Investment Insights

 
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.
We have shifted to a mildly positive stance on overall duration, preferring high-yield markets such as India, Indonesia and the Philippines. We expect Asia credit to remain well-supported due to subdued net new supply as issuers continue to access cheaper onshore funding.

BOJ takes a slow, steady approach to reducing bond purchases

The Bank of Japan maintained interest rates at its June meeting, disappointing market participants who expected a reduction in monthly bond purchases. The BOJ signalled a future reduction in bond purchases but only at the next policy meeting in July, without providing further guidance on possible rate hikes or balance sheet reductions.

New Zealand Fixed Income Monthly (May 2024)

New Zealand's fixed income market has struggled so far in 2024 and inflation has remained high. However, there is growing confidence that the Reserve Bank of New Zealand will lower the Official Cash Rate in the next six to 18 months due to a slowing economy, with the expectation that inflation will retreat to the central bank's target range by the end of 2024.

New Zealand Equity Monthly (May 2024)

New Zealand’s equity market is currently facing challenging times. However, a sense that the country’s interest rates may have peaked are some of the indications that the market’s outlook may brighten.

India’s election and implications for equities

In the 2024 Indian parliamentary elections, Prime Minister Narendra Modi's BJP won fewer seats than expected. However, with support from pre-alliance partners, Prime Minister Modi will lead a coalition government for a third term, indicating a public desire for policy continuity and reform. While economic fundamentals are strong, the election results also reflect rural distress and the need for job creation, suggesting the government may focus on expanding the manufacturing sector, infrastructure development and digitalisation.

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

This month we look beyond Japan’s impressive dividends and share buybacks from the perspective of corporate governance reform; we also explain how the “quantity effect” associated with exports may reduce the relevance of currency levels.
As the market comes to grips with the US rate structure potentially remaining high, we expect to see increased market volatility and a potential return of the positive correlation between bond and equities that was evident in the market through 2022.

The yen: how weak is too weak?

The ongoing weakness in the yen has led to intense debate over whether Japan can cope with further challenges to its global purchasing power. Although it is a matter of concern, a weak currency isn't necessarily undermining Japan's economic recovery. That said, a prolonged downtrend for the yen warrants vigilance as it could destabilise the economic recovery by triggering inflation.
In terms of duration exposure, we maintain a positive outlook for medium-term duration, finding the current yield levels attractive. We expect Asia credit to remain well-supported due to subdued net new supply as issuers continue to access cheaper onshore funding.
What a difference a month can make. Discussions have pivoted from interest rate cuts in the US to the possibility of an increase, while Chinese equities have rallied sharply on a combination of attractive value and hopes of effective policy implementation.

New Zealand Fixed Income Monthly (April 2024)

Despite the decline in one- and two-year inflation expectations, we feel that the longer term picture is likely to be dominated by broader secular forces, or prolonged trends not necessarily tied to cyclical factors, that structurally drive inflation.

Could ESG reporting rules spark an EU-US trade war?

The US presidential election in November continues to cast a long shadow, and as the race between the 45th (Donald Trump) and 46th (incumbent Joe Biden) presidents quickens, divisions have only widened. The investment world is no exception, and one particularly troubling battleground is the growing regulatory divide regarding ESG reporting.

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

This month we analyse why the influence of capex and wages on spending behaviour are key to gauging whether an inflationary mindset is taking hold among households; amid an adjustment by Japanese stocks from record highs, we also look for growth narratives to sustain a long term uptrend.

New Zealand Equity Monthly (April 2024)

New Zealand is seeing its first set of climate-related disclosures. Under this regime which began in January 2023, large organisations release "climate statements" about the potential impact of their operations on the climate and vice versa, according to standards set by the country’s External Reporting Board.

Investing in Japan: an insider's perspective with Naomi Fink

Naomi Fink recently joined Nikko Asset Management as a Global Strategist based in Tokyo. We sat down with Naomi to discuss her personal relationship with Japan, and to hear her views on arguably the most talked-about investment region in the world at present.

Global Equity Quarterly Q1 2024

Dreams have a place in the world. However, in stock markets, cashflows often serve as gravity when share prices display dream-like behaviour. Fortunately, our Future Quality philosophy, coupled with our consistent process of reviewing the portfolio and ranking stocks, will help us separate dreams from reality. As a result, the portfolio is performing well, especially due to stock selection outside of AI and across all sectors.

BOJ stands pat on policy but paves way for future rate hikes

The Bank of Japan kept interest rates steady as expected while upping its CPI forecast, paving the way for future rate hikes. Any further hawkish stance by the BOJ may depend on the persistence of positive real wages and inflation's impact on consumer purchasing power.
Inflation uncertainty seems increasingly entrenched, which is less kind to developed market sovereign bonds. The US fiscal deficit is very large, and the Federal Reserve (Fed) is now in the challenging position of deciding when to cut rates. Energy remains a good hedge in this environment, and gold is increasingly being recognised as a store of value.
The Chinese economy and its equity market continue to be significant focal points in broader Asia. Additional support measures, combined with a recalibration of market expectations, have helped Chinese equities recover from the panic selling witnessed towards the end of 2023 and into January. As a result, fundamental strengths are being recognised in certain areas.
We maintain a positive outlook for Asian local government bonds, particularly those from India, Indonesia and the Philippines. In our view, the disinflation trends in these countries should provide their central banks with the flexibility to shift towards rate cuts later in the year.

Of volcanic activity and Asian fixed income markets

We highlight the importance of making decisions based on probabilities and the best expected outcomes, assessing relevant information and acting ahead in constantly changing market conditions.

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

The Bank of Japan (BOJ) lifted interest rates for the first time in 17 years in March, making a historic departure from negative interest rates. We provide an overall evaluation of its decision, discuss how long accommodative monetary conditions could still last, analyse the yen’s potential policy impact and assess the BOJ’s options after halting ETF purchases.

Global Investment Committee’s outlook: stronger for longer

The Global Investment Committee sees robust corporate earnings, firm employment and expectations for rate cuts keeping markets more buoyant than anticipated by average consensus estimates.

Future Quality Insights: healthcare offers diversification from market hot spots

We remain very strong supporters of the healthcare sector. In addition to the well-known demographic drivers, innovation is enabling structural changes in healthcare delivery and in our view these changes will confer years of strong organic growth opportunities if we choose the right companies.
Japanese households, long under-invested in financial markets, are expected to play a significant part in the country’s “virtuous circle” of reflation as they seek returns capable of keeping up with inflation.

Trump vs. Biden II: what implications could the US election have for sustainable fixed income?

The stage is now set for a Biden versus Trump rematch in November. So, what does this mean for sustainable bonds?
Improving economic dynamics defy conventional logic of what one would expect from one of the most aggressive tightening cycles in history. However, if one considers the magnitude of the 2020 expansion in money supply, there is still significant excess liquidity, perhaps transmitting to resilient demand and cash flow that so far exceeds the headwinds of higher rates.
We think that there could be some short-term rebound in China as valuations are in extreme oversold territory. However, for the rally to be more sustainable, we are monitoring for a few drivers, including supply-side measures that can resolve China’s main housing issues.
We maintain a positive outlook for Asian local government bonds, particularly India, Indonesia and Philippine bonds. In our view, the disinflation trends in these countries should provide the Reserve Bank of India, Bank Indonesia and Bangko Sentral ng Pilipinas with the flexibility to shift towards rate cuts later in the year.

BOJ takes significant yet incremental step on path back to “normal” rates

The “trial balloons” of media announcements in advance of today’s interest rate hike by the Bank of Japan —its first in 17 years—apparently did their job, as the end of its negative interest rate policy, yield curve control and ETF purchases were smoothly digested by markets.
The Asian REIT market is the second-largest REIT market globally, but there is still plenty of room for growth. As REIT regulations and listing processes become increasingly market-friendly in newer REIT markets, we expect more asset owners to securitise their real estate into REIT products, driving greater investor interest.

Assessing the impact of green bonds

The green bond market has experienced tremendous growth since 2007, but despite its rapid success, there are still barriers to overcome. In particular, assessing the impact of green bonds continues to be a contentious topic.

Nikkei reaches all-time high: five reasons the rally will endure

Japan equity was the best-performing asset class in 2023, but despite the Nikkei reaching all-time highs in 2024, Japan also recently experienced economic contraction. Against that backdrop, Japan Equity Investment Director Junichi Takayama offers five reasons why Japan’s economic resurgence still has ample runway.

Vietnam seeing a full turnaround in fortunes

We visited Vietnam in February and found that business and economic prospects have turned around completely for the better from a year ago. Interest rates have normalised, and mortgage terms are the most favourable that we have ever seen in Vietnam.

New Zealand Fixed Income Monthly – February 2024

The Reserve Bank of New Zealand (RBNZ) maintained the Official Cash Rate (OCR) at 5.5% at its latest Monetary Policy Committee meeting on 28 February, meaning that New Zealand’s interest rates have now been kept on hold for over nine months. We agree with the RBNZ’s decision to keep the OCR unchanged and feel that most indicators are moving in the central bank’s favour.

Navigating Japan Equities: Monthly Insights from Tokyo (March 2024)

This month we focus on the prospect of Japanese stocks sustaining their upward trajectory after reaching record highs; we also assess how the country’s Q4 GDP contraction sharpens the focus on consumption and wages in 2024.

Why we should pay special attention to Japan’s Q4 capex surge

One of Japan’s more recent economic releases made us sit up and take notice. Within the very resilient Q4 capital expenditure figures released this week was one important reinforcing indicator of Japan’s structural recovery, or in the Bank of Japan’s language, its “virtuous circle” of reflation. One near-term positive development for Japan is the very real possibility that the “technical recession” in Japan Q4 GDP (down 0.4% quarter-on-quarter) could be, thanks to unexpectedly strong Q4 capex, revised away.
This is the “swan song” of this report, which comes at an appropriate time because it was always meant to prove to readers that corporate governance, and the overall case for investing in Japanese equities, was sound. Now that the market’s performance and global enthusiasm for Japan has swelled, there is less need for the report, although it is useful to note the continuance of its impressive trend.
We explain how reflationary dynamics underpin the foundations of Japan’s incipient structural recovery and illustrate why we believe the country’s equity comeback should not be written off as another flash-in-the-pan cyclical upturn headed for an eventual return to deflationary dynamics.
The seemingly impossible soft landing on the back of one of the most aggressive monetary tightening cycles in history is looking not just possible, but increasingly probable. US data is coming in stronger and global demand is generally steady with increasing channels of potential upside.

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