Shakespeare once said, “present fears are less than horrible imaginings.” As we come to the close of 2018, we have observed equity markets turn double-digit returns to losses, an aggressive rise in interest rates and a modest increase on the perception of escalating tensions surrounding the world’s two largest economies.
In addition, we have to consider the eventuality of a prolonged trade war. But China would be able to mitigate its impact initially via a combination of monetary and fiscal stimulus, helping offset the impact of tariffs to a certain extent.
Credit markets didn’t perform in line with the expectations we set at the beginning of the year and disappointed most investors.
The potential hangover from the monetary binge of QE continues to weigh on global equity markets as we head towards 2019. The turning of the calendar will do little to change this.
Once again, the Federal Reserve (Fed) policy has proven itself to be the key determinant of global liquidity, and 2018 was clearly tight.
As we reflect on 2018, we would all agree that Trump and his trade policies dominated the conversations and dictated some of the major moves in the financial markets around the world.
We believe 2019 will be an important year for active selection or alpha and our focus will be on delivering on stock selection returns by picking quality companies who are resilient in growth amid a rising risk environment.
So many developments have occurred since we last met in September, but the major ones were the surprising collapse in oil prices mostly due to geopolitical factors, the U.S.-China trade and BREXIT conflicts becoming increasingly intractable, and that aspects of the global economy showed occasional signs of moderation.
Global growth remains desynchronized, with China, the Eurozone and Japan continuing to show further signs of moderation, while the US remains relatively robust.
The MSCI AC Asia ex Japan (AxJ) Index gained 5.3% in USD terms in November, despite persistent concerns over global growth and a slide in technology stocks.
The S&P/ASX 200 Accumulation Index returned -2.2% during November.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.24% over the month, outperforming Australian equities which fell over 2%.
Global growth remains desynchronized, with China, the Eurozone and Japan showing a further moderation in growth, while the US remains robust.
Earth’s largest single geographic region, Asia represents approximately 60% of the planet’s population and is one of its fastest growing economic areas. The region had more billionaires in 2017 than anywhere else and it will represent 57% of middle-class consumption by 2030.
Over the past year Australian house prices have seen 12 consecutive months of decline, the longest streak of persistent falls in over 20 years.
Volatility is back in a big way in 2018. A large increase in the VIX is showing an annual level not witnessed since 2007. The sell-off that started in October appears to have been triggered by a number of negative technical forces in the USA coming into effect at the same time, which impacted global markets.
One of the pleasures of getting older is that you start to have proper grown-up conversations with your children.
The US economy is enjoying its second-longest growth cycle in history and is on the way to becoming the longest on record.
How do you react when you see blood; do you swoon or just observe with intrigue? Perhaps conditioned by a recent overdose in crime related dramas (favourites include: ‘Killing Eve’, ‘Peaky Blinders’ & ‘Better Call Saul’), it was the latter outcome for me after a recent DIY debacle with a saw.
The MSCI AC Asia ex Japan (AxJ) Index fell by 10.85% in USD terms, on the back of concerns about rising interest rates, slower economic growth, and persistent US-China trade tensions. Large technology stocks were particularly hard hit.
US Treasury (UST) yields spiked at the start of October as the market responded to stronger US data and Federal Reserve (Fed) Chairman Jerome Powell's hawkish comments.
The Japanese equity market dropped in October, with the TOPIX (w/dividends) falling 9.41% and the Nikkei 225 (w/dividends) declining 9.04% on-month.
Global equities corrected downwards by 7.5% in USD terms in October. Stocks in the US ended the month down 6.5% after an intra-month peak-to-trough drawdown exceeding -10%.
On the back of unrelenting USD strength, 2018 has been a tumultuous period for Asian currencies. Countries in the region with current account deficits have been facing more currency pressure, prompting their central banks to engage in series of rate hikes to defend their currencies.
Clearly, the U.S. Administration has tried to protect the steel and other industries considered important for defense and economic security. The intent is to have them invest in new capacity due to the recently higher product prices.
The S&P/ASX 200 Accumulation Index returned -6.1% during the month.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.48% over the month, outperforming Australian equities which tumbled over 6%.
As the world experiences more extreme weather patterns and climate-related incidents, pressure is mounting to curb greenhouse gas emissions.
The trade war between the US and China appears to be morphing into deeper and more protracted conflict as reflected in a recent speech by US Vice President Mike Pence, who criticised China not just for trade practices but more fundamentally for its broad political and economic model.
The MSCI AC Asia ex Japan (AxJ) Index fell by 1.38% in USD terms in September. The Sino-US trade conflict and rising oil prices were key drags on performance. During the month, the US Federal Reserve raised rates for the third time this year as widely anticipated, amid positive economic data.
In September, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps). The monetary authority removed the clause that policy rates are "accommodative", and modestly raised its growth forecasts for this year and next.
The Japanese equity market rose in September, with the TOPIX (w/dividends) climbing 5.55% on-month and the Nikkei 225 (w/dividends) rising 6.17%.
Nikko AM values companies based on their sustainable earnings capacity. Embedded in our research process is a consideration of all relevant risks that impact sustainable earnings and therefore have valuation implications. This obviously includes risk factors that fall within the ESG realm.
A trade deal was finally struck between the US and Canada that combined with the Mexico deal has been rebranded as "USMCA", though it could aptly be described as the same old NAFTA with a few tweaks.
The S&P/ASX 200 Accumulation Index returned -1.8% during the month.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was down 0.42% over the month.
The late celebrity chef Anthony Bourdain once remarked that “Singapore is possibly the most food-centric place on Earth, with the most enthusiastic diners, the most varied and abundant, affordable dishes — available for cheap — on a per-square-mile basis.”
The NikkoAM Asia ex Japan equities team focuses on two core characteristics in our fundamental research; sustainability of returns and positive fundamental change.
As markets continue to grapple with the potential for a protracted trade war between China and the US, central banks have stuck to their task of setting monetary policy.
The MSCI AC Asia ex Japan (AxJ) Index fell by 1.02% in USD terms in August, largely on the back of currency weakness. Investor sentiments were driven by fears of an escalating trade war and risks of an emerging market contagion. During the month, the US Federal Reserve (Fed) left interest rates unchanged.
In August, the US Treasury (UST) curve flattened. Near-term yields rose due to expectations of a September Federal Reserve (Fed) rate hike, while mid to long-dated yields fell. Escalating US-China trade tensions and the weaker-than-expected July US jobs report pushed UST yields lower at the start of the month.
Our updated house view is that the G-3 and Chinese economies will continue solid through September 2019 approximately in line with consensus expectations, while we expect central banks to reduce their accommodation similarly to consensus expectations.
Wealthy individuals across generations are interested in investing for environmental or social impact, but Millennials are by far the most active in evaluating and indeed, demanding these strategies.
The Corporate Sustainability Department that Nikko Asset Management recently established embodies the Firm’s enduring commitment to integrating environmental, social, and governance (ESG) principles in every aspect of its operations.
The S&P/ASX 200 Accumulation Index rose 1.4% during the month.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.81% over the month. The yield curve flattened as the spread between long-term and short-term bond yields narrowed.
In 2011 a dramatic shift occurred throughout the developed world — working age populations began a multi-decade decline. Demographic shifts like this in an economy can have profound effects, including changes in growth and debt metrics.
Confession season was eerily quiet leading into reporting season, unlike the noise from the Royal Commission and the incredible events out of Canberra, where another Prime Minister didn’t reach their full term.
Nikko AM Australia values companies based on their sustainable earnings capacity. That is, we determine the intrinsic value by capitalising the sustainable or mid-cycle earnings of every stock under coverage.
It was just reported that China’s exports to the U.S. accelerated 8% year-over-year in July while U.S. exports to China decelerated to 3% year-over-year.