The inaugural BNP Paribas Global Markets APAC Conference took place in November 2022 and offered fresh economic and strategic insights from a stellar cast of external and internal speakers. The event brought together over 400 attendees, including BNP Paribas’ priority clients across both the institutional and corporate franchises, wealth management, asset management and Securities Services.
The intensive one-day agenda covered everything from macro outlooks to the technicalities of portfolio construction. Delegates welcomed the opportunity to engage with keynote speakers and network face-to-face with their industry peers and BNP Paribas representatives based outside of Singapore for the first time in years.
The sessions provided valuable insights into the themes that are likely to set the direction for global markets in 2023. Here are the five key talking points that caught participants’ attention.
1. There will be a recession
In 2022 inflation rose to levels unseen since the 1980s. External speakers, including former central bankers and policymakers, agreed that the global economy will slide into recession in 2023.
But the depth and duration of a possible recession are unclear: these will differ according to country and region. Central banks face a balancing act between raising rates and engineering a soft landing.
In the US, the Federal Reserve (Fed) raised rates four successive times, in increments of 75 basis points (bp); the European Central Bank (ECB) has followed suit with a series of 75bp hikes, and other nations have adopted similar programmes.
BNP Paribas economists are predicting a short, shallow recession in major advanced economies in 2023 before central banks’ interventions filter through and inflation comes under control, allowing attention to shift to a gradual recovery.
2. US dollar strength is a complex topic
The greenback has been on a tear this year against other major currencies. At its peak at the end of September 2022, the US dollar index was at its highest level for 20 years. The Japanese yen, euro and sterling are correspondingly weaker against the world’s reserve currency, with serious implications for trade and finance.
Panellists pointed out that the strong dollar makes imports from the US more expensive, while the rising price for commodities priced in dollars – including energy – is an inflation double-whammy for importers. That is a particular concern for emerging markets, while US companies with overseas earnings are also exposed to a decline in the value of their sales.
BNP Paribas FX strategists believe that potential risk-off market moves should provide safe-haven support to the USD during H1 2023, but they see it ending 2023 at weaker levels than at present.
3. China, China, China
China’s 20th National Party Conference resulted in a greater centralisation of political power, but President Xi’s meeting with US President Biden in Bali in November 2022 seemed to signal a softening of their respective stances. The implications for economies and markets will be significant.
BNP Paribas panellists noted that it’s too early to tell how these changes will play out – but they agreed that China will continue to pursue growth on the back of this year’s slowdown, while the US and Europe will position themselves as strategic competitors globally.
In line with the world’s other major economies, China may pursue a more aggressive fiscal policy to stimulate its economies in light of growth headwinds. While US rate hikes are likely to cool export demand, China still has many policy levers to pull domestically, and much room to recover from its relatively low base.
4. ESG is still a priority
Despite global headwinds in 2022, COP27 showed countries are sticking to their climate commitments, which are now being translated into industry policies and investment roadmaps. The climate objective is still a fundamental investment driver.
While the technology for parsing corporate disclosures for ESG data is advancing, making ratings easier to model, the quality of data itself is still inconsistent.
Speakers at the forum expected further developments in aligning taxonomies and saw continued demand for ESG-aligned and green-labelled assets. Innovative financing solutions will follow. Talk of a green recovery was not an exaggeration.
5. Asset allocation – new portfolio structures?
Market volatility in 2022 posed new challenges for asset allocators, as traditional safe-haven assets failed to live up to expectations.
Fund managers are sharpening their focus on credit risk and liquidity challenges, adopting more dynamic approaches to how their portfolios are managed. Rising inflation and interest rates demand fresh hedging solutions, while the search for alpha is driving demand for a full suite of benchmarks, quant models and diversification techniques.
While longer-term strategies remain the core of investment approaches, changing yield curve dynamics require a fresh view of risk and return. Investors at the conference are looking to capitalise on significant opportunities in the current shifting environment by building tactical portfolios – and require new metrics to support them.
Speakers generally expect assets most sensitive to rates to perform well in 2023 as markets focus more closely on central bank guidance and look for an end to the current tightening cycle.