1. Research

Asia Outlook 2022: Riding the Tiger

Sameer Goel
+656423 6973
Mallika Sachdeva
+656423 8947
Perry Kojodjojo
Bryant Xu

Asian markets have been much more resilient than the other emerging markets of Central and Eastern Europe Middle East and Africa (CEEMEA) and Latin America in 2021. Whether this endures in 2022 will be determined by whether US equities can withstand the Fed raising rates (tightening), renminbi stability can continue, and benign inflation in Asia can last.

  1. Asian foreign exchange rates (FX) appear far less sensitive to US rates, and more impacted by the US yield curve and US equity returns. A flatter curve (little difference between short-term and long-term bond rates of return) with weaker equities would be the toughest environment for Asian FX, while continued gains in equities would moderate any fallout.
  2. Our base case is for the renminbi to be stable in 2022 as China’s sealed borders prevent outbound travel and to support the current account surplus. But a more infectious variant could increase the economic costs relative to the health benefits in China. The need for lower rates (policy easing), or a significant shift away from “zero-Covid” could be risks to the renminbi.
  3. While more Asian central banks will start hiking rates in 2022, this is likely to be slower than in other emerging markets. See figure 4. Inflation is set to be close to or below central bank targets everywhere in the region except India. The lost economic output during Covid will take time to recover. And private sector credit growth is mostly still very weak, especially in Southeast Asia (ASEAN). Moreover, easing by the People’s Bank of China is likely to be in stark contrast to tightening Fed, with Asia straddling this policy divide.
Asian central banks have been slower to lift rates and are expected to hike more gradually next year too
Source: Deutsche Bank, Bloomberg Finance LP
Clients of Deutsche Bank Research can access the full report here.
For important disclosure information please see: https://research.db.com/Research/Disclosures/Disclaimer

© Copyright 2024. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK’s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK’s Financial Conduct Authority (FCA) (under number 150018) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Inc. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.