Asia-Pacific

With the Nikkei Index breaching the 24,000 mark, its highest level in 26 years, Japan appears to have put its “lost decade” of growth well behind it.

As widely expected, the US Federal Reserve (Fed) raised interest rates by 25bps in December, its third rate hike this year. It also raised its GDP forecast for 2018.

The MSCI AC ex Japan (AxJ) Index returned 2.7% in USD terms in December, outperforming the MSCI AC World index which returned 1.4%.

The Japanese equity market rose in December, with the TOPIX (w/dividends) climbing 1.57% on-month and the Nikkei 225 (w/dividends) rising 0.32%.

We expect the economic backdrop for Asian credits to remain constructive in 2018, but remain cognizant of several risks including rising interest rates, robust supply, unexpected weakness in China, geopolitical developments and cross-asset volatility.

The global recovery is expected to continue, albeit at a more moderate pace. Meanwhile, we foresee policy normalisation and an acceleration of inflation in Asia.

Low global inflation and, until recently, a strong Kiwi dollar have kept New Zealand’s inflation rate low over many years, however things may be about to change.

The MSCI AC Asia ex Japan (AxJ) Index returned 38.0% in USD terms year-to-date, on the back of a broad-based economic recovery. The Index outperformed the MSCI World Index, which rose 20.8% in USD terms in the same period.

US Treasury (UST) yields declined during the month. The nomination of Jerome Powell as the next US Federal Reserve (Fed) chairman overshadowed stronger US economic data, but was subsequently offset by increased geopolitical risks in the Middle East and a setback to US tax reform.

The MSCI AC Asia ex Japan (AxJ) Index returned 0.6% in USD terms in November. The index approached ten-year highs during the month on expectations of continuity in US Federal Reserve policy and robust economic data, but gains were pared at month-end by a sell-off in technology heavyweights.