Investment Insights

 

Harvesting Growth, Harnessing Change

Change is both more prevalent and significant in Asian markets. We believe that seeking to understand it is essential to deliver sustainable returns.

The outlook is increasingly clouded as markets come to terms with a Fed that may do “whatever it takes” to contain inflation. Given that current inflationary pressures appear to be mainly driven by supply-side constraints and rising energy prices, it follows that the Fed would need to be willing to take the economy into a recession to meet its mandate.

Increasing energy and food prices were the main factors that pushed most regional headline CPI prints higher in March. The Monetary Authority of Singapore aggressively tightened FX policy while China stepped up both monetary and fiscal policy support as the country struggled to contain its worst COVID-19 outbreak in two years.

Asian markets were downcast in April as investors were concerned about inflation and the likelihood of a larger-than-expected rate hike by the US Federal Reserve. For the month, the MSCI AC Asia ex Japan Index fell by 5.2% in US dollar (USD) terms.

New Zealand Equity Monthly – April 2022

This month we turn our focus to developments in China and their impact on New Zealand companies. New Zealand’s trade with China expanded by 22% in 2021 despite COVID-19 having an impact throughout the year. This highlights the incredible growth seen in trade between the two countries over the years.

New Zealand Fixed Income Monthly – April 2022

It has still been a tough year so far for New Zealand bonds amid pressure from inflation. That said, the market in New Zealand has been an outperformer among global peers since the beginning of 2022.

Despite fearmongering on demographics, Japan’s business has soared

Pundits need to be careful about scaring people regarding Japan and, thus, harming its economic future. This is especially true regarding recent high profile, wildly exaggerated tweets about demographics, a decades-old theme; clearly, this is a challenging theme, but Japan is certainly not going to disappear.

Global Unconstrained Bond Strategy Q2 2022 Outlook

We present our Q2 2022 outlook for the Global Unconstrained Bond Strategy which incorporates our core markets, emerging markets and global credit views.

Navigating Japan Equities: Monthly Insights from Tokyo (May 2022)

We discuss the implications of the weak yen, now considered by some as a menace rather than a blessing, for the Japanese market and economy. We also explain the potential impact of higher energy and commodity prices.

Ground-level observations from China

A trip back to China provided an opportunity to experience first-hand the impact innovative technology and digitalisation is having on a fast-changing urban society.

Relief rallies are always encouraging but do not necessarily portray parting clouds for a return to “normal” market conditions. The market is still digesting a rather dizzying array of challenging dynamics that have unfolded quickly over the last quarter.

Global Equity Quarterly (Q1 2022)

We are keen to participate in the push towards a less carbon intensive future but want to do so in a balanced fashion, with one eye on the associated risks.

We have eased our cautious view towards duration as we expect global rates to consolidate from current levels. On currencies, we are positive on the Malaysian ringgit, Indonesian rupiah and Singapore dollar.

Asian stocks declined in March, dragged down by the Russia-Ukraine conflict. Lingering concerns over inflation also weighed on the equities markets. For the month, the MSCI AC Asia ex Japan Index fell by 2.8% in US dollar terms.

Navigating Japan Equities: Monthly Insights from Tokyo (April 2022)

This month we discuss the Japanese stock market’s recovery from the initial shock of the Russia-Ukraine war; we also assess the potential impact of a Russian debt default on Japan’s markets and financial system.

New Zealand Fixed Income Monthly – March 2022

The New Zealand bond market has experienced a rough start to 2022. The chief driving market factor has been the upward movement in reference interest rates, with the swap and government curves all moving up as central banks turn hawkish to fight inflation for the first time in a generation.

New Zealand Equity Monthly – March 2022

This month we focus on A-REITs, which are larger and more liquid relative to their New Zealand peers. One of the sector’s benefits over its New Zealand counterpart is its simple numerical advantage: Australia boasts 34 REITs, which is three times the number of REITs in New Zealand.

Japan Value Insights: Spotlight on sustainable companies addressing social issues

We share our thoughts on sustainable companies that address social issues and contribute to the physical and mental well-being of individuals.

The GIC expects the global economy to continue struggling in a form of “stagflation-lite” and sees a relatively flat performance for global equities for the next three to six months (although quite positive on Pacific equities), with moderate weakness for global bonds.

The Russian invasion of Ukraine has created significant uncertainty for investors. Prior to the war’s outbreak, central bankers were already facing a challenging inflationary environment, and these new commodity-driven price pressures are set to complicate matters even further.

We are generally neutral to slightly cautious in our view of countries whose bonds are relatively more sensitive to UST movements. Within Asia currencies, we prefer the Chinese renminbi and Malaysian ringgit over the Indian rupee and the Philippine peso.

New Zealand Fixed Income Monthly – February 2022

We think the New Zealand bond market looks very attractive relative to the rest of the world given how high our interest rates are. At the same time, we certainty aren’t immune to developments in the rest of the world, particularly the US, where the Federal Reserve is poised to begin raising rates.

New Zealand Equity Monthly – February 2022

The New Zealand market recovered well from the global plunge in equities seen in response to Russia’s invasion of Ukraine on 24 February. The current events in Europe have had very little immediate impact on New Zealand, particularly from a corporate earnings perspective.

Asian stocks suffered losses in February as escalating Russia-Ukraine tensions culminated in an invasion of Ukraine by Russia. But despite the war in Eastern Europe, in our view Asian economies are more than strong enough to withstand commodity price hikes even at their current elevated levels.

Navigating Japan Equities: Monthly Insights from Tokyo (March 2022)

This month we discuss how higher long-term yields could impact Japanese stocks; we also focus on how robust exports could play a role in boosting the country’s long stagnant wage growth.

Japan’s “show me the money” corporate governance: 4Q record high

The just released 4Q CY21 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.

Russia-Ukraine conflict – Nikko AM’s views

In order to gain a range of perspectives on the Russia-Ukraine conflict, Nikko Asset Management has gathered the views of various experts and investment teams, representing many of our major asset classes and geographical regions.

Navigating Japan Equities: Monthly Insights from Tokyo (February 2022)

We analyse the course the Bank of Japan could take as other major central banks move towards policy change; we also take a deeper look into Japan’s strong exports, which are expected to keep buoying the economy in 2022.

Policy actions by monetary authorities diverged across the region; we remain cautious on bonds of low yielding countries and regional currencies.

Future Quality Insights – February 2022 - History rhymes

Have you ever stopped to imagine what would happen if the world’s central banks spent just over a decade pouring USD 25 trillion of liquidity into the economy with more than 60% of that liquidity created in the last two years? In this article, we’ll try to assess what has happened and think about how investors should navigate the next phase of the greatest financial experiment of all time.

The outlook is currently challenging. Tightening is coming, but it is not here yet and in the meantime current policy remains quite accommodative. There is no doubt that extremely easy policy boosted equity prices, which were reinforced by strong earnings. Still, we believe organic growth can continue.

Asian stocks had a tough start to 2022 amid concerns that persistent inflation could cause any tightening by the US Federal Reserve (Fed) to be more aggressive than expected. For the month, the MSCI AC Asia ex Japan Index fell by 3.10% in US dollar (USD) terms.

US Federal Reserve: Approaching lift-off

Increasing expectations of a more aggressive Fed tightening cycle have led to a sell-off in US Treasuries. We share our thoughts on what this means for investors in 2022 and discuss our outlook for Asian bond markets.

New Zealand Equity Monthly – January 2022

We see the volatility in the New Zealand markets as an opportunity to focus on new companies for which we have a high degree of confidence in their earnings.

New Zealand Fixed Income Monthly – January 2022

Inflation is creating challenges for the New Zealand bond market and economy. In line with bond markets around the world, New Zealand’s market has had a difficult start to 2022. Bond yields and interest rates in general have been climbing as central banks hike rates to tackle soaring inflation.

Differentiation through engagement: Opportunities in Japan equities

We highlight the increasing importance of engagement in Japan, explain how it could be the key to unlocking the long-underperforming Japanese market’s potential, and assess how it can lead to the generation of alpha.

India: Reaping growth from change

Going back to India for a month after two long years of not being able to visit my family, I was pleasantly surprised by the new normal. While there has been much adversity, COVID-19 has also sparked positive change, especially on technology adoption.

Thoughts for seasick investors

It would not be surprising if the major swings in the markets and macroeconomic conditions, including historic central bank shifts, have made most investors somewhat seasick. Recently on a day-to-day basis, markets seem to react quite irrationally, but the overall backdrop is fairly clear: the markets are getting accustomed to one of the most rapid and major shifts in Federal Reserve policy ever in its history.

Global Equity Quarterly (Q4 2021)

An ability to look forward to better times and remain optimistic is invaluable. These attributes are no less helpful when investing in equities. Whilst you can get an unpleasant surprise from misjudging the direction of the tide while enjoying your picnic, the consequences for misjudging the direction of the liquidity waves look more pronounced than ever as we enter 2022.

As is often the case, markets are a better reflection of general sentiment than news headlines and so far, it points to an ongoing global recovery as equities hold their gains of 2021 and long-term bond yields rise. It may not be time yet to write off more difficult scenarios derived from the outbreak of Omicron, but facts so far do speak more positively than just one month ago.

On the back of uncertainties surrounding Omicron and major central banks turning hawkish, we deem it prudent to hold a slightly cautious stance on duration, as well as a slightly defensive stance on Asian currencies.

Taiwan and South Korea were buoyed by strong exports as sustained global demand for electronics supported hardware tech stocks amid widespread supply chain disruptions. The ASEAN region saw mixed returns. Thailand was the best performer as policymakers approved new stimulus measures to support domestic consumption, while the Philippines had to delay COVID-19 vaccinations on the back of Typhoon Rai.

Navigating Japan Equities: Monthly Insights from Tokyo (January 2022)

We expect Japanese equities to rise significantly in 2022, supported by factors such as the government’s fiscal and coronavirus policies, the reshuffling of the Tokyo Stock Exchange (TSE) and robust exports.

New Zealand Fixed Income Monthly - November 2021

New Zealand faces the same kind of uncertainties other countries are confronting due to the global pandemic. But New Zealand, in some ways, has been in the vanguard of recovery from the COVID-19 outbreak.

Following the emergence of the new Omicron COVID-19 variant and with the World Health Organization declaring its concern, we hold a neutral view on duration in the near term and a slightly cautious stance on Asia currencies.

New Zealand Equity Monthly – November 2021

COP26 included a pledge by New Zealand and 100 other countries to achieve 30% cuts in methane emissions by 2030. Similar progress is being seen in the area of corporate disclosure as New Zealand is set to have its first climate-related disclosure standard by the end of next year.

We maintain a constructive view of risk assets but are cognizant that the path toward realising gains will be more delicate as we traverse the course of the Fed and other central banks removing their easy policies.

2022 Asian Equity Outlook: Well positioned to navigate tightening

We believe that Asian economies are well positioned to navigate monetary tightening in the US. Government finances are healthier, as are corporate balance sheets. Most Asian economies are digitising faster than their western peers, while consumption is set to receive a meaningful boost from economic reopening.

Global Investment Committee's 2022 Outlook: Positive for risk assets

According to our Global Investment Committee, which concentrates on the intermediate term-view regarding developed markets for pension funds and other long-term investors, 2022 looks to be a challenging, but positive year for risk assets. We believe that the G-3 central banks will become more hawkish, and such pivots can often cause potholes and at the very least headwinds, but we trust that policymakers can traverse their new course successfully overall.

2022 New Zealand Fixed Income Outlook: Boxing on into 2022

For a nation that prides itself on punching above its weight in all we do, 2021 has seen New Zealand bobbing and weaving against the ropes somewhat, as we’ve fought the economic impact of an enduring COVID-19 pandemic. We may have been down in some places, but we’re certainly not out as we approach 2022.