price could benefit MYR, as Malaysia
remains a net oil exporter.
Source: UOB PFS Investment Strategy36 37
Country
Focus
Singapore
Malaysia
Thailand
Indonesia
ChinaSingapore
Country Focus 38 Investment Outlook 2018 39
Moderating but broadening growth
points to a stable economic outlook
Stocks Bonds Foreign Exchange
Key takeaways
As with the global stock market, Local rates are likely to drift higher, SGD is likely to decline gradually
Overall, growth is likely to be
Singapore equities also enjoyed a stellar led by the tightening cycle in the US. against USD due to monetary policy
more broad-based in Singapore,
run in 2017. The environment, however, Hence, investors are advised to avoid divergence. MAS may adjust its stance
although headline numbers are
will be more challenging going into taking up excessive duration in their in April 2018, but changes are likely
likely to moderate. Domestic
2018. Interest rates are poised to rise portfolios. Issuance has tapered since to be incremental. Meanwhile, the
sectors in Singapore are likely
while growth could moderate in the the series of commodity-led defaults Fed is expected to continue tightening.
to bottom out while a slowdown
local economy. Banks could benefit in 2016 while demand remains robust, Singapore Interbank Offered Rate
in China could cause a drag on
from such an environemnt, as a steeper leading to favorable demand-supply (SIBOR) is likely to drift higher
global trade. A sustained pipeline
yield curve could help improve net dynamics for the local bond market. alongside US London Interbank Offered
of public sector projects should
interest margins and support earnings. The setup is likely to continue into Rate (LIBOR), albeit to a lesser degree.
support economic growth.
A benign environment will also support 2018, creating a supportive environment
business activities and loan growth. for local bonds despite potentially
Inflation has been picking up.
higher rates.
MAS could tighten its monetary
policy as early as April 2018.
However, the flexibility of its
policy tools allow for incremental
adjustments and its impact should
be limited.
Private home sales grew 29% year- For the services sector, better sentiments
on-year in September 2017 despite and economic activities
coinciding with the “hungry ghost festival”. are likely to continue to support
The optimism in the housing sector its expansion. Finally, for the lagging Figure 06—The recent rebound in Singapore’s external sectors Externally oriented industries
underscores the same confidence in the construction sector, a sustained pipeline could spill over positively Domestically driven industries
broader economy. of public sector projects should help to
The manufacturing sector enjoyed arrest any decline. Overall, Singapore’s
double-digit growth, led by a surge real GDP growth is expected to slow from Growth
YoY %
in global semiconductor demand. 3.3% in 2017 to 2.5% in 2018, and headline Dot-com bubble Global financial crisis
The services sector, accounting for inflation is expected to pick up from 0.5% 30
two-thirds of the economy, also witnessed to 1.5% in 2018.
notable improvements. 25
It expanded 3% year-on-year in the Monetary policy could be adjusted 20
third quarter of 2017, the strongest as early as April 2018, during the next
showing since 2015. MAS meeting. SGD NEER has been trading 15
above its midpoint for most
10
Moving into 2018, we are likely to of the time this year. However, given
see growth converge between sectors. the flexible nature of its policy tools, 5
Growth in the manufacturing sector we expect limited impact to the economy
is likely to slow as semiconductor as adjustments are likely 0
sales moderate, due to the high to be incremental. –5
base effect and potential slowdown
–4.4%
in China. –10
–15 –6%
–20
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: CEIC, UOB GLobal Economics and Markets ResearchMalaysia
Country Focus 40 Investment Outlook 2018 41
Sound macro fundamentals
provide a buffer against market volatility
Stocks Bonds Foreign Exchange
Key takeaways
Malaysian equities have been a We expect Malaysian yields to trend MYR is likely to strengthen
Malaysia’s compelling growth
laggard in 2017, compared with Asia higher along with US Treasury yields, moderately against USD, although
in the first half of 2017 outpaced
ex-Japan. We maintain a constructive albeit at a moderate pace. Demand some volatility is expected. The
regional performance, lifted by
view supported by domestic macros, for bonds has remained resilient, positive view is underpinned by
private spending and exports.
stronger foreign fund inflows and supported by attractive real yields. positive fundamentals, improving
Current growth momentum is
the resumption of corporate earnings With an improving macro backdrop fiscal position and higher commodity
expected to sustain into 2018.
growth. Key investment themes include and reserve adequacy ratio, the sharp prices. It is currently trading at the
infrastructure spending, rising China foreign selling of government bonds bottom of its historic real effective
Outlook on Malaysian equities
foreign direct investments, reforms since November 2016 has abated and exchange rate range.
remains positive, underpinned
among government-linked companies, the foreign holdings of Malaysia bonds
by a strong economic backdrop,
a rebound in tourism and growth in should largely remain stable.
better corporate earnings, rising
commodity prices. Bottom-up stock
commodity prices, potential
picking strategy and profit taking from
China investments and election-
outperformers would be a prudent
related spending.
approach in 2018. A key risk to look out
for is the country’s domestic elections.
We maintain our year-end OPR
projection of 3.25%, implying
no further hikes in 2018. MYR is
fundamentally undervalued over
the long-term.
Malaysia’s economy is on firmer
footing after delivering remarkable
GDP growth of 5.7% in the first half Bank Negara Malaysia (BNM) raised
of 2017 compared to 4% in the same its overnight policy rate (OPR) by 25 Figure 07—Malaysia’s growth is underpinned by private consumption GDP Growth (left)
period last year. Following the data, Bank bps to 3.25% on 25 January 2018, the 1st and exports Private Consumption (left)
Negara Malaysia (BNM) said growth in hike since July 2014. The decision was Exports (right)
2017 will be stronger than expected. The broadly expected following a shift in the
country’s growth in tone of the November 2017 monetary
2018 is expected to be further fuelled policy statement. We expect BNM to Growth YoY
YoY % %
by domestic demand and robust exports. maintain its OPR at 3.25% for the rest
Domestic economic policies continue to of 2018. 10 35
be supportive, and its 2018 budget is likely 30
to be expansionary and spur consumption An undervalued ringgit, supported
growth. by positive fundamentals and higher 8 25
Brent crude oil prices, underpins our 20
Headline inflation is expected to peak view that the ringgit is in a better place
in 2017 at 3.7% year-on-year and to strengthen assuming modest USD 6 15
moderate in 2018 to 2.5% year-on-year gains. 10
as global cost factors abate. Official
forecasts are projecting headline 4 5
inflation at 2.5% - 3.5% in 2018. 0
Demand-led inflation will be sustained
by more robust domestic demand 2 -5
but is expected to remain contained. -10
0 0
2011 2012 2013 2014 2015 2016 2017
Source: BloombergThailand
Country Focus 42 Investment Outlook 2018 43
Moderately rising economic growth
driven by investment and tourism
Stocks Bonds Foreign Exchange
Key takeaways
Valuations in the Thai equity market A steady supply of shot-term bills Monetary divergence between the
The Thai economy enjoys a
are elevated. The setup reduces upside and BOT’s stable monetary policy Fed and BOT, reduction in Thailand’s
healthy level of growth driven
potential and leaves little room for outlook should keep short-term yields current account surplus and potential
by a combination of infrastructure
error. Selective sectors could offer relatively anchored in the local market. tax reform in the US are likely to cause
spending, private investments
opportunities. For example, the banking Low levels of foreign holdings help limit THB to weaken in 2018. We expect
and tourism.
sector has seen NPLs stabilised and it volatility. As such, bonds with shorter the currency to remain in the range
is also likely to benefit from increased terms are preferred, though investors of 33.50 to 34.50 in 2018.
However, rich valuations in
public and private investments. The could consider taking tactical positions
the local equity market could
commerce sector, meanwhile, could in longer term bonds if long-term
put a ceiling on further upside,
enjoy support from tourism growth, and yields spike.
especially since global rates could
investors can consider buying on dips.
rise. The bond market could also
be at risk due to reduced policy
accommodation, although low
foreign ownership in local bonds
could help limit hot money flows.
On the currency front, the THB
is likely to weaken against USD
as policy divergence widens. Figure 08—Tourism in Thailand continues to provide support for growth 12-month rolling average
of monthly visitor arrivals
Monthly visitor arrivals
Key drivers for Thailand’s growth in The overall economic outlook remains
2018 include infrastructure spending, positive for Thailand and is underscored
private investments and tourism. by the Bank of Thailand (BOT) revising its Monthly
Infrastructure spending could pick up as GDP growth target for 2018 from 3.7% to visitor arrivals
many of the previously delayed projects 3.8% in September. The target may look
are expected to kick-start in 2018. Higher ambitious, but it is achievable if the key
level of utilisation in the manufacturing growth drivers hold up.
3.0M
sector and Eastern Economic Corridor
(EEC) should incentivise private Finally, in terms of monetary policy, BOT
investments. Meanwhile, Thailand remains is expected to keep its rate unchanged at
one of least to the second half 2.5M
the top destinations for tourists and of 2018 as slack remains in the economy
the number of visitors is expected to grow and inflation looks manageable.
by 7% to 8% to reach 38 million 2.0M
in 2018, from the current year-end forecast
of 36 million for 2017.
1.5M
Conversely, a growth in household
consumption could slow in the lower-
to-mid income space. This is due to a
combination of a slowdown in farm 1.0M
incomes and continued deleveraging in
households due to tighter credit card and
personal loan regulations. Exports are 0.5M
likely to continue growing modestly, but
are unlikely to be a growth driver.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: BloombergIndonesia
Country Focus 44 Investment Outlook 2018 45
Resilient economy towards both
internal and external pressures
Stocks Bonds Foreign Exchange
Key takeaways
Infrastructure and structural Indonesia’s government bonds IDR is expected to experience
The economic outlook for
reforms remain key priorities for the offer one of the most attractive inflation- downward pressure because the
Indonesia remains positive,
government. Ease of doing business adjusted returns. Monetary policy central bank’s view diverges from
however, it is clouded by
and the low cost of funding after rate continues to be accommodative, with that of the Fed. The pause in policy
potential risks such as rising
cuts of 200 bps since beginning of the government aiming to keep inflation easing signals and record-high foreign
trade protectionism, weakening
2016 are expected to attract more below 4%. Short-medium local currency reserves allow the Central Bank to
commodity prices and an
investments from both domestic and government bonds are preferred over maintain the currency within the
escalation in geopolitical tensions.
foreign investors. Higher domestic long-term ones due to a divergence in target set by the government.
holdings in local equities may reduce central bank views toward monetary
The 2018 regional election and
external shock should regional or global policy, which places downward pressure
2019 presidential election may
uncertainties escalate. Investment in on IDR. Considering the hawkish stance
raise the domestic political risk.
the stock market, particularly in the from the Fed, short duration USD
consumer staples, construction and Indonesian government bonds are the
The recent reduction of corporate
banking sectors, remain attractive as preferred asset class as Indonesia’s
tax for small-medium enterprises
consumer sentiment rises, infrastructure sovereign rating has just been raised
(SMEs) from 1% to 0.25% is likely
spending continues and merger and and has a positive outlook.
to increase domestic investment
acquisition activities pick up in the
from more than 56 million SMEs
banking sector.
in the country, which accounts for
60% of GDP.
Indonesia’s 2018 GDP growth is expected forecasts the budget deficit in 2018 to
to improve to 5.4% from 5.2% in 2017 as improve to 2.19% of GDP, this is with the
set in the 2018 State Budget approved assumption that the tax ratio is increased
Figure 09—Bank of Indonesia is expected to remain accommodating Yield curve as of 31 Dec 2016
by the Indonesian Parliament. Social from the existing 10.3% to 10.9% in
Yield curve as of 11 Oct 2017
spending is expected to pick up as coming year. The country’s recent upgrade
Indonesia is entering into a year of by Standard & Poor’s
elections. This tends to have positive to an investment-grade rating and
impact on private consumption, which continued reform efforts by the Indonesia Interest
accounts for more than half of the government has helped accelerate capital Rate %
country’s GDP. Indonesia’s expansionary inflows, including private investment. With
fiscal policy remains the key focus and inflation slowing down, the Central Bank is 8.0
is expected to support growth through keeping an easing-bias with a 50 bps rate
7.5
budget reallocations in providing larger cut this year. The lower rate aims to further
spending ceiling for public infrastructure, boost credit growth to double-digits in 7.0
health and education. Although the 2018.
budget deficit in 2017 widened from 6.5
2.41% to 2.92% of GDP, the government
6.0
5.5
5.0
4.5
4.0
1 Day 1 Week 1 Month 3 Months 6 Months 1 Year
Tenor
Source: BloombergChina
Country Focus 46 Investment Outlook 2018 47
Supply-side reform is still the
key driver for economy growth
Stocks Bonds Foreign Exchange
Key takeaways
Supply-side reforms have boosted The fixed income market is likely RMB is expected to fluctuate in
China’s economy stablised in
product prices in the over-capacity to stay soft owing to a better the range but its volatility will be
2017. Both manufacturing activities
industrials and has helped to boost economy and tight financial regulatory higher than before. Lower capital
and consumer sentiment have
company earnings, particularly the environment. Tightening biases of outflows, an improving economy and
improved since the second half
industry leaders. As a result, sentiments major global central banks could a relatively stable USD would help
of 2016.
among both domestic and foreign further weigh on sentiments. However, remove downward pressure on RMB.
investors have become more positive. a reasonable valuation may provide
The Chinese economy is
Funds of foreign investors are expected a good entry point for investors
undergoing structural changes.
to continue flowing into the Chinese with a longer investment horizon.
Consumption is likely to play
equity market in 2018. We favor sectors
a more important role in the
with a better earnings profile such
economy. The government
as the consumer and financial sectors,
will continue to push forward
where strong earnings growth and
supply-side reforms next
attractive valuations are likely to propel
year. Such measures could further
outperformance.
improve the quality of economy
and boost corporate profits.
RMB is projected to be range
trading as the depreciation
Figure 10—Consumption is poised to become the main driver Fixed Asset Investment (YoY%)
expectation has weakened
China’s economy has stabilised since industrial structure, promoting corporate of growth in China Total Retail Sales (YoY%)
on better growth and improved
mid-2016. Recent leading economic efficiency and increasing corporate profits.
capital outflows. Growth
indicators such as China Caixin PMIs and Industry leaders
YoY %
consumer confidence have reaffirmed are likely to emerge as the winners.
the momentum for stabilising China’s
economy. Better-than-expected corporate The People’s Bank of China (PBOC)
profits reflected more solid corporate is expected to keep its neutral monetary 20
fundamentals policy stance, as inflation is likely to stay
stable. On the fiscal front, the government
Going into 2018, supply-side reform is shifting its policy focus from
is likely to remain the top priority infrastructure spending to tax reduction,
for the Chinese government. It could which will provide further tailwinds to 15
continue pushing forward reforms and the corporate earnings.
deleveraging process. Reforms
may have some negative impact on That said, there are still some challenges in
the economy in the short term, as some 2018. The rapid
small, inefficient and highly polluting deleveraging process may cause 10
companies are shut down. However, in some uncertainties, but we expect
the medium term, these measures could the impact to be moderate.
benefit the economy by improving the
5
0
Jan 2013 Aug 2013 May 2014 Feb 2015 Nov 2015 Aug 2016 May 2017
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