Insights

The sky isn’t the limit for financial markets, and the stars won’t provide guidance or answers. We will keep our feet firmly on the ground, continuing our search for Future Quality ideas, where we believe stock selection will remain the key driver of excess returns.

A key area of focus is the earnings season in August and whether there are signs of recovery. Other focal points are migration trends and developments related to US tariffs. New Zealand companies do export to the US, but in our view it is not difficult for them to find alternative markets. The impact of US tariffs on New Zealand could therefore be limited.

One significant theme in fixed income markets has been bifurcation between the prices of government debt, which have been comparatively low, and the prices of other bonds such as those issued by companies and local authorities. Amid this bifurcation, we expect New Zealand’s interest rates to remain low as inflation eases.

In late 1991, the author moved to Asia as Dresdner Asset Management’s new young economist. Cue lots of earnest work on trade, production and, fortunately, capital flows and monetary variables as well.

US and Japanese central banks held rates steady amid mixed economic signals, with the Fed facing internal dissent and the BOJ turning modestly hawkish. Meanwhile, China appears to be opting for strategic caution. As rising tariffs and uncertain inflation dynamics continue to complicate the global economic outlook, policymakers in key economies are signalling caution over conviction.

Growth assets remain appealing, as we believe that global economic growth will stay resilient despite the ongoing uncertainties. In defensive assets, high yield stands out as it offers higher levels of return than traditional bonds while exhibiting much lower levels of volatility than equities.

As always, we are focused on finding ideas that are supported by the four pillars of Future Quality investing: franchise quality, integrity of management, balance sheet strength and valuation. We expect AI, energy and defence to continue providing attractive investment ideas given the structural changes anticipated in these industries.

The recent Japanese Upper House elections resulted in the ruling coalition losing its majority, leading to market uncertainty. Despite potential challenges in policy-making, ongoing trade negotiations with the US and fiscal discipline negotiations remain key focus areas, impacting Japanese assets and global market dynamics.

According to Wall Street lore, investors should “sell in May and go away”, but June's rally once again reduces the credence of this strategy. Still, the outlook remains uncertain despite improvements in terms of trade policy tensions and ceasefires.

While credit fundamentals and decent demand-supply technicals are supportive, we are wary of trade and geopolitical re-escalation risks. We are therefore inclined to take a more cautious and defensive approach over the near term.

Sharia-compliant bonds, or to give them their official name, “sukuk”, are often dismissed as faith-based instruments with limited appeal outside of Muslim-majority markets. However, this misses the opportunity they present for global fixed income investors seeking diversification, resilience, and sustainability.

In June, New Zealand’s equity market performance largely reflected ongoing weakness in the country’s economy, with defensive stocks acting as the main drivers of performance.

With uncertainty over tariffs, geopolitical disruption and the paths taken by central banks continuing to impact global markets, it may be instructive to look back at the RBNZ’s last monetary policy decision as we try to determine the future direction of interest rates.

This month we assess how Japan losing its place as the world's largest creditor in fact underscores the country's transformation over the years; we also discuss the recent crude oil market disruptions from a Japanese market perspective.

With slowing growth and an ongoing trade war to handle, China appears to be in a crisis management mode. However, the country is at an inflection point where major structural shifts are occurring as it strives to climb up the technological value chain to achieve self-sufficiency via innovation and resourcefulness.

The Federal Reserve has finally thrown its weight behind the long-proposed change in what is known as the Supplementary Liquidity Ratio for banks, ostensibly so that the banks will then be able to buy more government bonds.

The GIC assesses that the probability of slower yet positive growth in the US has increased. The GIC anticipates a narrower growth gap between the US and other developed markets, with selective diversification into European and Chinese equities potentially paying off. The GIC believes that the risk premium offered by Japanese equities is now competitive with that of the US, although trade-related uncertainty is expected to linger.

US exceptionalism has faded from view recently, supporting an exodus from US assets. However, our stance remains that the US is core to our investment thesis, allowing us to remain part of the secular growth trend in technology innovation not found elsewhere in the world.

We continue to believe that Asia's local government bonds are positioned to perform decently, supported by accommodative central banks amid an environment of benign inflation and moderating growth.

The Fed maintained interest rates at its June meeting, signalling a slightly more positive economic outlook. Despite easing of some risks, uncertainties remain elevated, with inflation still a key concern. FOMC members' varied rate projections reflect heightened uncertainty in the economic outlook.