As it often is when Japan’s Liberal Democratic Party wins an election by an impressive amount, the initial equity market reaction was positive. But the ramifications of the ruling party’s upper house election victory will in the intermediate term be a function of what happens to the global economy and geopolitics in the months and quarters ahead.
“Stagflation-lite” coupled with a severe geopolitical crisis was much worse for equities than we expected, but most of the bad news is priced in, so the prospect for global economies and equities in aggregate should improve. While we expect global GDP to moderately underperform consensus, it should skirt recession and positively surprise equity markets, which increasingly have priced in recessionary conditions.
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.
The GIC expects the global economy to continue struggling in a form of “stagflation-lite” and sees a relatively flat performance for global equities for the next three to six months (although quite positive on Pacific equities), with moderate weakness for global bonds.
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.
According to our Global Investment Committee, which concentrates on the intermediate term-view regarding developed markets for pension funds and other long-term investors, 2022 looks to be a challenging, but positive year for risk assets. We believe that the G-3 central banks will become more hawkish, and such pivots can often cause potholes and at the very least headwinds, but we trust that policymakers can traverse their new course successfully overall.
The global economy should match the consensus for strong growth, thanks to vaccinations, continued fiscal stimulus, acceptable global geopolitical conditions, and continued low interest rates despite increasingly hawkish central banks. Such, via increased corporate profits, should allow equity markets to perform very well ahead, with impressive returns in each region, particularly in Japan.
Out of the six scenarios presented, a narrow majority of our committee agreed again on a positive scenario in which the global economy matches the market consensus for solid growth, while equities continue to rally.
Out of the six scenarios presented, a solid majority of our committee agreed again on a positive scenario, in which the global economy matches the market consensus for very strong growth, while equities continue to rally.