Insights

Investment Insights by our experts and thought leaders

The just-released 4Q CY22 data on aggregate corporate profits in Japan was somewhat mixed, as the overall corporate recurring pre-tax profit margin fell from its record high on a four quarter average. The non-financial service sector ticked up, but the manufacturing sector fell from its record high.

Stagflation to Replace Secular Stagnation? Perhaps.

There is a growing view that the Pandemic, and the policy response to the Pandemic, have ended the period of Secular Stagnation within the Global Economy and potentially replaced it with “fiscally-led faster growth” and higher inflation. It is easy to see the logic behind this view; the author was an ardent inflationista only 18 months ago. The only flaw in the argument would appear to be the behaviour of the bond markets, which this year look superficially at least to have been embracing the concept of renewed economic stagnation.

Global Equity Quarterly (Q4 2022)

Current equity market conditions dictate that you choose your investment attire particularly carefully. In our view, buying profitless technology companies is like going up a Scottish mountain wearing flip-flops. You might get away with it, but the odds are not in your favour. Instead, we prefer the protection afforded by profits (and cash) generated today—not at some unspecified point in the future.

Thoughts on the BOJ you might not have heard, but should consider

Currently, there is a wide variety of predictions for the BOJ’s actions, with some expecting imminent hawkish decisions based upon some of Governor-nominee Kazuo Ueda’s “anti-distortion” comments, but changes are more likely to be gradual and tentative assuming the global economy continues improving.

We maintain the view that global inflationary pressures may moderate further. We prefer Singapore, South Korea and Indonesia bonds. As for currencies, we favour the renminbi, the Singapore dollar and the Thai baht.

Growth prospects look to be improving—a sharp shift from late 2022 when the markets had strong conviction that a first half slowdown was to be followed by a better second half.

Asian equities made a strong start to 2023, with the MSCI AC Asia ex Japan Index returning 8.2% in US dollar (USD) terms in January, supported by a rebound in investor sentiment towards China.

Japan Value Insights: CDMOs and health-related social needs

Contract development and manufacturing organisations (CDMOs) could play an important role in addressing health-related needs as society seeks rapid solutions to issues such as an increase in refractory diseases.

Navigating Japan Equities: Monthly Insights from Tokyo (February 2023)

This month we assess the trends in wages and salaries with significant change potentially in progress; we also discuss how changes at the BOJ may affect the market.

The Federal Reserve Scared of What it Can’t See?

A regular debate between the older and younger members of the Hunt-household revolves around whether old suspenseful Black-and-White horrors are actually more scary than vivid technicolour gore modern films. We suspect that for the Federal Reserve, what you can’t see in black and white may be the scarier concept…

In our view, the change from dollar strength to relative weakness is meaningful for the shift in relative growth prospects, favouring the rest of the world over the US.

Consumption potential in China’s lower-tier cities

While consumer sentiment may be weaker across China presently, we believe that the long-term outlook for the country’s consumer sector remains attractive. China’s lower-tier cities are stepping up to fuel the growth engine that once relied heavily on megacities.

Future Quality Insights -January 2023- The path to clean, secure and affordable energy

Clean, secure and affordable energy is likely to be one of the major challenges of this decade. Given we need abundant energy to complete the energy transition, we believe fossil fuel companies that are actively enabling transition to low carbon society can be part of the solution. They often understand how to deliver global energy at scale and have the balance sheets capable of enabling the transition to clean energy.

Chinese shares outperformed in December as the country continued to move away from its zero-COVID policy while markets in Taiwan and South Korea slumped amid concerns towards the global economy. In ASEAN, Thailand led the region as the country is expected to be one of the biggest beneficiaries of a potential return of Chinese tourists.

We expect global inflation to ease and global growth to weaken in 2023; we also think that the Fed is likely to pause hiking rates by the first quarter of 2023. Against this backdrop, we are broadly constructive on regional bonds as most Asian central banks could be nearing the end of their rate hike cycles.

Navigating Japan Equities: Monthly Insights from Tokyo (January 2023)

We discuss the Bank of Japan’s unexpected move to tweak its yield curve control scheme and the potential implications; we also provide a brief overview of some of the factors seen impacting Japan equities in 2023.

Another Unusual Year – the Outlook for 2023

The subject of inflation has of course dominated markets in 2022 and most investors – no doubt cheered by some recent improvements in the reported rate of US headline inflation – are hoping that the issue will fade over the course of 2023 and leave them a “clearer run”.

Global Investment Committee’s Outlook

We don’t expect smooth sailing for the global economy and markets, but there should be great relief for both stocks and bonds in 2023, with pockets of strong outperformance due to idiosyncratic advantages. Notably, Europe and Developed Pacific-ex Japan should be overweighed for equites for the next six months, but Japan should perform the best by next December.

We are more positive on duration overall, on the assessment that we are likely past peak hawkishness from the Federal Reserve and other developed market central banks. We favour Singapore and South Korean government bonds, given their relatively higher sensitivity to stabilising US Treasury yields.

While we do not expect the US Federal Reserve to pivot any time soon towards easing policy, the firm break in dollar momentum perhaps reflects a shift in the relative growth story which had favoured the US towards one focused on the rest of the world centred around improving China demand.

BOJ’s YCC shift parallels a Fed pattern

In what was probably the best kept secret of many years, the BOJ unanimously agreed to shift its YCC policy well before virtually any economist or market watcher expected. The largest question people seem to have is “why now?”. As with most major decisions, the answer was likely a confluence of several important items.

Asian stocks rebounded strongly in November after Federal Reserve Fed Chair Jerome Powell pointed to slower pace of monetary policy tightening and lifted market sentiment. All Asian markets ended in positive territory, with China in the lead with a month-on-month (MoM) gain of 29.7%.

New Zealand Fixed Income Monthly – November 2022

Although New Zealand’s November 2022 rate hike was larger than expected, markets had been pricing in aggressive tightening for quite some time. This may soften the impact of the current challenges. Given that yields on some bonds are now approaching 6%, we feel that stronger income generation opportunities are also providing a silver lining in the fixed income market.

2023 Asian equity outlook

As we look towards 2023, it is easy to be overwhelmed by the broader permutations of possible outcomes. But things don’t appear so dire in Asia. Inflation, which is effectively a value transfer from net consumers to net producers, may continue to benefit India and pockets of ASEAN due to favourable demographics and rising productivity.

Navigating Japan Equities: Monthly Insights from Tokyo (December 2022)

This month we discuss the prospects of Japanese equities remaining well-supported into 2023 thanks to robust exports and inbound demand. We also explain why the markets are looking beyond a dip in Japan’s 3Q GDP, focusing instead on the prospect of growth resuming.