1. China reaches an inflection point: China’s inflection point began with the easing of access to credit in the property sector in October 2022. The reset in US China relations at the G20 meeting in Bali between China’s president Xi Jinping and US president Joe Biden in November followed. The final piece of the jigsaw was the dismantling of China’s zero-Covid policies, which started in November and accelerated in December. Changes in selected cities include home quarantine for positive cases, removal of the requirement for polymerase chain reaction (PCR) test results to travel on public transport, and a reduction in daily testing for school children.

2. Peaking US inflation data: The US median Personal Consumption Expenditure Price Index (PCE), a key measure of inflation, is expected to decline from 6.3% in 2022 to 3.5% in 2023. The high base effect is seen driving the decline, along with an easing of supply chain bottlenecks and the negative effect on growth from higher interest rates. While a slowdown is anticipated, there has been uncertainty over the timing of the peak in inflation. Recent data signal the peak may now be behind us, enabling investors to focus on slower inflation in 2023 and a possible change in the US Federal Reserve’s pace of rate hikes.

3. Earnings recovery in 2023: The prospect for a recovery in earnings growth in 2023 is likely to act as a catalyst for markets, as the slowdown in 2022 earnings has been a concern. In emerging markets (EMs), earnings growth is also forecast to recover; China is likely to be a leader with 15% estimated growth. A pickup in earnings revisions in EMs would act as a confirmation of better times ahead for earnings and, in turn, equity markets.

‹ Previous2022-12-22Next ›