Investment Insights

 

New Zealand Equity Monthly (October 2024)

The RBNZ's recent shift to a more dovish stance already appears to have buoyed New Zealand's equities at this early stage of the cycle, with examples including signs of strength in the retirement village and rental sectors, and the market has been delivering strong returns.
The Federal Reserve’s interest rate cut in November was largely expected. However, Fed Chair Powell's comments pointed to changes in language, suggesting a shift towards a more uncertain policy, with inflation and employment trends influencing future rate adjustments.

As with the other markets, Japanese equities reacted immediately to Donald Trump's US presidential election win. The immediate election impact is expected to fade relatively quickly, with market focus turning to the trade policies Trump may pursue upon his return to the White House.

Balancing Act: Global Multi-Asset Quarterly (Q3 2024)

Volatility dominated risk markets in the early part of the July-September quarter, while perceptions of the US employment environment also had an impact. Over the quarter, we kept an overweight position on growth assets and maintained a neutral position on defensive assets.

After Trump’s win, fiscal policy and inflation risks in focus

Following Donald Trump's US presidential election win, in the near term we remain constructive on US growth and stocks, with the markets expecting corporate tax cuts and seeing a general penchant toward deregulation across industries as positive for earnings. In the longer term, we anticipate a rise in tail risks associated with fewer hurdles to fiscal expansion and higher US inflation.
The start of the Fed’s rate cut cycle was a boost to risk sentiment, with resilient US data and declining inflation placing the market in a goldilocks situation. Likewise, the start of a global rate cutting cycle sets up a positive environment for defensive assets.

Navigating Japan Equities (November 2024): view of lower house elections

In a move that reflected their disapproval of Japan's ruling coalition, voters deprived it of a lower house majority. While this outcome may not have a direct impact on the market, it is important to monitor the impact of political developments on economic policies in the short term.

Global Equity Quarterly (Q3 2024)

The markets suggest that growth will stay at a premium in the short term. Hence, our focus on Future Quality companies, especially those capable of taking market share as the economic backdrop worsens, may prove beneficial.
The market expects more rate cuts from the Fed, giving Asian central banks room to lower rates, which is very supportive for domestic growth. Meanwhile, with more China stimulus measures anticipated, we see asset allocation into Chinese equities picking up pace and lift the entire market.

Japan’s pivotal improvement in risk premium

Japan’s long history of undercompensating equity investors, a legacy of deflation, is coming to an end with its risk premium now achieving parity with that of the US. This historic shift is being driven by rising dividend payouts ratios, strong earnings and reasonable valuation of underlying equities.
The start of the Fed’s rate cut cycle has created room for monetary easing across Asia. We expect Asian government bond yields, particularly high yielders like those of India, Indonesia and the Philippines, to trend lower.

Navigating Japan Equities: Monthly Insights From Tokyo (October 2024)

This month we assess views in the market that the BOJ may have taken a dovish turn at its September policy meeting; we also point to further signs of a steady rise in wages and how that paves the way for a recovery in consumption and, ultimately, higher stocks.

New Zealand Equity Monthly (September 2024)

Nikko AM NZ released its first annual “climate statement” under New Zealand’s new climate-related disclosures regime in July. The framework requires approximately 200 organisations, including large publicly listed companies, to release reports on how their activities may impact the climate and the effect of the climate on their businesses.

Are China’s stimulus measures enough?

The raft of stimuli recently unveiled in China is the most coordinated policy since the start of the country’s economic downturn. This, along with the start of the Fed’s monetary policy easing, represents key fundamental changes. However, as the old saying goes, the devil is in the details.

Global Investment Committee’s outlook: low risk no longer

We perceive heightened risk to both growth (two-way) and inflation (upside) compared to our previous guidance. Nevertheless, our central near-term scenario remains for slowing but positive growth in the US, alongside slowly moderating prices.

Staying on the road less travelled

As global equity investors, we are often asked how we have successfully navigated an evolving market landscape since the strategy’s inception in 2014. The truth can ultimately be attributed to three key factors: humility, collaboration with people who share the same core team values and a robust investment philosophy.

Global Equity Quarterly (Q2 2024)

Perhaps there may be disappointment at the lack of money-spinning applications pertaining to AI which may cause investor sentiment to cool. Nevertheless, the improvements in earnings and cash flow appear sustainable so far and are certainly much more attractive than those being produced by many other parts of the economy.
For August we maintained our overweight growth position and a neutral position on defensives. Several factors continue to support our optimism towards growth assets, including the first rate cut from the Fed, earnings surprises remaining above their historic average, US economic growth beating expectations, and large fiscal spending globally.

What the Fed’s rate cut tells us about current financial conditions

The Federal Reserve’s 50 bps rate cut demonstrated the power of financial markets at present. As the markets had already priced in a significant probability of a 50 bps reduction, the Fed could have viewed such conditions as a good time to “buy insurance” and implement a half a percentage point cut while the markets were likely to absorb it well.

Less may be more in Japan’s LDP leadership contest

There is one major thing to keep in mind going into Japan’s upcoming leadership contest for the ruling Liberal Democratic Party (LDP)—the country’s looming general election. The ruling party’s chief concern is to select a candidate who can prevail at this election. This makes the candidacy of an incipient LDP leader more of a marathon than a sprint.
We believe that the biggest fundamental change for Asian markets in the medium term is a shift in the interest rates regime, notably that of the US.
In a positive bond market environment driven by global monetary easing expectations, we favour government bonds from India, Indonesia and the Philippines, where higher yields remain attractive to investors.

Navigating Japan Equities: Monthly Insights From Tokyo (September 2024)

This month we assess why the market is unfazed by Japan’s upcoming leadership change; we also explain how a bid for a prominent Japanese convenience store operator has highlighted how affordable domestic firms now look in the eyes of their foreign counterparts.

New Zealand Fixed Income Monthly (August 2024)

The Reserve Bank of New Zealand’s rate cut in August appears to constitute a slight easing of the brakes rather than a large change. With the Official Cash Rate at 5.25%, conditions are still restrictive. The first signs of recovery are likely to be seen in improvements in business and consumer confidence, but it will take some time for the impact to filter through to borrowers.

New Zealand Equity Monthly (August 2024)

In August the Reserve Bank of New Zealand lowered interest rates, marking the first change in the Official Cash Rate since May 2023. We expect New Zealand equities to be supported if the central bank maintains an accommodative approach.
As the November 2024 US presidential elections draw ever closer, we explore the global trade, economic and geopolitical implications from an Asian equity perspective, focusing on the uncertainties and opportunities that could arise if Donald Trump secures a second term in office.

Change as the only constant: investing in a world in transition

The Global Equity Team answers the following questions related to the key trends they see emerging: 1)does the AI investment theme still offer significant long-term potential? 2) will the market leadership broaden beyond technology names into other sectors? and 3) what are the main risks and challenges equity investors may face in the remainder of 2024?
For August we reduced our overweight on growth assets amid volatility in the markets and maintained a neutral position on defensives. We expect volatility to be quelled, given that the markets have factored in the Fed cutting interest rates in September and with more easing anticipated over the following 12 months.

Global Investment Committee review: still positive, with downside risk caveats

On 13 August, the Global Investment Committee held an extraordinary session to review the impact of recent volatile market movements. We maintain our central scenario for positive GDP growth in most major economies, although we see heightened downside risks to our US GDP growth outlook.
India remains the long-term growth story in Asia and continues to attract fresh investment flows. China, on the other hand, has become the value play waiting for positive catalysts to turnaround sentiment.
We expect the broader trend of easing global yields, prompted by expectations for the Fed to begin lowering interest rates, to support a downward bias in Asian bond yields. We continue to favour Indian and Philippine government bonds over their regional peers.

How to wean off a weak yen without fading Japan’s recovery

The weak yen has played a key role in Japan’s economic recovery by boosting its corporate profits, gross national income and current account surplus. However, it may be time to consider ways Japan can retain its recovery without help from a weak yen should the financial markets eventually change direction. The need for portfolio diversification and Japan’s structural reforms are some of the factors that could incentivise investors to trim their exposure abroad and reinvest domestically.

New Zealand Equity Monthly (July 2024)

July was a remarkably strong month for New Zealand equities, with the strength of the market partly reflecting the dovish turn taken by the Reserve Bank of New Zealand.

Navigating Japan Equities: Monthly Insights From Tokyo (August 2024)

The Nikkei experienced its worst single-day fall early in August after reaching a record high just the previous month. Despite the recent slide, domestic factors supporting Japanese equities remain relatively unchanged, in our view. We believe that the narrative of Japan overcoming deflationary pressures due to increasing real wages is still intact.
We assess the extreme turbulence this week that rocked Japanese equities, which had reached record highs just last month. We discuss the factors that led to the sharp downturn at the start of the week and consider what could be in store for the market, including prospects for recovery.

New Zealand Fixed Income Monthly (July 2024)

The Reserve Bank of New Zealand stood pat on interest rates in its latest Monetary Policy Review in July, but it signalled a shift towards a more dovish stance, suggesting that a first rate cut could be conducted by the end of 2024.

Japan’s equity market a hotspot for active investment

Japan Equity Investment Director Junichi Takayama explains how active management can help identify opportunities, particularly within the small and mid-cap markets.
Although market volatility resurfaced in the early part of the April-June quarter as interest rate cuts in the US began to look less likely amid higher-than-expected inflation, risk assets bounced back and rallied strongly later in the quarter. This reflected signs of softness in the US economy, which made it more likely that the Fed would be able to cut interest rates.
We retained both our overweight to growth assets and our neutral position on defensives. The outlook for growth remains positive as global central banks have started monetary easing, with Europe and Canada leading the way by cutting their interest rates.

Japan's cash-rich companies: harnessing corporate reforms

Japan, a nation of “cash-rich” companies, is undergoing corporate reforms aimed at raising valuation of companies by improving their capital efficiency. The reforms, along with cash-rich companies' historical outperformance and strategic options due to their ample cash holdings, make these firms well worth exploring.
In China, we await confirmation of real, positive fundamental change before increasing our confidence towards the country, and we maintain a highly selective approach. Elsewhere, a combination of AI-induced excitement and positive structural reforms has driven Asian markets higher, particularly in Taiwan, South Korea and India.
We favour South Korean, Indian and Philippine government bonds and have adopted a neutral stance on Indonesian bonds. Meanwhile, the fundamentals backdrop for Asian credit remains supportive.

New Zealand Equity Monthly (June 2024)

A look back at the past six months reveals the extent to which New Zealand’s equity market has missed out on the strength seen in many other global markets. Amid these struggles, however, the New Zealand market’s sensitivity to interest rates also offers a note of hope.

New Zealand Fixed Income Monthly (June 2024)

Given the current weakness in New Zealand’s economy, the key question regarding interest rates is not so much the direction they will take but when they are likely to be cut. The struggles seen in the economy span from GDP to employment and look set to persist for some time.

Navigating Japan Equities: Monthly Insights From Tokyo (July 2024)

This month we focus on the surge in long-term JGB yields and whether it poses a threat to equities; we also discuss the potential upside for Japan’s small- and mid-cap stocks.

From beauty products to bicycles: the promising landscape of Asian small caps

Asian small caps, ranging from “indie” cosmetics brands to bicycle manufacturers, present a chance to get involved with the future economic powerhouses of the world. The strategic positioning, high growth potential, adaptability, and innovation of Asian small caps make them a compelling choice.

Time to revisit Chinese bonds from a global portfolio perspective

Recently, China has been frequently appearing in global headlines, although many of these stories are not particularly encouraging. Amidst a fixation with the slowdown in the world’s second-largest economy, global markets may be missing the obvious, quieter China trade.

Global Investment Committee’s outlook: still growing but proceed with caution

Our central scenario is for positive GDP growth in most major economies, with mild upside risks to growth in all regions but Europe. Within this central scenario, we anticipate range-bound inflation with a gradual disinflationary trend in the US and Europe. We expect reflation to continue in Japan and also to pick up in China.
Markets have continued their strong growth through 2024, as odds continue to grow that central banks are able to walk the tight rope and avoid any real slowdown of global growth. US inflation has remained above expectations. However, some marginal softness is now appearing to flow through consumer spending and employment.
The early economic cycle dynamics and cheap valuations in Asia contrast starkly with the expensive late cycle dynamics in the West, and we expect this to provide good diversification options for global investors.

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