Investment Insights

 

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.