Investment Insights

As always, we are focused on finding ideas that are supported by the four pillars of Future Quality investing: franchise quality, integrity of management, balance sheet strength and valuation. We expect AI, energy and defence to continue providing attractive investment ideas given the structural changes anticipated in these industries.

The recent Japanese Upper House elections resulted in the ruling coalition losing its majority, leading to market uncertainty. Despite potential challenges in policy-making, ongoing trade negotiations with the US and fiscal discipline negotiations remain key focus areas, impacting Japanese assets and global market dynamics.

According to Wall Street lore, investors should “sell in May and go away”, but June's rally once again reduces the credence of this strategy. Still, the outlook remains uncertain despite improvements in terms of trade policy tensions and ceasefires.

While credit fundamentals and decent demand-supply technicals are supportive, we are wary of trade and geopolitical re-escalation risks. We are therefore inclined to take a more cautious and defensive approach over the near term.

Sharia-compliant bonds, or to give them their official name, “sukuk”, are often dismissed as faith-based instruments with limited appeal outside of Muslim-majority markets. However, this misses the opportunity they present for global fixed income investors seeking diversification, resilience, and sustainability.

In June, New Zealand’s equity market performance largely reflected ongoing weakness in the country’s economy, with defensive stocks acting as the main drivers of performance.

With uncertainty over tariffs, geopolitical disruption and the paths taken by central banks continuing to impact global markets, it may be instructive to look back at the RBNZ’s last monetary policy decision as we try to determine the future direction of interest rates.

This month we assess how Japan losing its place as the world's largest creditor in fact underscores the country's transformation over the years; we also discuss the recent crude oil market disruptions from a Japanese market perspective.

With slowing growth and an ongoing trade war to handle, China appears to be in a crisis management mode. However, the country is at an inflection point where major structural shifts are occurring as it strives to climb up the technological value chain to achieve self-sufficiency via innovation and resourcefulness.

The GIC assesses that the probability of slower yet positive growth in the US has increased. The GIC anticipates a narrower growth gap between the US and other developed markets, with selective diversification into European and Chinese equities potentially paying off. The GIC believes that the risk premium offered by Japanese equities is now competitive with that of the US, although trade-related uncertainty is expected to linger.

US exceptionalism has faded from view recently, supporting an exodus from US assets. However, our stance remains that the US is core to our investment thesis, allowing us to remain part of the secular growth trend in technology innovation not found elsewhere in the world.

We continue to believe that Asia's local government bonds are positioned to perform decently, supported by accommodative central banks amid an environment of benign inflation and moderating growth.

The Fed maintained interest rates at its June meeting, signalling a slightly more positive economic outlook. Despite easing of some risks, uncertainties remain elevated, with inflation still a key concern. FOMC members' varied rate projections reflect heightened uncertainty in the economic outlook.

New Zealand’s climate-related disclosures regime came into effect for reporting periods beginning on or after 1 January 2023 and the first rounds of annual reports were released in 2024. Now that the second year of reporting is underway, we share some of the benefits and challenges we have found in the reporting process.

The RBNZ's interest rate cut in May was viewed as a hawkish reduction, with the central bank seen moving closer to the point at which it will consider pausing the cycle to observe the benefits the current monetary policy settings can bring to the economy.

Markets, while volatile, have continued to recover, and we are now seeing an easing of trade tensions. However, in these uncertain times, one thing remains clear—uncertainty itself. The situation remains fluid, and against such a background we expect Chinese policy support to stimulate consumption and business activities.

Japanese equities have not been immune to tariff worries. However, it is worth remembering that Japan is playing the long game: the country is undergoing structural reflation driven by factors unlikely to be reversed by market volatility or bad news on US trade.

We discuss how growing calls to reduce Japan's consumption tax rate provide a chance to focus on how consumption can be stimulated, potentially triggering a secular change in spending behaviour; we also assess the recent surge in super-long JGB yields and its possible implications for monetary and fiscal policy.

In this month's Balancing Act we review Q1 corporate earnings, which have been more resilient than expected; from a defensive standpoint we also discuss our cautious view on gold.

Against a more challenging but still benign macroeconomic backdrop, we expect Asian corporate and bank credit fundamentals to stay resilient, aside from a few sectors and specific credits which may be affected by tariff threats or geopolitical dynamics.