The conflict in Ukraine will lead to repercussions on the world economy, particularly on the price of raw materials, but also as a result of the exclusion of Russia from the Swift network and a possible Russian economic isolation.
The Chinese renminbi is so far not impacted by the Russia crisis, and we don’t predict it to be (unless China decides to help the Ukrainian military invasion, which is unlikely). The Chinese renminbi has its own dynamic, as also seen last year. When Chinese technology stocks got crushed in the market, the Chinese renminbi (and thus Chinese bond investments) continued its positive trend. The Chinese renminbi is driven by a unique combination of strong economic fundamentals and positive (real) interest rates, which is something rare these days in the bond market. Also, we forecast the Chinese renminbi to evolve over the medium to long term to a “standard” foreign currency in international bond portfolios, like the US dollar, Norwegian krona, British pound, etc.
Asia, and particularly China, is expected to continue globalizing its economy, as well as its reforms, with the main target of becoming the world’s leading power. Government reforms, which were implemented at the beginning of 2021 when the economic environment was buoyant, have weighed on the economy in the short term but should lead to sustained growth in the longer term. We may therefore have reached a low point in terms of economic slowdown and investor disinterest in the equity markets, especially since, if new reforms are undertaken, they should be less frequent and less far-reaching.
At the same time, India is poised to become the fastest growing major economy: GDP is estimated to grow by 9.2% in the current fiscal year ending March 2022, the second highest growth rate in the world after China. In its October forecast, the IMF anticipates slightly lower growth for 2022 (+8.5%, a pace sufficient to maintain investor confidence) with a resurgence of the Covid-19 pandemic as the main downside risk factor.
Moreover, it should be noted that Asia has the largest youth population in the world. These numbers will continue to rise over the next two decades, particularly in South Asia, which is experiencing exponential population growth.
Senior Portfolio Manager for the Emerging Markets funds at Econopolis