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  • Belvedere Group

November 2023 Market Commentary

Updated: Dec 12, 2023

Developed Markets

Executive Summary

  • Japan’s economy plummeted in the penultimate quarter of 2023 by 2.1% on a year-on-year basis, driven by the fall in consumption and investment in the world’s fourth-largest economy. The contraction in Q3 2023 was a reversal from the 3.7% and 4.5% recorded in the first and second quarters of the year respectively. However, the country has remained resilient in the lifting of social restrictions which we believe to be pivotal if the economy rebounds in Q4 2023, as inbound tourism and exports continue to spur recovery.

  • The German economy is forecasted to decline in the final quarter of 2023, as Europe’s largest economy continues to falter from rising prices, weak domestic demand, and high interest rates. The German Bundesbank reported that GDP is projected to shrink in the fourth quarter of 2023, as the budget crisis deepens to spur a pessimistic outlook into the new year.

Market Summary

  • In the wake of the US Federal Reserve’s decision to maintain its benchmark interest rate for the second consecutive policy meeting, equity, and fixed-income markets experienced a rally, providing succour to investors who seemed content as the apex bank kept its tab on the pause button. The MSCI All-Country World index climbed 9% in November, the best month for the global equity benchmark since November 2020. The S&P 500 also had its best month since July 2022, gaining 8.9% in November. The sentiment that the Federal Reserve and other major central banks are on the verge of defeating inflation has bolstered market performance, as investors believe interest rates have peaked and will be cut in the first half of 2024.

  • Nonetheless, the Fed has left the door open to another potential rate hike before the year's end, as the US seeks to transition its economic growth from moderate to strong. In our opinion, the remaining economic data of 2023 is unlikely to falter recent market momentum, but we advocate investors leave the door open for a reshuffle in their portfolio positioning as 2024 draws closer.

In the UK, retail sales experienced a nosedive as the volume of products sold in October 2023 fell by 0.3%, the lowest level recorded since February 2021 driven by the pandemic lockdowns. The retail sales decline compounds worries for the UK, showing signs that the economy is struggling to grow, despite inflation falling sharply to 4.6% year-over-year in October 2023, from the 6.7% recorded in the preceding month as the Bank of England maintained a long succession of interest rate hikes.

Hence, we affirm that rather than placing heavy reliance on traditional equities based on optimistic rate cut forecasts, investors should diversify their holdings with asset classes that shield against higher interest rates and a potential recession. Thus, investors should persistently seek opportunities for income generation and portfolio growth. Did you know that we can assist you in diving into what equity style of investing best suits your long-term needs by aligning your financial goals and risk tolerance to a suitable asset allocation with various investment products and services?

Japan’s economy plunges into contraction in Q3 as spending and investment decline

Japan’s economy contracted in the third quarter of 2023, at an annualized pace of 2.1%, as consumption and investment weakened in the world’s fourth-largest economy. The nation’s economy declined by 0.5% quarterly. Further dive into the numbers revealed that private consumption plummeted 0.2% on an annualised basis, while corporate investment shrank 2.5%. On a positive note, auto export recovered after declining the preceding quarter partly due to shortages of computer chips and other parts, while public demand, which includes government spending, accelerated at an annual pace of 0.6% in Q3 2023.

The contraction in Q3 2023 followed the economy’s growth at a revised pace of 4.5% in April-June and 3.7% in the January-March quarters of this year. The expansion in the first two quarters of 2023 was buoyed by recoveries in inbound tourism and exports. Social restrictions related to the pandemic in Japan have been lifted, permitting more travel and fewer disruptions to trade and supply chains.

Based on our assessments, Japan’s apex bank is likely to restrain from any monetary action targeted toward higher interest rates given the GDP numbers last quarter. The Bank of Japan has maintained a super-easy monetary policy for years, at zero or below-zero interest rates aimed at boosting an economy long faced by deflation, reflecting the stagnation that the country has faced amid its shrinking and ageing population.

However, Prime Minister Fumio Kishida recently announced a stimulus package of more than 17 trillion yen ($113 billion) which includes tax breaks and benefits for low-income households that have been plagued with high prices for necessities driven by the global inflation pressures and weakening value of the Japanese Yen. Thus, we opine that Japan’s economy might be headed for another declining quarter in Q4 2023 following the government’s economic downgrade in November, for the first time in 10 months, attributed to weak domestic demand and slowing global growth.

Germany faces a double-dip recession as the struggling economy is expected to plummet again

Europe’s largest economy, Germany, is expected to shrink in Q4 2023, as stumbling blocks continue to belittle its recovery, according to the nation’s central bank monthly economy report released on November 20th, 2023. The economy has struggled this year arising from weak global orders, high energy costs, and higher interest rates, which have culminated in plunging Germany into a deep industrial recession.

The German Bundesbank reported that economic output is projected to shrink in the fourth quarter of 2023, as macroeconomic indicators for the final three months of the year have been worse than expected, hence the pessimistic outlook for this quarter.

Despite the difficulties, the apex bank remains optimistic for the forthcoming year, highlighting factors such as strong wage growth, high employment, and positive sentiment indicators, as factors that might set the pace for a rebound in 2024. We foresee the German economy remaining fragile as the global economy continues to battle high inflation and interest rate tightening has stalled business expansions. Germany’s economic worries are further exacerbated by the deepening crisis in next year's budget that has forced a freeze on new spending pledges. In our opinion, further delay to the budget approval would signal the challenge facing the government after the country’s constitutional court blocked a move to transfer €69 billion ($65.44 billion) in unused funds from the pandemic to green investments.

Emerging Markets

Executive Summary

  • China surpassed expectations with higher-than-anticipated growth in industrial output and retail sales in October 2023. However, the overall economic landscape revealed notable areas of vulnerability, particularly as the troubled property sector persisted, hindering a complete and robust recovery. The second-largest global economy has faced challenges in achieving a robust post-COVID recovery. Factors such as turmoil in the housing market, concerns about local government debt, sluggish worldwide economic growth, and geopolitical tensions have collectively impeded its momentum.

  • Indonesia experienced a slowdown in economic growth in the third quarter, attributed to a decrease in export value. The value of exports contracted by 4.26% during this period, compared to a 2.97% decline in the preceding three months. The diminished demand from China, Indonesia's largest trading partner, played a significant role in the reduction of export values.

Market Summary

The MSCI Emerging Markets Index exhibited a positive turnaround, posting a 7.6% gain in November, rebounding from October's decline of -3.81%. This marks the most significant monthly surge since January and positions the index for its strongest annual performance since 2020. Latin American company shares experienced an uptick, poised for their most impressive annual performance since 2017.

Concurrently, a comparable gauge of emerging markets currencies registered a monthly increase of approximately 2.6%, concluding at its highest level since March 2022. The rally in emerging-market assets during November stands out as one of the most substantial of the year, driven by strategic portfolio repositioning amid speculations that the Federal Reserve will initiate interest rate cuts in the first half of the upcoming year.

India's stock market is poised to receive a $1.5 billion injection following the inclusion of nine additional stocks in the MSCI Emerging Markets Index—a benchmark closely monitored by investors with trillions of dollars in assets. The increased capital inflow into Indian stocks underscores robust market fundamentals and a rising interest among foreign investors in the equity market of Asia's third-largest economy. The inclusion in MSCI's EM Index represents a noteworthy development for India's stock markets and underscores India's escalating significance as an emerging market economy.

The Indian equities joining the index encompass Tata Motors, IndusInd Bank, Suzlon Energy, and One 97 Communications, the parent company of the digital payments platform Paytm. These additions, coupled with the absence of deletions among Indian firms in the review, sum up to 131 Indian companies, the largest recorded in this gauge.

The focus on international indices, notably MSCI Emerging Markets, and the anticipated influx of investments into specific stocks indicate a positive outlook for India's economic and market prospects. Nevertheless, investors should exercise caution and remain vigilant regarding external factors, including global economic conditions, geopolitical developments, and domestic policy changes. India's standing in the index is expected to strengthen further due to its well-rounded opportunities compared to other major players in the index, such as China and Taiwan, as foreign investors are drawn by India's proactive government measures, enhanced corporate earnings visibility, effective fiscal and monetary policy management, and a growing range of opportunities.

Emerging economies have witnessed a shift as the number of rate cuts surpassed rate hikes for the first time since February 2021, with 14 of the 18 central banks in developing economies holding rate-setting meetings. Brazil and Hungary extended their rate easing cycles, contributing to a total annual tally of 695 bps through 13 moves, notably placing Latin America and central Europe at the forefront of the easing cycle. Turkey, combating persistent inflation and a weakening currency, stood out with a 500 bps rate hike. Throughout 2023, emerging market central banks have tightened by 4,725 bps, marking a contrast to the 7,425 bps rate hikes seen in the year 2022. The evolving balance between easing and tightening measures will be crucial in navigating the uncertainties ahead, shaping the outlook for these economies in the coming months.

China Retail Sales and Industrial data Exhibit a faster than anticipated growth in October

Chinese industrial production exceeded expectations, and retail sales also surpassed forecasts in October 2023, suggesting that ongoing stimulus efforts from Beijing were contributing immensely to bolstering local demand. Industrial production increased by 4.3% compared to the previous year. The figure exceeded the anticipated 4.3% and showed a slight improvement from the 4.5% observed in September 2023. Retail sales increased by 7.6% in October, driven by improvements in both auto and restaurant sales growth. The acceleration from the 5.5% gain in September marked the fastest pace since May 2023.

Property investment experienced a 9.3% decline year-on-year from January to October, following a substantial 9.1% drop between January and September. Fixed asset investment fell short of expectations, expanding by 2.9% year-on-year in the first ten months, missing the anticipated 3.1% rise. The growth rate was lower than the 3.1% observed from January to September. Investments within the private business sector contracted by 0.5% year-to-date, showing a slight improvement from the 0.6% decline in the initial nine months.

In response to maturing medium-term policy loans, the People's Bank of China (PBOC) increased liquidity injections without altering the interest rate, while the government raised the 2023 budget deficit to 3.8% of GDP to accommodate a planned issuance of 1 trillion yuan in sovereign bonds. This is part of a broader strategy to support economic recovery, as seen in the PBOC's reduction of the reserve requirement ratio (RRR) for banks. October's data indicates China's consistent economic recovery, driven by government-led investment, stabilized external demand, and sustained consumption improvements. The Economist Intelligence Unit revised China's GDP forecast to 5.5%, reflecting a Q3 performance surpassing expectations. The government's commitment to an investor-friendly environment is evident in recent measures, including improved intellectual property rights and streamlined cross-border data flows.

Looking ahead, we expect additional reductions in the reserve requirement ratio (RRR) for Chinese banks in the remaining months of the year. Aligning with an overall strategy, these reductions aim to enhance liquidity, promote lending, and contribute additional momentum to economic recovery. We believe that the ongoing government support for property developers and the issuance of special government bonds are expected to contribute to a sustained recovery for the rest of 2023.

Indonesia’s Economic Expansion hits 4.94% in the third quarter of 2023

Indonesia's economy recorded robust growth in the third quarter, but it decelerated more than anticipated to its lowest point in two years, impacted by shrinking exports and a moderation in household spending. The annual growth in gross domestic product (GDP) was 4.94% in the July-September quarter, a decline from the 5.17% growth observed in the second quarter and falling short of the 5.05% forecasted by economists.

Household consumption remained the primary driver of the economy in the third quarter, contributing 52.62% to the total GDP growth and increasing by 5.06% year-on-year. However, this growth rate was slightly lower than the 5.22% recorded in the second quarter of 2023. From a business standpoint, the three sectors that demonstrated the most substantial quarter-on-quarter growth include construction, with a notable increase of 5.87%, followed by mining and quarrying at 5.31%, and electricity and gas procurement at 3.77%.

The Indonesian agriculture sector grappled with challenges from El Nino-induced drought, impacting GDP. Conversely, the investment sector displayed resilience with a 5.77% growth in Q3, surpassing Q2's 4.63%. Although QoQ GDP growth slightly missed expectations at 1.6%, Java maintained its economic prominence at 57.12%. Sumatra, Kalimantan, Sulawesi, Bali, and Nusa Tenggara islands followed. Maluku and Papua combined accounted for 2.59%. We anticipate a cooling effect on Southeast Asia's largest economy due to domestic interest rate hikes, falling commodity prices, and global economic slowdown.


The commentary you find on this page is for information only; it is not intended as research or a recommendation suitable to your individual circumstance. Please seek financial advice from a professional before acting on investment decisions.

As is the very nature of investing, there are inherent risks, and the value of your investments will both rise and fall over time. Please do not assume that past performance will repeat itself and you must be comfortable in the knowledge that you may receive less than you originally invested.


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