The S&P/ASX 200 Accumulation Index returned 10.2% during the month. Australian equities enjoyed a strong month (in fact, the best monthly return since 1992) on positive COVID-19 vaccine news, additional quantitative easing measures locally and increased certainty regarding the US presidential election result.
The Japanese equity market has posted impressive gains as 2020 draws to a close, with the Nikkei Stock Average reaching a near three-decade high, and we assess the rise from a long-term perspective. We also analyse how Japanese equities have managed to defy a stronger yen.
Another quarter goes by and we are still (in the United Kingdom anyway) limited in our ability to travel and congregate in offices. In my spare time, I often end up searching vainly for fresh and interesting new content, only to revert to watching stalwarts such as the Bourne film series.
Japan struggles with an aging and shrinking population and it is important for the country, both from an economic and social perspective, to improve its relatively low labour productivity by efficiently utilising its human resources.
For October, on a seasonally adjusted YoY basis, Japan’s October YoY Industrial Production (IP) result was better than both US Manufacturing IP and US Total IP. It likely surpassed Europe’s too.
The COVID-19 pandemic has triggered changes in Japan that would have taken many years to initiate in less turbulent times. We believe there is significant value to be unlocked under such circumstances.
As we enter the festive season, we suspect we are on both the naughty and nice list. We didn’t ask for more virus and certainly did not ask for a prolonged decision on the US election. Frankly, we would rather be gifted lumps of coal.
US presidential election jitters and an uptick in COVID-19 cases in the US and Europe triggered a downturn in global equities in October. Asian stocks, however, managed to turn in decent gains for the month, owing to a slowing pace of COVID-19 infections in the region and growing optimism over China’s economic recovery. The MSCI AC Asia ex Japan Index rose 2.8% in US dollar (USD) terms over the month.
US Treasury (UST) yields rose in October. The US presidential election and the fiscal stimulus deal were the focal points of news headlines and markets in October. Worries about the acceleration of COVID-19 cases in the US and Western Europe, and renewed lockdowns in the latter, partially offset the upward pressure. Overall, 2-year yields ended 2.6 basis points (bps) higher at 0.155%, while 10-year yields rose 19.0 bps to 0.875%.
With the US presidential election now behind us, the two candidates seem to be proceeding in parallel universes. The apparent winner, President-elect Joe Biden, has transition planning and inauguration on his mind while President Donald Trump continues to challenge the election process itself.
We assess the US election outcome from the perspective of the Japanese equity market, focusing on the economic and policy changes that are expected to accompany the change in US leadership.
We discuss the reasons behind the Japanese equity market’s recent outperformance and the factors likely required for the gains to be sustainable in the longer term. We also assess the recent surge by the Mothers Index and key points to watch going forward.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) returned 0.28% over the month. The yield curve steepened as 3-year government bond yields ended the month 4 basis points (bps) lower at 0.12%, while 10-year government bond yields rose by 4 bps to 0.83%. Short-term bank bill rates were all lower.
The S&P/ASX 200 Accumulation Index returned 1.9% during the month. Australian equities were supported by the release of the Federal Budget early in the month which saw increased spending and tax cuts to aid the economy as it recovers.
In order to gain a range of perspectives on the US presidential election, Nikko Asset Management has gathered the views of the following experts and investment teams, representing many of our major asset classes and geographical regions.
The strategy’s performance continued to recover during the last quarter. The strategy’s relative and absolute performances are now positive. Strong results in the banking sector, in particular the lower part of the capital structure (i.e. T2 and AT1 bonds) were a strong driver of the rebound.
We suspect that many investors have become accustomed to a seemingly synchronized world with relatively little currency volatility – in a sense over recent years we seem almost to have been back in the 1960s, a period during which moves in exchange rates were quite rare and there was essentially a single synchronized global economic cycle.
At the time of writing, Democrat presidential candidate Joe Biden leads the polls by 10 percentage points and will likely be elected President of The United States on 3 November 2020. The potential for a Democrat “Blue Wave” with control of both houses easing the passage of legislation also seems possible.
The third quarter of 2020 corresponded to a continued recovery of all emerging markets (EM) debt segments, albeit at a slower pace compared to the second quarter. The market’s positive momentum faded in July and August and a mild consolidation phase even occurred in September.
Last month saw a marked increase in share price volatility in some of the stocks deemed most insulated from the adverse impacts of COVID-19. We suspect that this volatility will persist for some time as the real strengths of economies are revealed; with emergency wage support measures rolling off in the UK, inventories partially rebuilt and political uncertainty elevated.
As China’s fixed income market continues to grow in depth and size, it has helped create interesting trends that are worth following. While some of these trends are not new, we do see finer developments within that could pique investor interest in realising additional alpha.
Today, we believe the global economy is undergoing the largest technological transformation in history. Disruptive innovation should displace industry incumbents, increase efficiencies, and gain majority market share. As technologies emerge and transform entire industries, investors in traditional benchmarks may face more risk than historically has been the case.
Coordinated fiscal and monetary stimulus is likely to support global demand and therefore reflation in the years ahead. We see this opening up broader growth opportunities, and ultimately better scope for portfolio diversification.
With the global outbreak of COVID-19 in the first half of 2020, the world was turned upside down. Under such circumstances, Japanese companies are now faced with new challenges to adapt to this “new normal”.
US Treasury (UST) yields traded in a narrow range during the month. Factors such as the second wave of COVID-19 infections in Europe, lingering volatility in US equities and continued lack of consensus on further fiscal support weighed on market sentiment.
October 2020 Second and third waves of the virus will also slow the recovery. But importantly, mortality rates have been lower, suggesting that the world continues to learn to live with the virus without requiring broad lockdowns.
We believe our active approach to credit investing allows us to better serve clients, as indiscriminate waves of downgrades following the turbulence that has rattled global financial markets this year presents us with compelling opportunities.
After three consecutive months of strong gains, Asian stocks finally succumbed to profit taking in September triggered by concerns that the global recovery from the COVID-19 pandemic could be running out of steam.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) returned 1.08% over the month.
The S&P/ASX 200 Accumulation Index returned -3.7% during the month. Australian equities lagged most developed markets during the month, as most markets took a breather in September.
Although the coronavirus outbreak has caused major disruptions and geopolitical risk is on the rise, markets are looking forward to recovery. In what appears to be a rapidly changing world, many things remain the same and indeed, may be changing for the better.
The Covid-19 pandemic has accelerated the adoption of internet-based healthcare services. Growing in importance, penetration and acceptance, telemedicine will revolutionise and augment Asia’s healthcare systems.
Yoshihide Suga, Japan’s new prime minister, is widely expected to retain his predecessor’s fiscal and monetary policies known as “Abenomics”.
Clearly, it remains difficult to predict events in this volatile environment, but in the interest of our clients, we do our best and fortunately this time, we had virtually unanimous agreement on a similar scenario as in June, both politically and economically.
The price bifurcation of ASEAN equities this year caused by the COVID-19 pandemic is creating ample stock-picking opportunities for long-term investors. Read on to find out which markets and sectors in the ASEAN region that we have the highest conviction in.
Asian stocks posted gains for the third consecutive month, boosted by positive COVID-19 vaccine developments around the world, the persistently weak US dollar (USD) and resilient Chinese economic data.
Despite major improvements over the last two decades, some critics will always doubt the progress of economic reform in Japan.
It does not seem that there are enough differences between Abenomics and the proposed economic policies of likely new Prime Minister Suga to justify the completely new portmanteau “Suganomics,” as a few analysts have suggested.
While everyone’s individual experience of this global pandemic has been different, there are many shared experiences that we hope readers will be familiar with. In short, the adaptations we have made as a society have changed the way we live and work. Might these new behaviours give a clue as to what industries and companies will prosper in the years ahead? Well, yes and (likely) no, but at least the task of observing our recent past may help us make sense of the present while giving us a clue about what might be round the corner.
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.