Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 86 Investments Fixed income experience very high levels of distress due in For investors with high risk tolerance, real estate part to government policies contributing to a can potentially offer tactical outperformance Asian fixed income was not spared the effects of continual loss of market confidence. This led to if policies enable a rebound in sales and cash rising global central bank policy rates in 2022. large sector price falls not only in high-yield but flows. For more conservative investors, US The Fed’s rate hikes of almost 400bps through also formerly investment-grade (IG) bonds. dollar-denominated investment-grade issuers November caused all fixed income valuations may offer interesting yield premiums to their US to fall. Higher US rates also pressured foreign Policies around the real estate sector have been counterparts of similar ratings and maturities, exchange values. The Bank of Japan (BoJ) improving since the third quarter of 2022. After such as those in higher rated financials, energy, reportedly intervened several times in recent the October Party Congress, China’s financial materials and tech/telecom. months to support the yen, as the BoJ remains authorities announced comprehensive measures unwilling for now to follow other G7 central to stop widening defaults, accelerate project Corporates aside, various Asian sovereigns banks in raising rates. completions, facilitate restructuring and restore with strong trade balances and healthy US housing demand. Market confidence rebounded dollar reserves may also be interesting for In US dollar-denominated corporate bonds, sharply in November and may mark the end of adding potential diversification to a global fixed China’s real estate sector continued to this round of crisis in China. income allocation. oUr FAvoreD ASiA SeCTorS (eX-JAPAN) Currencies Free Asian currencies – as represented by the MKT CAP Pe ePS YoY % P/B roe Div Yid CAPe Bloomberg JP Morgan Asia Dollar Index – US $bn 22e 23e 22e 23e 22e 21e 22e 10yr weakened 11.3% in 2022 through October. The Fed’s 400bps of rate hikes through November Financials 1540 8.8 8.1 14.3 8.5 1.1 11.0 4.1 11.9 left US yields much more attractive than many Consumer disc 795 15.3 12.6 28.6 21.2 2.0 10.0 1.1 14.6 local Asian sovereign yields. The resulting iT 1265 14.8 11.5 -12.1 28.3 2.1 16.0 3.0 23.9 negative carry caused capital outflows and Telecom 130 19.0 16.8 15.5 13.5 2.5 11.4 3.7 15.2 hit Asian currencies, with some central banks repeatedly intervening to support their Source: Citi Research, Worldscope, MSCI, FactSet, data as of 11 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. currencies, notably Japan, China and Hong They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee Kong. of future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Fed tightening may continue in early 2023, Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are during which time the US dollar may remain free-float adjusted. P/E, EPS Growth, P/B, Dividend Yield and ROE are aggregated from FactSet consensus estimate (calendarized to December year supported. But when US economic data turn end) with current prices. CAPE is calculated by current price divided by 10-year average EPS based on MSCI index-level data. NM = Not Meaningful; weaker and the Fed pivots to cutting, the dollar NA = Not Available. may see substantial downside. Some early signs of this are already evident in late 2022.