Insights

We present our Q2 2023 outlook for the Global Unconstrained Bond Strategy which incorporates our core markets, emerging markets and global credit views.

The long-held theme of this report (since 2006) that profit margins remain on a structural uptrend, despite sluggish domestic GDP growth, still holds and domestic and international investors finally realise that Japanese corporations are delivering solid profits and shareholder returns, with the increased expectation that such will likely continue over the intermediate term.

Life is different in the post-pandemic world. Equity markets and economies are different too; geopolitics have deteriorated and barriers to trade have increased while the threat of global warming looms ever larger. In this short essay, we attempt to bring some perspective to this while giving a view on where we are in markets today and what might happen next.

Asian REITs continue to be one of the fastest growing asset classes in the region, offering decent yields, a sustainable income stream and exposure to the region’s biggest landlords.

China’s re-opening and supportive policy tone may continue to provide a critical counterweight to global macro weakness. Macro and corporate credit fundamentals across Asia ex-China are also expected to stay robust.

As New Zealand’s current tightening cycle started about 19 months ago, it can already be said to be mature. It also follows that the full impact of the monetary policy decisions taken so far should now be building in the economy.

Currently, we believe that valuations look stretched (mainly in the US) and volatility too low to justify that a new bull market is at hand, given the plethora of risks. We remain constructive on China's recovering demand and new sources of tech growth, but we are cautious for now for the relative complacency that appears not to adequately discount the eventually weaker economic data ahead and now renewed regional bank stress, and perhaps a US debt ceiling battle in the making.

As the exponential growth of machine learning kicks in, we believe that big technology companies with the first mover advantage in AI and high-end manufacturers of AI-focused hardware and microprocessors, notably Asian players, are in a position of advantage.

New Zealand’s equity market was surprisingly strong in the first four months of 2023 given the current challenges faced by the economy. The actual picture is more mixed, however, partly as a result of the concentrated nature of the New Zealand market.

This month we discuss how Warren Buffett’s focus on Japan has put the country’s market back on investor radars and how it could be a chance for companies to disseminate meaningful information; we also analyse the TSE’s surprise “name and shame” tactic with listed companies.