Insights

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.

One hundred and fifty-three quarters have passed since the rather “political” Alan Greenspan was appointed the Chairman of the Federal Reserve. According to our Demand Pressure Index, which seeks to provide a better estimate of the output gap in the economy, the economy has been run “hot” with positive demand pressure (i.e. demand exceeded sustainable supply) in ninety-nine of those post 1986 quarters.

New Zealand’s climate-related disclosures regime came into effect for reporting periods beginning on or after 1 January 2023 and the first rounds of annual reports were released in 2024. Now that the second year of reporting is underway, we share some of the benefits and challenges we have found in the reporting process.

The RBNZ's interest rate cut in May was viewed as a hawkish reduction, with the central bank seen moving closer to the point at which it will consider pausing the cycle to observe the benefits the current monetary policy settings can bring to the economy.

Markets, while volatile, have continued to recover, and we are now seeing an easing of trade tensions. However, in these uncertain times, one thing remains clear—uncertainty itself. The situation remains fluid, and against such a background we expect Chinese policy support to stimulate consumption and business activities.

Japanese equities have not been immune to tariff worries. However, it is worth remembering that Japan is playing the long game: the country is undergoing structural reflation driven by factors unlikely to be reversed by market volatility or bad news on US trade.

We discuss how growing calls to reduce Japan's consumption tax rate provide a chance to focus on how consumption can be stimulated, potentially triggering a secular change in spending behaviour; we also assess the recent surge in super-long JGB yields and its possible implications for monetary and fiscal policy.

In this month's Balancing Act we review Q1 corporate earnings, which have been more resilient than expected; from a defensive standpoint we also discuss our cautious view on gold.

Against a more challenging but still benign macroeconomic backdrop, we expect Asian corporate and bank credit fundamentals to stay resilient, aside from a few sectors and specific credits which may be affected by tariff threats or geopolitical dynamics.

With a new economic regime potentially taking shape, we believe that now is an opportune time to consider an active global fixed income approach to navigate what is likely to be a prolonged period of uncertainty.

We can expect more aggressive policy support from Chinese authorities over the next several months for consumption and business activities, prompted by the still uncertain global trade situation. Despite the ongoing volatility and uncertainty surrounding US-China tariff policies, there are encouraging signs that the situation may improve.

Moody's downgrade of the US offers a chance to assess the relationship between the US administration and the bond market and examine the implications of persistent budget deficits, market reactions, trade tensions and policy decisions.

We firmly believe that markets remain inefficient, and the last few months are testament to that. Hence we face today's uncertainty level headed, attentive to where risks lie while also inquisitive about the potential opportunities.

Speculation over the actions of the US administration had a major impact on asset markets throughout the January-March quarter, with volatility dominating towards the end. We trimmed our overweight score in growth assets during the quarter, while we kept our view of defensive assets marginally positive.

The upcoming New Zealand earnings reporting season is set against a backdrop of intricate global economic factors and trade tensions. Amidst the uncertainty, we assess New Zealand's exposure to the global trade tumult, highlighting potential challenges and supportive factors for the country's economy and companies.

In our view, New Zealand’s status as a safe haven during times of turbulence has often exceeded that of other markets. Although the New Zealand market is relatively small, it also offers a high degree of quality, and the country's bond and asset prices rarely see as much volatility as in the rest of the world.

While the “tariff crisis” may have clouded Japan’s economic outlook, the prospects are certainly not opaque as it may look to reduce the role of US exports. Trade tensions have also prompted the Bank of Japan to hold monetary policy steady, but the central bank is still seen to be on course to hike interest rates in the longer term as it takes into account the continuous rise in domestic inflation.

Nature-related risks and opportunities are rising fast on the global investment agenda. Yet for many investors, finding scalable, credible ways to finance biodiversity remains a challenge. Sovereign green bonds may offer one of the most effective channels to direct capital toward nature-positive outcomes—at scale, and with transparency.

One major “plotline” central to the recent series of tariff moves is the tense trade relationship between the US and China. In this issue, we will explore how Chinese bonds have historically offered defensive characteristics and their portfolio roles moving forward.

Understandably much of the popular market commentary has centred around the possible “Repatriation Trade” and in particular is has focussed on possible flows out of the UST by foreign investors. There have also been stories of some selling of US equities and private credit instruments, all of which sound quite alarming given the USA’s hefty net Foreign Liabilities Position and reliance on foreign capital to cover its deficits.

China’s focus on boosting domestic consumption as their top policy priority in 2025 sets a positive trajectory. The ability of individual countries to provide domestic stimulus is going to be crucial in limiting the impact of global growth slowdown brought on by US policy uncertainty.

The Global Investment Committee (GIC) held an extraordinary session to review the macroeconomic and market impact of tariffs announced by the US on 2 April, as well as subsequent actions and market reactions. The GIC’s verdict is that while the US may avoid a recession, risks of slower growth loom large.

The US markets have dominated global portfolio flows, but investors may seek alternative investment destinations if the ongoing change in trade dynamics results in an extended period of elevated US risk premiums. With US tariff policies setting in motion significant fundamental changes, Asia emerges as a potential destination for capital reallocation.

Amid the challenges facing China's property market, work is well under way to restore confidence in the housing sector. It remains an uphill task for both Beijing and the country's property groups, but there are signs of renewed investor interest in the Chinese property bond market as the housing sector's outlook is expected to improve.

Against this more challenging but still benign macroeconomic backdrop, we expect Asian corporate and bank credit fundamentals to stay　resilient, aside from a few sectors and specific credits which may be affected by tariff threats or geopolitical dynamics.

In a key development for New Zealand’s fixed income market, official figures suggest that the Reserve Bank of New Zealand has won its fight against inflation. We feel that the victory has come at a cost, however, given the significant impact interest rate rises have had on consumers and businesses.

The "Liberation Day" US tariffs are expected to strongly impact Asia, where most countries run a trade surplus with the US. Although significant uncertainty is likely to linger, our base case is for most of the region's economies to negotiate with the US and thus mitigate much of the impact from the initial announcement. Regarding Asian local government bonds, we retain a positive outlook for several countries that have the capacity to pre-emptively implement monetary and fiscal policy responses. Most Asian corporates and banks also entered 2025 with strong balance sheets and rating buffers, which could cushion them during this period of high volatility.

New Zealand’s equity market struggled in the first three months of 2025 amid global uncertainty due to trade tariffs imposed by the Trump administration. Although the market news flow was quiet in March overall, some notable developments occurred in the area of renewable energy generation.

The US tariff-induced turmoil could slow the pace of the Bank of Japan’s rate hikes, but the cycle of wages and prices, which has made the central bank confident about monetary tightening, is expected to remain intact over the longer term.

The US recently announced a new reciprocal tariff policy. The announcement led to increased stock market volatility globally, reflecting concerns about a potential trade war. There could still be opportunities for those who can navigate market volatility. The US's strategy, perceived as a high-stakes game, has led to uncertainty. The response from surplus-holding nations and global market dynamics will be crucial in shaping the economic landscape.

We discuss the implications of the expansive new tariffs unveiled by the US and explore the effects on markets, consumer sentiment and potential future outcomes from a Japanese market perspective.

As the rest of the world contends with the geopolitical and economic implications of Trump 2.0, ASEAN presents a wealth of long-term investment opportunities, driven by strong fundamentals and supportive policies.

The chart below is by no means perfect in terms of its specific execution; global price indices are few and far between but it serves to make the point that, since the advent of “Globalization” during the early – mid 1990s, goods prices have lagged service sector prices by a considerable margin. Persistently positive demand versus output gaps in the West resulted in equally persistent rates of service sector and non-traded inflation, while North Asia’s output & employment maximizing pricing behaviour contained goods prices for structural reasons.

Despite a retreat from sustainability initiatives in the US, the sustainable bond market, particularly green bonds, remains strong globally due to continued investor demand, attractive bond yields and increasing participation from countries like Japan.

We downgraded our defensive position marginally, while we maintained an overweight to growth assets.

With the US “exceptionalism” narrative fading, we see value in global diversification. We observe potential turning points in Europe and China equities that may serve as opportunities to diversify global portfolios. Volatile market conditions may be the new normal, but opportunities may emerge due to greater differentiation among firms and economies.

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

While US equities stumbled in February, Asian ex Japan equities gained modestly, helped by continued positive momentum in Chinese tech stocks. China's tech has been the comeback story so far in 2025 after DeepSeek injected some liveliness into the market.

Vietnam is demonstrating a commitment to improving governance, expanding infrastructure and cultivating a more competitive business environment. These efforts position Vietnam to harness its demographic advantages and capitalise on emerging geopolitical opportunities.

For 30 years, policy factors like falling corporate tax and interest rates were seen to have generated a bulk of corporate profits, reducing stock-selection opportunities. There are indications that this policy-driven earnings era is coming to an end, heralding darker days for the average firm. However, firms skilled at raising profitability in core business areas could benefit, thus creating new opportunities for skilled stock pickers.

We believe that the Official Cash Rate’s projected path to the 3% level, which we consider likely to be the lowest point of the Reserve Bank of New Zealand’s current easing cycle, may be more noteworthy than the interest rate cut in February.

February was a challenging month for New Zealand’s stock market following a weak corporate earnings season. Looking ahead, however, we remain confident about the market in 2025 and after. A key reason for this is the interest rate cutting cycle by the Reserve Bank of New Zealand that is currently underway.