Insights

Investment Insights by our experts and thought leaders

Asian credit outlook 2024

We expect fundamentals and technical backdrop for Asian credit to remain supportive in 2024. However, valuation is a challenge with current Asian high-grade spreads near historical lows. The myriad cyclical and structural factors driving the major sub-sectors within Asian high-yield credit makes it is difficult to call the overall spread direction in 2024, although the current spread level remains wide and offers room for compression over the medium term.

China equity outlook 2024

For those willing to brave immediate challenges, we believe China will continue to offer long-term opportunities as the country has been working to become technologically self-sufficient and develop high-end technologies on its own in a more challenging regulatory environment.

Repressed Inflation May Bubble to the Surface Next Year

Whether for year-end management reasons, or as a result of political considerations, it is a fact that the US Federal Reserve has allowed effective monetary conditions to ease over the last month. The public sector has injected more than $200 billion of liquidity into the financial system. It therefore comes as no surprise that financial markets are booming, yields are tumbling and the dollar is weak, a situation that we expect to continue into year end.

The just-released 3Q CY23 data on Japan’s aggregate corporate profits was a bit mixed, but the overall corporate recurring pre-tax profit margin surged to a record high on a four-quarter average. The non-financial service sector rose to another record high, but the manufacturing sector fell further from its record high.

We have held on to our view that the “higher for longer” narrative is not necessarily bad for equities, as robust earnings are supported by a US economy that continues to grow at above-trend rates. However, we are also sympathetic to the de-rating process where earnings look simply less attractive compared to higher rates across the yield curve.

We expect macro and corporate credit fundamentals across Asia ex-China to stay resilient with fiscal buffers, although slower economic growth appears to loom over the horizon.

Future Quality Insights -November 2023-New regime, new learning

The last few quarters have been a good reminder that we are in a changing world. As a result, we need to focus always on investing in enduring franchises and we would suggest that our Future Quality approach is soundly placed in that regard. We also need to approach monetary policy with an open mind—sometime soon the central banks could change the game again. In surfing parlance, be ready with your trusted board and make the most of the conditions.

Credit spreads: not as tight as they seem

Recently many fixed income investors have experienced steep price declines in their bond portfolios. We have argued that it is not only duration that explains the interest risk of a portfolio, but that convexity needs to be accounted for as well. In this paper we point out that credit risk measures also have to be adjusted in an environment of declining bond prices.

New Zealand Equity Monthly – October 2023

In one of the most significant changes surrounding New Zealand’s equity market in recent years, the general election held in October delivered a change of government. Overall business sentiment has been generally positive after the election result. The outcome has been favourable for the aged care sector and building-exposed names. On the other hand, it has thrown up some uncertainties over the future of New Zealand’s environmental policy.

New Zealand Fixed Income Monthly – October 2023

The general election held in October resulted in a change in government for New Zealand. Although it is difficult to gain a full picture at this stage, we can make some key observations on monetary policy: the Reserve Bank of New Zealand’s mandate could be pared back to ensure that its sole focus is on managing inflation.