Insights

We firmly believe that markets remain inefficient, and the last few months are testament to that. Hence we face today's uncertainty level headed, attentive to where risks lie while also inquisitive about the potential opportunities.

Speculation over the actions of the US administration had a major impact on asset markets throughout the January-March quarter, with volatility dominating towards the end. We trimmed our overweight score in growth assets during the quarter, while we kept our view of defensive assets marginally positive.

While the “tariff crisis” may have clouded Japan’s economic outlook, the prospects are certainly not opaque as it may look to reduce the role of US exports. Trade tensions have also prompted the Bank of Japan to hold monetary policy steady, but the central bank is still seen to be on course to hike interest rates in the longer term as it takes into account the continuous rise in domestic inflation.

Nature-related risks and opportunities are rising fast on the global investment agenda. Yet for many investors, finding scalable, credible ways to finance biodiversity remains a challenge. Sovereign green bonds may offer one of the most effective channels to direct capital toward nature-positive outcomes—at scale, and with transparency.

One major “plotline” central to the recent series of tariff moves is the tense trade relationship between the US and China. In this issue, we will explore how Chinese bonds have historically offered defensive characteristics and their portfolio roles moving forward.

China’s focus on boosting domestic consumption as their top policy priority in 2025 sets a positive trajectory. The ability of individual countries to provide domestic stimulus is going to be crucial in limiting the impact of global growth slowdown brought on by US policy uncertainty.

The Global Investment Committee (GIC) held an extraordinary session to review the macroeconomic and market impact of tariffs announced by the US on 2 April, as well as subsequent actions and market reactions. The GIC’s verdict is that while the US may avoid a recession, risks of slower growth loom large.

The US markets have dominated global portfolio flows, but investors may seek alternative investment destinations if the ongoing change in trade dynamics results in an extended period of elevated US risk premiums. With US tariff policies setting in motion significant fundamental changes, Asia emerges as a potential destination for capital reallocation.

Amid the challenges facing China's property market, work is well under way to restore confidence in the housing sector. It remains an uphill task for both Beijing and the country's property groups, but there are signs of renewed investor interest in the Chinese property bond market as the housing sector's outlook is expected to improve.

Against this more challenging but still benign macroeconomic backdrop, we expect Asian corporate and bank credit fundamentals to stay　resilient, aside from a few sectors and specific credits which may be affected by tariff threats or geopolitical dynamics.

The "Liberation Day" US tariffs are expected to strongly impact Asia, where most countries run a trade surplus with the US. Although significant uncertainty is likely to linger, our base case is for most of the region's economies to negotiate with the US and thus mitigate much of the impact from the initial announcement. Regarding Asian local government bonds, we retain a positive outlook for several countries that have the capacity to pre-emptively implement monetary and fiscal policy responses. Most Asian corporates and banks also entered 2025 with strong balance sheets and rating buffers, which could cushion them during this period of high volatility.

The US tariff-induced turmoil could slow the pace of the Bank of Japan’s rate hikes, but the cycle of wages and prices, which has made the central bank confident about monetary tightening, is expected to remain intact over the longer term.

The US recently announced a new reciprocal tariff policy. The announcement led to increased stock market volatility globally, reflecting concerns about a potential trade war. There could still be opportunities for those who can navigate market volatility. The US's strategy, perceived as a high-stakes game, has led to uncertainty. The response from surplus-holding nations and global market dynamics will be crucial in shaping the economic landscape.

We discuss the implications of the expansive new tariffs unveiled by the US and explore the effects on markets, consumer sentiment and potential future outcomes from a Japanese market perspective.

The Nikko Asset Management Global Equity team's investment philosophy is based on the belief that "Future Quality" companies will outperform over the longer term. When macroeconomic drivers are uncertain, diverse and unique alpha sources are even more essential.

Despite a retreat from sustainability initiatives in the US, the sustainable bond market, particularly green bonds, remains strong globally due to continued investor demand, attractive bond yields and increasing participation from countries like Japan.

We downgraded our defensive position marginally, while we maintained an overweight to growth assets.

With the US “exceptionalism” narrative fading, we see value in global diversification. We observe potential turning points in Europe and China equities that may serve as opportunities to diversify global portfolios. Volatile market conditions may be the new normal, but opportunities may emerge due to greater differentiation among firms and economies.

As the rest of the world contends with the geopolitical and economic implications of Trump 2.0, ASEAN presents a wealth of long-term investment opportunities, driven by strong fundamentals and supportive policies.

We continue to believe that Asia’s local government bonds are positioned to perform well, supported by accommodative central banks amid an environment of benign inflation and moderating growth.

While US equities stumbled in February, Asian ex Japan equities gained modestly, helped by continued positive momentum in Chinese tech stocks. China's tech has been the comeback story so far in 2025 after DeepSeek injected some liveliness into the market.

Vietnam is demonstrating a commitment to improving governance, expanding infrastructure and cultivating a more competitive business environment. These efforts position Vietnam to harness its demographic advantages and capitalise on emerging geopolitical opportunities.

For 30 years, policy factors like falling corporate tax and interest rates were seen to have generated a bulk of corporate profits, reducing stock-selection opportunities. There are indications that this policy-driven earnings era is coming to an end, heralding darker days for the average firm. However, firms skilled at raising profitability in core business areas could benefit, thus creating new opportunities for skilled stock pickers.

We assess the factors behind the recent surge in Japan's long-term yields and its implications for equities; we also analyse the robustness of corporate earnings amid the structural economic changes taking place.

In March 2024, after the Nikkei Index reached an all-time high, we offered five structural reasons why Japan's economic resurgence was more than just a flash in the pan. Almost a year later, those five reasons remain just as relevant for investors considering an allocation to Japan.