The broad-based synchronized growth story continued to soften through March, as consumers pared back purchases in the face of rising prices.
As much as we would prefer to discuss market fundamentals over the trials and tribulations of the current US Administration, it has been largely unavoidable in this first quarter of 2018.
The market narrative changed abruptly over the quarter, from observing the “melt up” in January with exceptionally low volatility, to a massive spike in volatility in early February with markets remaining on edge ever since. What happened?
Volatility across global markets has picked up in recent months following an abnormally long period of stability and strong returns across asset classes.
In the near-term, we foresee US Treasury moves influencing the direction of regional bonds.
The Japanese equity market fell in March, with both the TOPIX (w/dividends) and the Nikkei 225 (w/dividends) dropping 2.04% on-month.
Markets continue to come to terms with the return of higher volatility, triggered ostensibly by fears of inflation and the unwinding of highly leveraged short volatility positions at the beginning of last month. To this list we can now also add the spectre of increasing protectionism and outright Trade Wars.
A broad-based synchronized recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
Despite recent volatility, we see the rally in Asian equity markets being well supported by both positive structural reform and increasing economic activity across the region.
In the near-term, we foresee flows into Indonesian bonds to be supported by the inclusion of IDR-denominated bonds into the Bloomberg Barclays Global Aggregate Index.
Japanese stocks were not spared the global selloff in early February. While we would not be surprised to see volatility persist as market conditions normalise, we continue to expect healthy returns for risk assets such as equities.