The key things to look for in the first half of 2023 is the possible peak in US interest rates as the economy weakens and the potential for a change in the Chinese policy towards Covid and a greater focus on economic stimulus. Both of these events would be a positive for the Asia Pacific region leading to a weaker US dollar and an improvement in regional trade.

Following the regions underperformance valuations look compelling both compared to its own history and global peers.

Opportunities exist across most markets with North Asia and especially China looking particularly attractive. The one exception is India where valuations are at multi decade highs.

Although we expect the first half of 2023 to be volatile as markets digest data releases there are three key themes that are represented in the portfolio. Firstly, we believe that energy and materials prices will possibly be higher for longer as new areas of demand and a lack of new supply could keep prices elevated. Secondly, we fully expect China to show a strong recovery in 2023, although we expect this to be back end loaded. In the portfolio this is reflected in the high materials weighting but also in the selective addition of stocks exposed to a recovery in consumption. Finally, we continue to like the communications services sector for its stable cash flow generation and dividend yield.

The biggest risks are an unsuccessful re-opening in China, heightened geopolitical risks or a global financial mishap that tightens liquidity and restricts flows to the region.