Insights

In sum, there certainly are some worrisome issues, as always, but we find none of them convincing enough to prevent moderate increases in equity prices.

Much as we expected, China's economy has continued to slow faster than consensus, but does not appear to be in a hard landing.

Central Banks: Despite firm economic growth, we believe that a negative YoY CPI through September will steady the Fed's hand.

Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.

The recovery in profits by Japanese export firms should continue to attract the attention of the markets in the first half of 2015.

John Vail updates his long-standing theme: Japan's Successful “Show Me the Money” Corporate Governance.

Through 2014, one of the largest asset classes in the world was virtually unnoticed as an indicator that Europe is not pushing the global economy into widespread deflation.

There are several credible reasons to expect that QE will boost corporate earnings in Europe, though by not as much as in the US. However the risk of disappointment relative to inflated expectations remains high.

In 2015, markets will be looking for any pick up in European and Japanese inflation as a result of their QE programmes. With growth picking up, we may start to see signs of a rise in US inflation.

The disappointing economic data should not worry investors in Japanese risk assets very much at all.

The key theme of the past few years has been quantitative easing. Although the US has come to the end of its version of this experiment, QE programmes have begun or are about to begin in Japan and Europe.

We expect the next phase of the global evolution to be driven by a growing global population, rapid urbanisation and for most of it to happen in emerging markets with increasing focus on "green" development.

In a pre-GFC and pre-QE world, zero or negative interest rates on a German, Japanese or US 10-year bond would have been considered highly implausible. However...

ECB's QE: The major question is, will this program work given the European model of debt creation is via the banking system and not the bond markets?

The steel industry and its underlying iron ore industry are witnessing excess production and deflationary forces that are similar to the global energy markets.

The QE announcement was a major step forward for Eurozone. It is not without dangers and questions about implementation, however, so markets should not get over-enthusiastic about it.

Now that oil prices have declined, if a central bank targets its overall CPI at 2.0% for 2015, it would likely be labeled as being overly aggressive and perhaps attempting to unfairly weaken its currency.

As the Fed continues to unwind its stimulus, even amidst threats of global deflation, there are hopes that China will accelerate the liberalization of its capital account and take over the Fed's role as the global supplier of liquidity.

We expect oil prices to rebound and for the time being, we will stick with our call for Brent to rebound to $72 by end-June 2015, although $65 is a more plausible goal.

Supply-side shocks and market distortions have created a degree of uncertainty over the short to medium-term outlook for the New Zealand dairy industry.

Brazil can no longer continue as “business as usual” and it is at an important crossroads as to whether it can exit the well-known “middle income country trap.” Domestic issues aside, EMs will continue to encounter major headwinds as an asset class in early 2015 due to negative stories from large countries, such as Brazil and Russia.

These reforms coupled with strong balance sheets and demographics will support higher levels of global growth for decades to come.

The investment world is changing quickly and 2015 should prove to be a very interesting year, but we see no reason to change our long-held positive view on global equities.

Recently, two major voices in the "core Fed" (Fischer and Dudley) have indicated that despite low inflation, the Fed's main scenario is to begin hiking rates in mid 2015.

China's economy likely slowed much more than the official statistics show; otherwise, the government would not have reversed course on its various crackdowns, especially on the property market.

Our Global Investment Committee always seems to meet in the middle of great volatility, and this time was no exception, with the investment world facing all sorts of new challenges.

In our view, the LDP coalition's maintenance of a strong two-thirds majority in this election will greatly help Prime Minister Abe and his party's reform efforts, while likely bolstering Yen weakness to some degree.

As we move further away from the turbulent period between 2007 and 2009, interest in credit has increased rapidly as investors globally search for extra return in a low yield environment.

If the RBA does cut interest rates, it is likely that they will make more than one cut, so we could see Australia's official cash rate at 2.00% by the second quarter of 2015.

Many empirical studies have shown that a value style approach to investing in Australian shares has consistently outperformed growth investing - and with less risk.

The three main points from our prior report on this topic have not changed; however, there are a few more anomalies in the data this time.

2014 has become a landmark year for green bonds, having become one of the few sustainable investment instruments to reach a suitable scale and poised to enter the mainstream for global institutional investors.

Equity investors should not fret too much about weak macro data, as Japanese companies have been able to overcome such for nearly a decade through rationalization and improved corporate governance.

Moody's downgrade of Japan to A1 will likely have very little effect on bond yields, the economy or risk-asset psychology. The major reason why is due to its odd premise of predicting too much success of Abenomics, while most market observers are not so optimistic.

Three important things to know about the recently announced Japanese GDP statistics that indicated that the country was in a recession.

We examined the relationship between a country's working age population and its listed company corporate earnings for ten nations, and found that the relationship is ambiguous at best, with correlations ranging from positive to strongly negative.

Although there are potential flashpoints, there are some areas where the US President may be more willing to cooperate with the new Congress — such as being awarded the authority to fast track trade agreements, particularly the Trans Pacific Partnership (TPP)

We have long reported on the role of the wealth effect, as its importance is vastly underestimated by local and foreign investors. The 2Q data for net financial assets shows a QoQ increase to a new historical high.

Update on Japan’s “Show me the Money” corporate governance — the dividend paid by TOPIX continues to rise towards its historic high, but the payout ratio has been stagnant for the past few months, as earnings continue to rally equally well.

Is political democracy good for economic growth and ultimately, stock markets in Asia? Indisputably, sound political systems are crucial for economic development and progress.

Our house view is that non-economic factors played the largest role in the recent market turbulence. We discuss these below and forecast their future development.

Physical credit spreads have remained at reasonably tight levels due to the ongoing search for yield — although global uncertainty in the Middle East, fears about Ebola, and re-emerging concerns about Europe have generated negative sentiment.

The Australian economy seems to be struggling to achieve traction as the mining boom transitions from a capital expenditure phase to a shipment phase.

Prior to the global financial crisis, nearly $17 trillion of developed nation bonds were rated AAA. Now there are less than $2 trillion. Not only has supply been restricted, but also diversity, with the number of AAA rated countries falling from 15 to 9.

A confluence of factors worked against the Australian market during the month. Regulatory concerns in the banking sector, lower commodity prices and a weaker Australian dollar were the key drivers of the market’s underperformance.

Much as we expected, China’s economy has continued to slow faster than consensus, but does not appear to be in a hard landing.

In the Australian credit market, the relative lack of supply compared with demand continues to cause spreads to tighten in the physical market offsetting the risks of an unstable geopolitical environment.

Reasons for the recent weakness in the AUD include a fall in the iron ore price, the rally in the US dollar, weaker Chinese data, and indications that the Reserve Bank of Australia is considering macroprudential controls.

Improving the number of independent directors and other governance issues are very important in the intermediate term for Japan, but it is crucial for investors to understand that much of the profitability message has already been understood by Japanese corporate for nearly a decade.

Japan’s pipeline inflation, which we measure using the recently renamed Producer Price Index’s Finished Consumer Goods for Domestic Demand sub-component continued to be quite depressed in August.