Regarding the humanitarian crisis between Israel and Hamas, our central scenario is that the war should not extend into a wider regional conflict given the military presence of two US aircraft carriers near Israel. Thus, we believe the impact to our portfolio and to the global economy should be minimal.
US economic data continues to display resilience during the month, and we believe there are two main contributors to this. Firstly, despite the Fed's tightening efforts since 2022, the US financial system maintains robust liquidity, prolonged by the impact of the massive COVID-19 stimulus, in our view. Secondly, extensive fiscal spending by the US government has offset the Fed's tightening measures. From our assessment, the US should still experience a decline in economic activity over the medium-term as we see liquidity tapering. Current economic forecasts for US GDP qoq growth is 0.7% for 4Q23 and 0.3% for 1Q24, signifying that the US should slowdown in the coming quarters.
China's recovery has gained notable momentum in recent months, evident in the upward trend in imports, retail sales and industrial output. Additionally, a significant RMB 1 trillion stimulus from the issuance of sovereign debt was announced by the administration. Despite this positive trajectory, investor sentiment remains indiscriminate, leading to depressed valuations relative to the US. From our perspective, the US continues to benefit from positive sentiment, particularly with the “Magnificent 7” names, where the potential of artificial intelligence continues to be the key driver of asset prices. Our constant assessment indicates that the prolonged valuation gap between the US and China is unsustainable, and we believe that over the medium-term, the gap should narrow in favour of China.
Japan remains an intriguing prospect with inflation seemingly supported by underlying demand after grappling with deflation for years. In response to the weakening economic data, their government has also recently approved a US$ 110 billion stimulus package to support private consumption. We anticipate this to translate into economic growth over the near-to-medium term.
In conclusion, our primary focus remains in Asia, where our thesis is reinforced by the recent uptrend in China’s economic data. The geopolitical risk between US-China has also decreased since the Biden-Xi meeting in San Francisco, where there were several agreements between both countries.
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ភាសាខ្មែរ