US presidential election jitters and an uptick in COVID-19 cases in the US and Europe triggered a downturn in global equities in October. Asian stocks, however, managed to turn in decent gains for the month, owing to a slowing pace of COVID-19 infections in the region and growing optimism over China’s economic recovery. The MSCI AC Asia ex Japan Index rose 2.8% in US dollar (USD) terms over the month.
US Treasury (UST) yields rose in October. The US presidential election and the fiscal stimulus deal were the focal points of news headlines and markets in October. Worries about the acceleration of COVID-19 cases in the US and Western Europe, and renewed lockdowns in the latter, partially offset the upward pressure. Overall, 2-year yields ended 2.6 basis points (bps) higher at 0.155%, while 10-year yields rose 19.0 bps to 0.875%.
With the US presidential election now behind us, the two candidates seem to be proceeding in parallel universes. The apparent winner, President-elect Joe Biden, has transition planning and inauguration on his mind while President Donald Trump continues to challenge the election process itself.
We assess the US election outcome from the perspective of the Japanese equity market, focusing on the economic and policy changes that are expected to accompany the change in US leadership.
We discuss the reasons behind the Japanese equity market’s recent outperformance and the factors likely required for the gains to be sustainable in the longer term. We also assess the recent surge by the Mothers Index and key points to watch going forward.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) returned 0.28% over the month. The yield curve steepened as 3-year government bond yields ended the month 4 basis points (bps) lower at 0.12%, while 10-year government bond yields rose by 4 bps to 0.83%. Short-term bank bill rates were all lower.
The S&P/ASX 200 Accumulation Index returned 1.9% during the month. Australian equities were supported by the release of the Federal Budget early in the month which saw increased spending and tax cuts to aid the economy as it recovers.
Last month saw a marked increase in share price volatility in some of the stocks deemed most insulated from the adverse impacts of COVID-19. We suspect that this volatility will persist for some time as the real strengths of economies are revealed; with emergency wage support measures rolling off in the UK, inventories partially rebuilt and political uncertainty elevated.
In order to gain a range of perspectives on the US presidential election, Nikko Asset Management has gathered the views of the following experts and investment teams, representing many of our major asset classes and geographical regions.
The strategy’s performance continued to recover during the last quarter. The strategy’s relative and absolute performances are now positive. Strong results in the banking sector, in particular the lower part of the capital structure (i.e. T2 and AT1 bonds) were a strong driver of the rebound.