Think Asia Pacific in 2019: watch for risks and opportunities
After 10 years of relatively unabated economic strength, the region looks to be stuttering. However the softer economic environment does not come as a surprise; mid last year we flagged a potentially slower growth trajectory for the Asia Pacific region in the latter half of 2018. Among the reasons we cited trade tensions exacerbating weakness in China’s economic slowdown, tighter financing conditions from rising global interest rates, and the related pass-through into weaker domestic demand. However, it is the depth and breadth of the potential slowdown that should currently worry global institutional investors. To be sure, regional growth has slowed in the past few months, but the outlook remains cloudy at best if recent equity market performance is any guide.
In the coming months, potential external headwinds will continue to blow the way of the region. A no-deal Brexit remains a real possibility, which could fracture growth in the world’s ninth largest economy. A full-blown trade war between the United States and China should not be discounted, even as negotiations are continuing. North Korea has faded from the screen but tensions in the Korean peninsula could reignite at anytime. A Democrat-controlled House of Representatives also spells a more difficult political and economic road in the United States. Not to mention, a (or any) black swan event could fracture and lead to a downward spiral in world growth. Monetary policy is unlikely to provide as much support as it did during the global financial crisis a decade ago, as global interest rates remain at sub-optimal levels.
Against this backdrop, how should investors position themselves? Download the full report.