Investment Insights

 

New Zealand Equity Monthly – April 2023

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.

Navigating Japan Equities: Monthly Insights from Tokyo (May 2023)

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.

Market dynamics have changed quite considerably since mid-March after the regional bank failures in the US, which were quickly followed by turmoil at Credit Suisse leading to the bank’s forced marriage with UBS. The government response was swift and significant, and while central banks have attempted to message a somewhat normal return to its tighter policy agenda, markets simply are not buying it.

Asia’s healthcare opportunities

In Asia, where healthcare innovation and investment are borne from a critical need, the region’s healthcare industry today is where its technology industry was in the 2000s, meaning that a decade of investment is beginning to bear fruit.

Against a backdrop of a more stable bond market, we prefer relatively higher-yielding Philippine, India and Indonesian government bonds. In addition, there appears to be early signs suggesting that inflationary pressures in these countries have likely peaked, which we see providing further support for these bonds. As for currencies, we expect the Thai baht and Indonesian rupiah to outperform regional peers.

In a world starved of workers and growth, we believe that Asia’s ability to supply both puts the region on a very firm footing over the longer term. Once we get through this current US-led rate tightening cycle and the flush out of weaker financial institutions in the West, we see a bright future for Asia, which is now trading at extremely attractive valuations.

Navigating Japan Equities: Monthly Insights from Tokyo (April 2023)

This month we discuss how potential market volatility still bears watching even if the global banking turmoil may not directly shake Japan; we also assess how a steady domestic demand recovery may be in sight even if the public is slow to remove their masks after the recent easing of restrictions.

Consumption in Asia from a new perspective

Asia’s consumption trends were once thought to be heavily influenced by those in the West, but that is no longer the case. Asian consumers have diverse tastes and influences and they are starting to dictate global trends instead of merely absorbing them. We believe that Asian brands are well placed to respond to this new paradigm.

Resilience and attractiveness of Asian local bonds

Asian local currency bonds are expected to thrive as the region’s central banks end their rate hike cycle on the back of easing inflation. We believe that strong fundamentals, high-quality yields and limited foreign ownership are other factors that are supportive of this fixed income asset class.

Investors have been dealing with elevated volatility in asset prices since the pandemic began. A contributing factor that continues to muddy the waters has been the volatility in economic data due to COVID-led distortions. In more recent months, particularly in the US, unseasonal weather patterns have made reading the economic tea leaves even more difficult.

Global banking turmoil from an Asian perspective

It could be some time before the market stabilises in the wake of the global banking turmoil, and investor appetite toward financial subordinated debt will likely be weak in the near term. That said, considering the current valuations of fundamentally stronger Asian banks, we believe that a large part of such concerns are already reflected in their spreads/price following the re-pricing which took place earlier in March.

Global Investment Committee’s Outlook

We expect fairly rough sailing for the global economy, financial system and markets in the next two quarters, but we do not expect disasters and there should be major relief for stocks later in 2023 as central banks begin to ease policy.

Asian financials: beyond the drama

Asian banks will be more insulated from the current global banking turmoil, in our view, thanks to smaller-scale rate hikes in Asia, prudent supervision by regional financial regulators, outsized capital adequacy ratios and sensible security exposure relative to total assets. We believe this will bode well for the sector in the longer term and enhance its attractiveness.

New Zealand Equity Monthly – February 2023

Bonds have been attracting more attention from investors recently in view of their higher yields and the possibility of capital gains. In addition, as equities have lost their shine for now amid higher interest rates, bonds are expected to continue to benefit from an asset allocation perspective.

New Zealand Fixed Income Monthly – February 2023

Bonds have been attracting more attention from investors recently in view of their higher yields and the possibility of capital gains. In addition, as equities have lost their shine for now amid higher interest rates, bonds are expected to continue to benefit from an asset allocation perspective.

Countries in the region took divergent monetary paths during the month. India and the Philippines raised their respective policy rates, while Indonesia and South Korea maintained their interest rates.

Net zero made in Asia

We believe that there are substantial rewards for those who are capable of driving the push for global decarbonisation. So, the question is: who is building the kit for the world’s net zero ambitions? We believe that the answer, both now and well into the future, is Asia.

Navigating Japan Equities: Monthly Insights from Tokyo (March 2023)

This month we discuss what the market may initially seek the most from the next Bank of Japan governor; we also look at Japan’s expanding outlays, with tax revenue and inflation in focus.

Thoughts on the 2023 China National People’s Congress

The official GDP growth target of “around 5%” unveiled at China’s annual National People’s Congress was lower than many external forecasts, and fiscal policy looks less accommodative relative to both market expectations and that of 2022. In our view, these conservative targets leave room for outperformance and likely reflect cautiousness over unexpected events and reluctance in overstimulating the economy.

The MSCI AC Asia ex Japan Index slumped 6.8% in US dollar terms, giving up its January gains. China’s reopening and peak interest rates euphoria in January were short-lived as hotter-than-expected economic indicator releases in the US raised the spectre of higher-for-longer interest rates.

Today’s surgical robot, tomorrow’s robot surgeon

Considered to be one of the greatest modern-day medical breakthroughs, robotic surgery is revolutionising surgical practices around the world. The breakthrough is particularly prominent in China, which could be the next growth frontier for surgical robotic companies.

The just-released 4Q CY22 data on aggregate corporate profits in Japan was somewhat mixed, as the overall corporate recurring pre-tax profit margin fell from its record high on a four quarter average. The non-financial service sector ticked up, but the manufacturing sector fell from its record high.

Global Equity Quarterly (Q4 2022)

Current equity market conditions dictate that you choose your investment attire particularly carefully. In our view, buying profitless technology companies is like going up a Scottish mountain wearing flip-flops. You might get away with it, but the odds are not in your favour. Instead, we prefer the protection afforded by profits (and cash) generated today—not at some unspecified point in the future.

Thoughts on the BOJ you might not have heard, but should consider

Currently, there is a wide variety of predictions for the BOJ’s actions, with some expecting imminent hawkish decisions based upon some of Governor-nominee Kazuo Ueda’s “anti-distortion” comments, but changes are more likely to be gradual and tentative assuming the global economy continues improving.