Our belief is that we have moved into a new regime where inflation will be structurally higher despite the anchors of high debt burdens, ageing societies and ongoing technological disruption.
Higher commodity prices impacted returns in Asia, while a slip in prices of crude oil and metals benefitted many Asian nations. We expect the future trajectory of inflation to dictate the path of interest rates, which in turn is seen determining economic growth globally.
This month we focus on two ESG-linked themes that generate a significant amount of investor interest: carbon neutrality and modern slavery.
As we have already mentioned several times, it has been a very tough year for New Zealand bonds. Although there is perhaps light at the end of the tunnel after the market hit a very low point; in our view, good quality assets could outperform cash over the medium term.
As New Zealand grapples with inflation and the spectre of a recession, we highlight the impact increasing mortgage rates may have on consumer spending. This is an important theme as it ties in with how we need to consider absolute interest rate levels.
As in the rest of the world, times are tough for New Zealand’s economy. Even so, given that stagflation occurs when higher inflation is combined with slower economic growth and rising unemployment, New Zealand is contending with the negative growth and inflationary aspects of stagflation without the accompanying unemployment issues.
Fears of a recession and the US CPI hitting a four-decade high of 8.6% year-on-year in May rippled through various economies. Asian markets took heed from the multiple headwinds in the US, with inflation being a common theme across the region. For the month, the MSCI AC Asia ex Japan Index fell by 4.5% in US dollar terms.
We review the “new form of capitalism”, a government plan to boost economic growth initiated by Japanese Prime Minister Fumio Kishida, who is enjoying a high public approval rating ahead of a closely watched upper house election.
The beleaguered New Zealand bond market received some respite in May, while the Reserve Bank of New Zealand raised the Official Cash Rate by 50 basis points to 2%, with the market pricing in the central bank hiking rates again in July and August.
Recent results in the New Zealand retirement sector have been strong almost across the board, with operators of retirement villages posting high sales of both new stock and existing units. Independent valuations of retirement village assets have also increased significantly across all operators.
Asian equity markets rose marginally in May, boosted by Shanghai’s plan to lift COVID-19 restrictions, even as the US Federal Reserve raised its benchmark overnight interest rate by 50 basis points. For the month, the MSCI AC Asia ex Japan Index rose by 0.5% in US dollar terms.
Asian markets were downcast in April as investors were concerned about inflation and the likelihood of a larger-than-expected rate hike by the US Federal Reserve. For the month, the MSCI AC Asia ex Japan Index fell by 5.2% in US dollar (USD) terms.
It has still been a tough year so far for New Zealand bonds amid pressure from inflation. That said, the market in New Zealand has been an outperformer among global peers since the beginning of 2022.
We discuss the implications of the weak yen, now considered by some as a menace rather than a blessing, for the Japanese market and economy. We also explain the potential impact of higher energy and commodity prices.
A trip back to China provided an opportunity to experience first-hand the impact innovative technology and digitalisation is having on a fast-changing urban society.
We are keen to participate in the push towards a less carbon intensive future but want to do so in a balanced fashion, with one eye on the associated risks.
The New Zealand bond market has experienced a rough start to 2022. The chief driving market factor has been the upward movement in reference interest rates, with the swap and government curves all moving up as central banks turn hawkish to fight inflation for the first time in a generation.
This month we focus on A-REITs, which are larger and more liquid relative to their New Zealand peers. One of the sector’s benefits over its New Zealand counterpart is its simple numerical advantage: Australia boasts 34 REITs, which is three times the number of REITs in New Zealand.
We think the New Zealand bond market looks very attractive relative to the rest of the world given how high our interest rates are. At the same time, we certainty aren’t immune to developments in the rest of the world, particularly the US, where the Federal Reserve is poised to begin raising rates.
The New Zealand market recovered well from the global plunge in equities seen in response to Russia’s invasion of Ukraine on 24 February. The current events in Europe have had very little immediate impact on New Zealand, particularly from a corporate earnings perspective.
We see the volatility in the New Zealand markets as an opportunity to focus on new companies for which we have a high degree of confidence in their earnings.
Inflation is creating challenges for the New Zealand bond market and economy. In line with bond markets around the world, New Zealand’s market has had a difficult start to 2022. Bond yields and interest rates in general have been climbing as central banks hike rates to tackle soaring inflation.
Going back to India for a month after two long years of not being able to visit my family, I was pleasantly surprised by the new normal. While there has been much adversity, COVID-19 has also sparked positive change, especially on technology adoption.
An ability to look forward to better times and remain optimistic is invaluable. These attributes are no less helpful when investing in equities. Whilst you can get an unpleasant surprise from misjudging the direction of the tide while enjoying your picnic, the consequences for misjudging the direction of the liquidity waves look more pronounced than ever as we enter 2022.
New Zealand faces the same kind of uncertainties other countries are confronting due to the global pandemic. But New Zealand, in some ways, has been in the vanguard of recovery from the COVID-19 outbreak.
COP26 included a pledge by New Zealand and 100 other countries to achieve 30% cuts in methane emissions by 2030. Similar progress is being seen in the area of corporate disclosure as New Zealand is set to have its first climate-related disclosure standard by the end of next year.
We believe that Asian economies are well positioned to navigate monetary tightening in the US. Government finances are healthier, as are corporate balance sheets. Most Asian economies are digitising faster than their western peers, while consumption is set to receive a meaningful boost from economic reopening.
The initial discovery of the Omicron variant was met with fairly sensational reporting by some of the world’s media and this fed through quickly into investor sentiment. It is probably true, however, that even if Omicron had not surfaced it was probably about time that investors were again reminded of the volatility that resides in markets, despite the mollifying impact of endless liquidity injections by central banks.
ESG initiatives are expected to become ever more important for companies and investors around the world in 2022. We expect many Japanese companies to come to the fore amid this global shift towards ESG, with enhancements in ESG disclosures shedding light on their value creation opportunities amid the current drive towards decarbonisation.
The Singapore economy is on a road to recovery. Although the economy has already rebounded sharply in 2021, we expect the recovery theme to remain intact and continue supporting the Singapore economy in 2022. We see a broadening of growth within Singapore’s key economic engines in 2022, with a sharper recovery expected in the services sector as the economy reopens.
Amid a flurry of headlines, investors may have largely overlooked the significant number of recent positive developments in China, such as initiatives directed towards ambitious renewables targets, the continued opening up of the financial sectors and support for a significant number of industries including AI and big data. We believe these areas could become the new leaders of China’s capital markets, representing investment themes for the next several decades.
October was a tough month for the New Zealand bond market with yields rising in anticipation of further increases in cash rates and in response to global markets bracing for the possibility of central banks reducing stimulus by tapering bond purchases.
The New Zealand stock market has been flat in the calendar year to date, with companies working to adapt to a number of risk factors. This puts it in stark contrast with markets in the rest of the developed world, which have seen gains ranging from 10% to 25%.
Our philosophy is centred on the search for “Future Quality” in a company. Future Quality companies are those that we believe will attain and sustain high returns on investment. ESG considerations are integral to Future Quality investing as good companies make for good investment.
The equity market reaction to New Zealand’s second COVID-19 lockdown has been far more muted than the first time similar restrictions were imposed. The first lockdown from March 2020 caused an aggressive sell-off as investors and companies alike adjusted to a completely unprecedented situation.
Since the Reserve Bank of New Zealand (RBNZ) postponed a widely expected rate hike in August, pricing in the market has pulled back, supporting a view that the central bank will hike rates by 25 basis points (bps) at each of its next three policy meetings.
As expected by most observers, Mr. Kishida won the Liberal Democratic Party presidential election in the second round with a sturdy, though not overwhelming, 60% of the vote. He will be formally named prime minister next week and will likely form a relatively youthful cabinet, with females in several major posts.
The past five years have been the hottest since records began. In the decade to 2020, global surface temperatures were 1.09C higher compared to the pre-industrial era (1850–1900)1. The Intergovernmental Panel on Climate Change (IPCC) warns that stabilising global warming below the 1.5C level is critical to avoiding the most extreme impacts on ecosystems and human health.
Inflation is on everyone’s mind. From central bankers to bakers, it is one of the biggest topics of discussion. The prices of many commodities are rising sharply. The reasons vary. Supply constraints, sharp rise in demand or bad weather—take your pick.
The world is settling into a new normal that is likely to look quite different from pre-COVID-19 norms. This includes different patterns of demand shaped by learning to live with the virus and an ongoing fiscal thrust with firm policy objectives.
The detection of New Zealand’s first COVID-19 Delta variant infections and the subsequent decision by the Reserve Bank of New Zealand (RBNZ) to postpone a widely expected rate hike muddied the country’s outlook in August. The economy was previously running at a strong pace with unusually high inflation of 3.5% and very low unemployment.
With the reporting season in full swing, this month we turn our attention to New Zealand’s corporate results and announcements. In particular we focus on the COVID-19 pandemic and its effect on such results and highlight how changing demographics have provided opportunities for certain sectors.
This month we turn our focus to environment, social and governance (ESG) issues. ESG is firmly in the spotlight at present, and this trend will only intensify in the future. In global terms, Europe’s level of ESG legislation is more advanced than New Zealand’s and ESG is more of a hot topic there.
New Zealand’s bond market performed well overall in July, although the long term sector outperformed its short term peers significantly.
Our philosophy is centred on the search for “Future Quality” in a company. Future Quality companies are those that we believe will attain and sustain high returns on investment. ESG considerations are integral to Future Quality investing as good companies make for good investment
Japan’s economy should boom after the Olympics burden passes. Its stock market will likely rebound sharply too, but one item that has limited Japan’s equity culture, and thus, its wealth, especially for wary pensioners, is overly conservative guidance by corporations for upcoming fiscal year earnings.
New Zealand’s bond market was relatively flat in June, although most sectors were on the positive side. Looking ahead, New Zealand appears set to track the US, where interest rate hikes could now happen as early as 2022.
This month, we take a look at the current state and prospects of New Zealand’s five main electricity generators/retail providers. Almost all the electricity in New Zealand is generated by five companies: Genesis Energy, Contact Energy, Meridian Energy, Mercury Energy and Trustpower.
The New Zealand equity market has been blessed by strong upward revisions in corporate earnings and a robust macro framework, with the country further along than its peers in a V-shaped recovery from a COVID-19-induced downturn.