Viewpoints

Q4 2022 Update from the Asia Trade Floor

Asia Portfolio Manager Stephen Chang discusses the key takeaways from China’s 20th Party Congress and the implications, as well as PIMCO’s latest Cyclical Outlook.

More from this section

Read Transcript

Text on screen: Stephen Chang, Portfolio Manager, Asia

Text on screen: What are the key takeaways from our latest Cyclical forum?

Chang: This is a critical time for investors and policymakers. Geopolitical tensions, reduced market liquidity, and the fastest pace of central bank tightening in decades are contributing to unusually varied potential market outcomes ahead.

In PIMCO’s latest Cyclical Outlook, titled ‘Prevailing Under Pressure’, we shared our outlook for the coming six to 12 months.

Text on screen: Key Takeaways from our latest Cyclical Outlook

  • Expect shallow recessions across developed markets
  • Elevated inflation is likely to stick around
  • Growth is unlikely to bounce back quickly

We expect shallow recessions across development markets, especially in the euro area and the U.K., with inflation remaining elevated and growth unlikely to bounce back quickly. Core inflation rates that are above central bank targets appear more entrenched, and although headline inflation is still likely to eventually moderate over our cyclical horizon, it now looks likely to take more time.

While we don’t expect a recession in China, we do see downside risks to real growth due to the country’s zero-COVID policy and property sector slump. Exports to the U.S., Europe, and other developed economies, which have been well performing over the past two years, will likely become a headwind for China’s policymakers, despite some rising trade with Russia.

For investors, we see this as a time for caution and flexibility in portfolios. But there is a bright spot to consider: With yields now higher, we believe bonds are attractive again, with greater potential for income and diversification than we’ve seen in years.

Text on screen: What are the implications of China’s new leadership team?

Chang: After the 20th National Congress of the Chinese Communist Party and at the 1st plenum of the central committee, a new group of Politburo members were elected. Its standing committee, the country’s highest-level leadership body, was also announced, with new joiners who appear to have had close working relationships with President Xi Jinping in the past, presenting a united vision.

At the March 2023 meeting of the joint congress, a new premier will be named to run the State Council, along with more details about appointments for the various government posts.

During this transition period, we expect more of the status quo and we will watch closely for any change in policy direction or implementation. For the moment, it would seem prudent to assume that the hurdle to invest in China remains high and the risk premium will stay elevated.

The ongoing Zero-COVID strategy remains a market worry for the economy, with the risk of periodic lockdowns, while support for the housing market may not be increased materially.

Overall, we remain cautious across currency, rates and credit given valuations, as well as economic headwinds from current policies.

Text on screen: What does the Congress mean for China’s macroeconomic policy over the medium term?

Chang: The Congress didn’t reveal any new surprises on the policy front, focusing on continuing Xi’s long-term agenda. Xi reiterated that development remains a top priority, with an emphasis on quality growth, while continuing to highlight industrial modernization, rural revitalization, and green development.

Xi noted the success of the zero-COVID strategy and pledged to strengthen the public health system and improve emergency management capacity, possibly to allow for some relaxation of COVID controls later. As for housing, the mantra of “housing is for living and not for speculation” remains in the Congress report, indicating no change to the long-term policy stance to foster only real end-user demand via various channels but limiting investment demand.

There was also a greater focus on innovation and national security, which is not surprising given the tense geopolitical environment and with the U.S.’s imposition of export controls on high tech chips to China. China has been adopting this dual circulation stance to foster a more open economy over time while retaining resilience in its supply chain and expanding domestic consumption for economic dynamism. However, with these multiple objectives and likely more hostility brewing, it will be an uphill battle.

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Marcio Bogoricin
Head of Global Wealth Management, Asia ex Japan
Allison Boxer
Economist
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Jingjing Huang
Strategist
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
John Studzinski
Vice Chairman
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
PIMCO
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Credit Outlook – Time for High Quality Bonds and Leveraged Loans (video)
Unlocking the Power of Private Credit
Aviation Finance: Capturing Opportunities in Private Credit
What Higher-for-Longer Rates Mean for Investors (video)
Bonds Look Attractive Compared With Cash, Equities
PIMCO Internship Program: Opening Doors to Career Opportunities

Load more results Load {{cCtrl.fetchResults}} more results