Evolving Markets

Investment Insights by our experts and thought leaders

Emerging Markets Quarterly: A Firm Reprieve, For Now

Emerging markets (EM) slid from February through the year-end on the back of a stronger dollar, an escalating trade war and notably weaker growth in China. However, we see evidence that these previous headwinds may now be turning into tailwinds.

The return of negative bond/equity correlations was a rare silver lining for multi-asset investors in 2018.

Asian Equity Monthly Outlook - January 2019

The MSCI AC Asia ex Japan (AxJ) Index fell by 2.6% in USD terms in December, as concerns about slowing global growth, tightening monetary policy and rising geopolitical tensions continued to drive sentiment.

Australian Equities Outlook - January 2019

The S&P/ASX 200 Accumulation Index returned -0.1% during December.

Australian Fixed Income Outlook - January 2019

The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 1.50% over the month, outperforming Australian equities which fell 0.12%.

New Zealand Outlook 2019

While New Zealand markets have had a rather interesting and more volatile time, the main drivers of the economy remain sound.

As we wrap up the final weeks of 2018 and look ahead to whatever challenges lay ahead next year, we can’t help but reflect on what has been a testing and frustrating year for investors.

Asian Fixed Income Monthly Outlook - December 2018

US Treasuries (USTs) registered gains in November, while yields fell along with faltering US equities.

The Case For Hiking A 'Very Gradual' 10 Basis Points

While it is true that the Fed will be criticized no matter what it does tomorrow, it could limit criticism to mild levels if it hikes only 10 bps.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Japan's 'Show Me the Money' Corporate Governance: Q3 Weather Effect

Today’s release of the 3Q CY18 data on aggregate Japanese corporate profits showed interesting trends regarding our long-term theme about improving corporate governance.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Asia Credit Outlook 2019

The macroeconomic backdrop for Asian countries should remain broadly neutral for credit performance in 2019. GDP growth is expected to moderate across the key economies, although we don’t expect any hard landing scenarios to materialize.

Emerging Markets Outlook 2019

In addition, we have to consider the eventuality of a prolonged trade war. But China would be able to mitigate its impact initially via a combination of monetary and fiscal stimulus, helping offset the impact of tariffs to a certain extent.

Global Credit Outlook 2019

Credit markets didn’t perform in line with the expectations we set at the beginning of the year and disappointed most investors.

Global Equity Outlook 2019

The potential hangover from the monetary binge of QE continues to weigh on global equity markets as we head towards 2019. The turning of the calendar will do little to change this.

Japan Equity Outlook 2019

As we reflect on 2018, we would all agree that Trump and his trade policies dominated the conversations and dictated some of the major moves in the financial markets around the world.

Singapore Equity Outlook 2019

We believe 2019 will be an important year for active selection or alpha and our focus will be on delivering on stock selection returns by picking quality companies who are resilient in growth amid a rising risk environment.

Global Investment Committee Outlook 2019: Tempered Positive View

So many developments have occurred since we last met in September, but the major ones were the surprising collapse in oil prices mostly due to geopolitical factors, the U.S.-China trade and BREXIT conflicts becoming increasingly intractable, and that aspects of the global economy showed occasional signs of moderation.

Asian Equity Monthly Outlook - December 2018

The MSCI AC Asia ex Japan (AxJ) Index gained 5.3% in USD terms in November, despite persistent concerns over global growth and a slide in technology stocks.

From the Australian Equities Desk - November 18

The S&P/ASX 200 Accumulation Index returned -2.2% during November.

From the Australian Fixed Income Desk - November 18

The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.24% over the month, outperforming Australian equities which fell over 2%.

Australian Housing - Don't Panic

Over the past year Australian house prices have seen 12 consecutive months of decline, the longest streak of persistent falls in over 20 years.

Stop making sense: the state of volatility in markets

Volatility is back in a big way in 2018. A large increase in the VIX is showing an annual level not witnessed since 2007. The sell-off that started in October appears to have been triggered by a number of negative technical forces in the USA coming into effect at the same time, which impacted global markets.

In the AI Age, Active Managers Making Smart Human Decisions Will Win

One of the pleasures of getting older is that you start to have proper grown-up conversations with your children.

US Recession Risk and the Path for Interest Rates

The US economy is enjoying its second-longest growth cycle in history and is on the way to becoming the longest on record.

Asian Equity Monthly Outlook - November 2018

The MSCI AC Asia ex Japan (AxJ) Index fell by 10.85% in USD terms, on the back of concerns about rising interest rates, slower economic growth, and persistent US-China trade tensions. Large technology stocks were particularly hard hit.

Asian Fixed Income Monthly Outlook - November 2018

US Treasury (UST) yields spiked at the start of October as the market responded to stronger US data and Federal Reserve (Fed) Chairman Jerome Powell's hawkish comments.

Global equities corrected downwards by 7.5% in USD terms in October. Stocks in the US ended the month down 6.5% after an intra-month peak-to-trough drawdown exceeding -10%.

Asia's Current Account: Good or Bad?

On the back of unrelenting USD strength, 2018 has been a tumultuous period for Asian currencies. Countries in the region with current account deficits have been facing more currency pressure, prompting their central banks to engage in series of rate hikes to defend their currencies.

Trump Will Hate These Buybacks

Clearly, the U.S. Administration has tried to protect the steel and other industries considered important for defense and economic security. The intent is to have them invest in new capacity due to the recently higher product prices.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

From the Australian Equities Desk - October 18

The S&P/ASX 200 Accumulation Index returned -6.1% during the month.

From the Australian Fixed Income Desk - October 18

The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.48% over the month, outperforming Australian equities which tumbled over 6%.

Climate Change - an Unstoppable Force?

As the world experiences more extreme weather patterns and climate-related incidents, pressure is mounting to curb greenhouse gas emissions.

The trade war between the US and China appears to be morphing into deeper and more protracted conflict as reflected in a recent speech by US Vice President Mike Pence, who criticised China not just for trade practices but more fundamentally for its broad political and economic model.

Asian Equity Monthly Outlook - October 2018

The MSCI AC Asia ex Japan (AxJ) Index fell by 1.38% in USD terms in September. The Sino-US trade conflict and rising oil prices were key drags on performance. During the month, the US Federal Reserve raised rates for the third time this year as widely anticipated, amid positive economic data.

Asian Fixed Income Monthly Outlook - October 2018

In September, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps). The monetary authority removed the clause that policy rates are "accommodative", and modestly raised its growth forecasts for this year and next.

ESG Insights : Assessing Stranded Assets in the Electricity Sector

Nikko AM values companies based on their sustainable earnings capacity. Embedded in our research process is a consideration of all relevant risks that impact sustainable earnings and therefore have valuation implications. This obviously includes risk factors that fall within the ESG realm.

From the Australian Equities Desk - September 18

The S&P/ASX 200 Accumulation Index returned -1.8% during the month.

From the Australian Fixed Income Desk - September 18

The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was down 0.42% over the month.

Food Tech: Investing in the Sustainability of the Future

The late celebrity chef Anthony Bourdain once remarked that “Singapore is possibly the most food-centric place on Earth, with the most enthusiastic diners, the most varied and abundant, affordable dishes — available for cheap — on a per-square-mile basis.”

Finding Multi-Baggers From ESG Controversy

The NikkoAM Asia ex Japan equities team focuses on two core characteristics in our fundamental research; sustainability of returns and positive fundamental change.

As markets continue to grapple with the potential for a protracted trade war between China and the US, central banks have stuck to their task of setting monetary policy.

Another Conversation on ESG with a CIO

In my first article, I outlined our philosophy that ESG is fundamental to, and inseparable from, good investing. ESG is fully integrated into our investment process, because it is the right thing to do. We believe that one cannot claim to be a good fiduciary, mandated to create and preserve long-term wealth, while ignoring the principles of sustainable and responsible investing.

Asian Equity Monthly Outlook - September 2018

The MSCI AC Asia ex Japan (AxJ) Index fell by 1.02% in USD terms in August, largely on the back of currency weakness. Investor sentiments were driven by fears of an escalating trade war and risks of an emerging market contagion. During the month, the US Federal Reserve (Fed) left interest rates unchanged.

Asian Fixed Income Monthly Outlook - September 2018

In August, the US Treasury (UST) curve flattened. Near-term yields rose due to expectations of a September Federal Reserve (Fed) rate hike, while mid to long-dated yields fell. Escalating US-China trade tensions and the weaker-than-expected July US jobs report pushed UST yields lower at the start of the month.

Solid global economy and equity returns

Our updated house view is that the G-3 and Chinese economies will continue solid through September 2019 approximately in line with consensus expectations, while we expect central banks to reduce their accommodation similarly to consensus expectations.

ESG in the investment process

Wealthy individuals across generations are interested in investing for environmental or social impact, but Millennials are by far the most active in evaluating and indeed, demanding these strategies.

Promoting Client Interests

The Corporate Sustainability Department that Nikko Asset Management recently established embodies the Firm’s enduring commitment to integrating environmental, social, and governance (ESG) principles in every aspect of its operations.

From the Australian Equities desk - August 18

The S&P/ASX 200 Accumulation Index rose 1.4% during the month.

From the Australian Fixed Income Desks - August 18

The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.81% over the month. The yield curve flattened as the spread between long-term and short-term bond yields narrowed.

A Numbers Game: The Changing Face of Demographics

In 2011 a dramatic shift occurred throughout the developed world — working age populations began a multi-decade decline. Demographic shifts like this in an economy can have profound effects, including changes in growth and debt metrics.

August 2018 Australian Reporting Season: The Good, The Bad, and The Oddly

Confession season was eerily quiet leading into reporting season, unlike the noise from the Royal Commission and the incredible events out of Canberra, where another Prime Minister didn’t reach their full term.

The Nikko AM Australia Approach to Value Investing

Nikko AM Australia values companies based on their sustainable earnings capacity. That is, we determine the intrinsic value by capitalising the sustainable or mid-cycle earnings of every stock under coverage.

Trump Is Going To Hate This Trade Data

It was just reported that China’s exports to the U.S. accelerated 8% year-over-year in July while U.S. exports to China decelerated to 3% year-over-year.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

China Continues to Mitigate its Macro Concerns

The macroeconomic issues that plague China are well known, but we believe that China is able to engineer a soft landing and to sustain growth, albeit at a lower level than it is used to.

Japan's 'Show Me The Money' Corporate Governance: Renewed Surge

After improving in the spring, the US trade imbalance is worsening again, especially vis a vis the Eurozone and China, with significant repercussions for international monetary and economic relations.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Global Credit Strategy: Midyear Review

We entered the year optimistic, and with the knowledge of the last six months, we are pleased that most of our expectations worked out.

Value vs. Growth and the Divergence to the Extreme

All major value equity indices show that the last five years, and in particular the last 12 months, have been a challenge for value as a style.

Too Much Pessimism About China-US Talks

Nearly every expert seems to be pessimistic about any progress being made during the US-China talks this week, citing the “low level delegations” attending, but there are many signs from both sides of an incipient deal, not to mention the obvious economic and political incentives to achieve such.

Equity pessimism took a breather in July as investors shifted focus from trade wars to the start of this quarter’s highly anticipated earnings season. With 53% of the companies in the S&P 500 reporting, over 80% had positive earnings-per-share surprises and almost 80% reported a positive sales surprise.

For Jackson Hole: Using MBS, The Fed Can Slow The Economy With Fewer Rate Hikes

The Fed, led by Chairman Powell, will very likely resist any effort by the White House to pressure it into halting rate hikes.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Recent moves by the Chinese government to further liberalize its fund management industry have generated a lot of interest with some observers projecting that China will overtake the UK to be the second-largest asset management market.

Uncovering Value in Japanese Equities

Global equity markets rallied throughout 2017 without any major setbacks. With volatility at extreme lows, it could be said that 2017 was an unusually fortunate year for market participants in terms of risk and reward.

Trump imposed USD50 billion in tariffs against China with USD200 billion still pending and more in the pipeline to effectively cover all imports (USD450 billion) from China.

Financial markets continue to come to terms with a more protectionist and less globalised world. The surprise perhaps is not that tariffs have finally been imposed by the US on its trading partners, but that it took so long for a key campaign promise to become reality in spite of Republican control of the House, the Senate and the White House since November 2016.

Erdogan Takes It All

In the past few years, Turkey has faced some of the most monumental challenges in its recent history.

Will Bloomberg's Index Become the First to Include Chinese Bonds?

In March 2018, Bloomberg announced a conditional decision to include Chinese bonds in its flagship bond index: Bloomberg Barclays Global Aggregate, starting from April 2019.

Forbes: U.S. Trade Deals Could Likely Happen Soon

It may seem an optimistic view, but conditions seem to be shaping up for some major trade compromises relatively soon.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

It seems that China does not wish to compromise with the U.S., but neither does it wish to retaliate strongly to the $200BB of additional tariffs. Since it does not wish to “lose face” in giving this light response, it is putting a positive spin on its actions by saying it wishes to be the leader of the free trade movement.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

LatAm Elections: The Lure of the Left

Our London-based Emerging Market fixed income portfolio manager provides an update for Latin American markets in the midst of a hectic election schedule. Despite the risks, pro-market reforms should still progress to varying degrees across the region.

Uncertainty surrounding Trump policy has reached new highs with global trade wars back on. Steel and aluminium tariff exemptions have been allowed to lapse for Canada, Mexico and Europe, and USD 50 billion in new technology-focused tariffs against China will be detailed by mid-June and imposed shortly thereafter.

Has China Outgrown the EM Umbrella

Considering the unique profile of the market and how much China influences the global economy, a decision about China could be the most important call an investor can make at this time.

Happy Birthday ECB

The ECB recently celebrated its 20-year anniversary and instead of a birthday cake, DB research released a compelling chart about how different asset classes have performed over this time period.

House View: Global Economic Rebound And Equity Reflation

Despite uninspiring global equity performance in the last three months, at least for USD-based investors, Nikko AM’s Global Investment Committee continues to be positive on global equities on a one-year view, particularly those in Japan, Europe and the Asia Pacific, but remain unenthusiastic on global bonds.

Where Are We With Corporate Governance In Japan?

Japan’s corporate governance reforms have progressed slowly but surely and the recent revision of the code will add momentum for the unwinding of cross-shareholdings.

Forbes: Japan's 'Show Me The Money' Corporate Governance Update

Japanese profit margins continued roughly flat in the 1Q, but at a high plateau due to improved corporate governance over the past years. With global economic growth pushing up the top line, profits should continue to rise significantly in the quarters ahead.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

China MSCI Inclusion Has Room to Grow

The much anticipated MSCI A Share inclusion happened on 31 May 2018 and will pave the way for further internationalisation of China’s stock markets.

The Case for Private Infrastructure Investing

We believe that long-term oriented institutional investors could find investing into private infrastructure via actively managed funds an attractive investment proposition.

After depreciating for over 18 months, the US dollar has managed to make a comeback, recouping its 5% YTD loss in a matter of weeks. Coupled with 10 year US Treasury (UST) yields hovering around 3%, this has put pressure on Emerging Markets (EM).

Thoughts From the Journey

It has often been the conversations I have had with the people along the way which I have found most helpful when it has come to making investment decisions. This article aims to tell some of their stories and how apparently chance encounters can help generate investment ideas.

Forbes: The Contours Of A China-U.S. Agreement

Recent events have shed some light on a likely China-U.S. agreement fairly soon. Key to such was Trump’s order for ZTE’s sanctions to be lightened so that it can remain in business.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

As much as we would prefer to discuss market fundamentals over the trials and tribulations of the current US Administration, it has been largely unavoidable in this first quarter of 2018.

China Brands Muscle MNCs Out of Home Turf

Chinese companies are now a force to be reckoned with on their home turf – a market which used to be dominated by foreign brands. This report looks at how the change has come about and where Chinese brands are headed.

Beijing conference takeaway: It is clear that while China is set for lower economic growth this year, this decrease represents a welcome central government focus on creating a cleaner, more efficient economy.

The market narrative changed abruptly over the quarter, from observing the “melt up” in January with exceptionally low volatility, to a massive spike in volatility in early February with markets remaining on edge ever since.

Forbes: 2% U.S. Core Inflation Achieved Very Early

In its March meeting, the midpoint of the FOMC’s projection for the Core PCE price index did not hit 2.0% until 2019. However, it seems likely to occur in the upcoming March reading. Meanwhile, today's Core CPI already exceeded 2.0%.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

How ASEAN's 3Rs Can Overcome Trade Wars

Our portfolio manager in Singapore explains why ASEAN might well benefit from the current US-China trade tensions and how the region’s three main strengths should keep economic growth strong.

Forbes: Trump Is Going To Hate This Trade Data

Not only did the US trade deficit expand in February, it showed particularly disturbing trends regarding the Eurozone and China.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

China's Move from Factory of the World to Silicon Valley of the East

With its advantages of a vast talent pool, financing and market access, China has most of the ingredients needed to transform into the “Silicon Valley of the East”

Global Ramifications of the Eurozone’s Huge Trade Surplus

Many economists and currency analysts, after years of ignoring such “old fashioned” indicators, are now talking about the massive trade surplus that the Eurozone enjoys with the world, but in particular with the US.

Markets continue to come to terms with the return of higher volatility, triggered ostensibly by fears of inflation and the unwinding of highly leveraged short volatility positions at the beginning of last month.

Forbes: Revisions Show U.S. Industrial Mini-Recession In 2015

Actually, it has not been one long expansion since 2009, as we now can see how the slumping oil price caused a mini-recession a few years back.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

LatAm Elections: The Lure of the Left

Our London-based Emerging Market fixed income analyst predicts increased volatility ahead for Latin American markets due to the threat of Leftist election victories this year, but that pro-market reforms will still progress.

House View: Continued Global Economic and Equity Reflation

Our updated view remains positive on the global economy and equity markets even as global bond yields rise a bit further. Our SPX target remains near 3000 by year end, with impressive gains elsewhere too.

Japan’s “Show Me the Money” Corporate Governance

In my view, Japan is the only major country that is going through a structural improvement in corporate governance, and, thus, deserves special attention by global investors.

In our 2018 outlook, we made the case for rising volatility as central banks across the developed world slowly remove the stimulus punch bowl, but few would have imagined volatility spiking with such a vengeance as it did in recent weeks.

Italian Elections: More of the Same Political Dysfunction

Poor economic and fiscal policies are, and will likely be, a recurring theme in Italian politics. However, from a trade perspective, we see Italy to remain a good carry/spread trade for at least the next twelve months against a backdrop of improving GDP growth in 2018 and 2019.

Forbes: 2% U.S. Core Inflation In Sight

Today's very high Core CPI result is one more indication that inflation is rising.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Forbes: The BOJ: Kuroda Again, But What's New?

The Japanese media are widely reporting that Governor Kuroda will be reappointed, which surprises very few people. Whether he wishes to finish his new five-year term is open to question, so the choice of Deputy Governor will likely be important.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Australian Household Debt — The Economic Cost of High House Prices

Over the past 15 years Australian house prices have been on an incredible run, resulting in Australian households becoming some of the most indebted in the world. So what is the economic cost of Australia’s sky high property prices and what could it mean for property prices in 2018?

Forbes: The New Fed And Why The MBS Market Will Likely Suffer

Both Fed candidates support tapering MBS holdings faster than the current plan. This would likely raise mortgage rates and tame US housing prices, which are likely rising too fast for comfort.

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

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