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China: Bear Market Economy & Markets Ahead-Main Beneficiaries India, Japan, & Singapore Consumer

· China official GDP growth will print 4.0% YoY (actual 2.5%) in 2023, followed by 4.5% (3.0% actual) in 2024. 2022 GDP growth printed 3.0% (actual 1.5%). China is already in a recession. Official GDP data overstates actuals by 150 bps. The main engine of growth is consumer spending, which will remain weak into 1H24. From a cyclical perspective, consumer spending is mainly driven by urban disposable income and sentiment towards the property and stock market. Structurally, high debt/GDP ratios and complexities of China’s financial markets will continue to impede the transmission mechanism of loosening of fiscal and monetary policy to the consumer, businesses, property & stock market. Outbound tourism will be soft into 1H24. MSCI China will print around a 20% decline in 2023. The balance of risks to our end-2023 USDCNH forecast of 7.30-7.40 is tilted towards a print of 7.40-7.50. In the medium term, USDCNH could hit 7.50-8.00. We maintain our end-2023 USDMYR forecast of 4.70-4.80.

· On the geopolitical front, external pressures from the western alliance on China as it relates to trade, investment, and straits of Taiwan will intensify. On the domestic front, the common prosperity program will remain in place.

· India, Japan, and Singapore’s consumer are relatively less impacted by a weak Chinese economy and financial markets. We remain Overweight SGD, Market Weight IDR & THB, and Underweight CNH & MYR as it relates to the USD.

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