Our scenario is fairly ugly for the 4Q, but has a strong silver lining thereafter. We are not optimistic about the global economy and investor returns reverting to normal for an extended period, but there should be clear intermediate term relief and pockets of strong outperformance due to idiosyncratic advantages.
The world is fast entering the adjustment phase as deglobalisation is accelerating, requiring new solutions and investment to clear new imbalances from energy supply to labour and eventually normalise inflation.
In recent years, the increased focus on ESG has validated our beliefs. Yet, the complex and fast-changing economies and societies that make up Asia continue to be a challenge confronting investors looking to apply ESG analysis across Asian asset classes. This is a good thing, as investors who can do this successfully will likely add even more value to alpha generation.
Inflationary pressures continued to remain elevated in July, as the headline CPI numbers in South Korea, Singapore, Indonesia and the Philippines increased, while those of Thailand and India moderated. During the month, the central banks of Thailand, Indonesia, the Philippines, South Korea and India raised their key policy rates.
The regional index of the MSCI AC Asia ex Japan in August was flat at 0.0% in US dollar terms, recovering after falling into negative territory earlier. The North Asian region was weighed down by foreign currency effects, trailing behind its ASEAN counterpart. India benefitted from its rate hike and lower oil prices.
In an encouraging sign for New Zealand equities, the benchmark NZX 50 Index ended August approximately 10% higher compared to the lows it saw in June, when it dropped below the 11,000 level for the first time in two years. However, the market still faces challenges given that at the end of August the index was also down about 10% compared to the start of 2022.
New Zealand bonds went through a tough period in August. The rough patch reflects continuing uncertainty, with the bond market undecided about whether it should focus on inflation itself or pay more specific attention to the measures that central banks are adopting to deal with it.
This month we discuss the factors behind Japan’s high level of share buybacks; we also look at the economic implications of COVID in the wake of a particularly large infection wave.
Utilising and regenerating Japan’s ample forest resources by promoting a “wood cycle” could contribute to the creation of economic wealth and a net-zero carbon future.
The just-released 2Q CY22 data on aggregate corporate profits in Japan was very positive, with the overall corporate recurring pre-tax profit margin hitting a record high on a four quarter average.