Investment Insights

Out of the six scenarios presented, a narrow majority of our committee agreed again on a positive scenario in which the global economy matches the market consensus for solid growth, while equities continue to rally.

The past five years have been the hottest since records began. In the decade to 2020, global surface temperatures were 1.09C higher compared to the pre-industrial era (1850–1900)¹. The Intergovernmental Panel on Climate Change (IPCC) warns that stabilising global warming below the 1.5C level is critical to avoiding the most extreme impacts on ecosystems and human health.

Inflation is on everyone’s mind. From central bankers to bakers, it is one of the biggest topics of discussion. The prices of many commodities are rising sharply. The reasons vary. Supply constraints, sharp rise in demand or bad weather—take your pick.

As we contemplate a post-pandemic world, it is becoming more likely that things will not return to “normal” as we once knew it. While vaccines have been highly successful in preventing serious illness in those who are still contracting the virus, the Delta variant of COVID-19 is also proving to be harder to contain.

US Treasury (UST) yields rose in August, prompted by data showing stronger-than-expected US employment growth. The rise in rates was supported by hawkish comments from some US Federal Reserve (Fed) officials.

The world is settling into a new normal that is likely to look quite different from pre-COVID-19 norms. This includes different patterns of demand shaped by learning to live with the virus and an ongoing fiscal thrust with firm policy objectives.

With the reporting season in full swing, this month we turn our attention to New Zealand’s corporate results and announcements. In particular we focus on the COVID-19 pandemic and its effect on such results and highlight how changing demographics have provided opportunities for certain sectors.

The detection of New Zealand’s first COVID-19 Delta variant infections and the subsequent decision by the Reserve Bank of New Zealand (RBNZ) to postpone a widely expected rate hike muddied the country’s outlook in August. The economy was previously running at a strong pace with unusually high inflation of 3.5% and very low unemployment.

Asian stocks gained in August. While concerns about the spread of the Delta variant weighed on markets at the beginning of the month, the US Federal Reserve (Fed)’s dovish commentary and a rebound in the battered Chinese technology (tech) sector lifted sentiment towards the month-end

The news of Prime Minister Suga’s impending resignation triggered a rally in Japanese equities this week, with the market hoping that a new administration will bring the COVID-19 outbreak under control and hasten the normalisation of the economy. We explain what the market expects from the new administration and assess the implications of Japan’s upcoming general election.

Japan’s drive to embrace hydrogen as an alternative energy source is an opportunity to identify hidden value in firms that are willing to tackle and resolve social issues.

The just released 2Q CY21 data on aggregate corporate profits in Japan was surprisingly positive, as the overall corporate recurring pre-tax profit margin surged relatively near its record high in the 3Q CY18.

The three Japan-related news topics that have overwhelmingly dominated the attention of Western media so far this year are COVID-19 (by far), the Tokyo Olympics and the showdown at Toshiba.

The Tokyo summer Olympics have been a welcome distraction over the last few weeks and well done to Japan for hosting the games so successfully in the current environment. In particular it is inspiring to see the years of preparation and planning being showcased by the top competitors in their respective sports.

Asian stocks suffered losses in July, weighed down by the selloff in Chinese equities following Beijing’s regulatory crackdown on the private tutoring and technology-related sectors.

Cross-asset pricing has recently been challenging our reflationary outlook. When we first discussed the prospects for reflation about a year ago, we identified a number of key factors.

This month we turn our focus to environment, social and governance (ESG) issues. ESG is firmly in the spotlight at present, and this trend will only intensify in the future. In global terms, Europe’s level of ESG legislation is more advanced than New Zealand’s and ESG is more of a hot topic there.

New Zealand’s bond market performed well overall in July, although the long term sector outperformed its short term peers significantly.

The US Treasury (UST) curve bull flattened in July. The Federal Open Market Committee (FOMC) meeting was largely uneventful, although the forward guidance on asset purchases was tweaked slightly to indicate that progress had been made towards the Committee’s goals although still shy of the “substantial further progress” needed for the start of tapering.

Our philosophy is centred on the search for “Future Quality” in a company. Future Quality companies are those that we believe will attain and sustain high returns on investment. ESG considerations are integral to Future Quality investing as good companies make for good investment