As the green bond market diversifies, sustainability-linked bonds (SLBs), which are linked to an issuer’s broader sustainability performance, have garnered significant investor attention and scrutiny. We believe structural improvements will help make SLBs a more attractive sustainable investment class within the ESG universe.
The divergence in growth outlook reflected in equities continues to widen, as secular growth in the form of tech and artificial intelligence (AI) developments appears to have the upper hand in determining the overall market direction. This is evident with the tech sector being up (and Japan, for different reasons) while most other sectors and geographies are down over the month. This defies conventional wisdom—that earnings can continue to grow into a recession, but these disruptive developments are indeed significant, and perhaps this is the right directional prognosis should a recession prove to be shallow.
We remain constructive on relatively higher-yielding Philippine, Indian and Indonesian government bonds, on the back of the relatively supportive macro backdrop for these countries. As for currencies, we expect the Thai baht and Indonesian rupiah to continue outperforming regional peers.
In an encouraging sign for New Zealand, the Reserve Bank of New Zealand (RBNZ) signalled in May that the Official Cash Rate is likely to have peaked at its current level of 5.5%. The RBNZ appears to have shifted its focus from inflationary pressures to factors that will drive inflation down. Factors cited include weak global growth, easing inflationary pressures among New Zealand’s trading partners and reductions in supply chain constraints.
The Reserve Bank of New Zealand’s decision to have the Official Cash Rate (OCR) peak at 5.5% surprised the market, which had started to price in a peak of 5.75% or 6.0%. The lower-than-expected peak in the OCR is positive for equities as higher interest rates dampen spending by consumers and businesses.
A recent trip to China offered first-hand observations of the country’s technological advancement, changing consumer patterns and new social norms as the world’s second largest economy moves on from the pandemic.
As the developed world continues to struggle with inflation and a lack of growth, Asia stands out as the bright spot, with inflation well in check and monetary cycles peaking ahead of the West. Growth in Asia is also expected to outperform the West over the next few years, reversing a decade-long trend of developed world growth outperformance.
This month we discuss the factors behind the Nikkei’s rise to a 33-year high; we also assess Japan’s opportunity to re-invent itself as a technology hub with leading global chipmakers bringing investments and manufacturing to its shores.
At times of stress, we believe that it makes sense for investors to reach for something that has recently provided comfort. Our view is that that is exactly what we have seen in Q1, as banking stock volatility has led investors back into the technology sector. Q1 is now behind us though and is often a time of the year characterised by mean reversion such as we saw in 2022.
We present our Q2 2023 outlook for the Global Unconstrained Bond Strategy which incorporates our core markets, emerging markets and global credit views.
The long-held theme of this report (since 2006) that profit margins remain on a structural uptrend, despite sluggish domestic GDP growth, still holds and domestic and international investors finally realise that Japanese corporations are delivering solid profits and shareholder returns, with the increased expectation that such will likely continue over the intermediate term.
Life is different in the post-pandemic world. Equity markets and economies are different too; geopolitics have deteriorated and barriers to trade have increased while the threat of global warming looms ever larger. In this short essay, we attempt to bring some perspective to this while giving a view on where we are in markets today and what might happen next.
Asian REITs continue to be one of the fastest growing asset classes in the region, offering decent yields, a sustainable income stream and exposure to the region’s biggest landlords.
China’s re-opening and supportive policy tone may continue to provide a critical counterweight to global macro weakness. Macro and corporate credit fundamentals across Asia ex-China are also expected to stay robust.
As New Zealand’s current tightening cycle started about 19 months ago, it can already be said to be mature. It also follows that the full impact of the monetary policy decisions taken so far should now be building in the economy.
Currently, we believe that valuations look stretched (mainly in the US) and volatility too low to justify that a new bull market is at hand, given the plethora of risks. We remain constructive on China's recovering demand and new sources of tech growth, but we are cautious for now for the relative complacency that appears not to adequately discount the eventually weaker economic data ahead and now renewed regional bank stress, and perhaps a US debt ceiling battle in the making.
As the exponential growth of machine learning kicks in, we believe that big technology companies with the first mover advantage in AI and high-end manufacturers of AI-focused hardware and microprocessors, notably Asian players, are in a position of advantage.
New Zealand’s equity market was surprisingly strong in the first four months of 2023 given the current challenges faced by the economy. The actual picture is more mixed, however, partly as a result of the concentrated nature of the New Zealand market.
This month we discuss how Warren Buffett’s focus on Japan has put the country’s market back on investor radars and how it could be a chance for companies to disseminate meaningful information; we also analyse the TSE’s surprise “name and shame” tactic with listed companies.
Financials, healthcare and energy buck the trend and rise in a down market.