Insights

Investment Insights by our experts and thought leaders

Global Unconstrained Bond Strategy Q2 2023 outlook

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.

Future Quality Insights -May 2023-A bridge over troubled waters

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.

Exploring fast-growing Asian REITs

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.

A fundamental change for AI?

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.

Navigating Japan Equities: Monthly Insights from Tokyo (May 2023)

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.

Financials, healthcare and energy buck the trend and rise in a down market.

Market dynamics have changed quite considerably since mid-March after the regional bank failures in the US, which were quickly followed by turmoil at Credit Suisse leading to the bank’s forced marriage with UBS. The government response was swift and significant, and while central banks have attempted to message a somewhat normal return to its tighter policy agenda, markets simply are not buying it.

Asia’s healthcare opportunities

In Asia, where healthcare innovation and investment are borne from a critical need, the region’s healthcare industry today is where its technology industry was in the 2000s, meaning that a decade of investment is beginning to bear fruit.

Against a backdrop of a more stable bond market, we prefer relatively higher-yielding Philippine, India and Indonesian government bonds. In addition, there appears to be early signs suggesting that inflationary pressures in these countries have likely peaked, which we see providing further support for these bonds. As for currencies, we expect the Thai baht and Indonesian rupiah to outperform regional peers.

In a world starved of workers and growth, we believe that Asia’s ability to supply both puts the region on a very firm footing over the longer term. Once we get through this current US-led rate tightening cycle and the flush out of weaker financial institutions in the West, we see a bright future for Asia, which is now trading at extremely attractive valuations.

Navigating Japan Equities: Monthly Insights from Tokyo (April 2023)

This month we discuss how potential market volatility still bears watching even if the global banking turmoil may not directly shake Japan; we also assess how a steady domestic demand recovery may be in sight even if the public is slow to remove their masks after the recent easing of restrictions.

Consumption in Asia from a new perspective

Asia’s consumption trends were once thought to be heavily influenced by those in the West, but that is no longer the case. Asian consumers have diverse tastes and influences and they are starting to dictate global trends instead of merely absorbing them. We believe that Asian brands are well placed to respond to this new paradigm.

Resilience and attractiveness of Asian local bonds

Asian local currency bonds are expected to thrive as the region’s central banks end their rate hike cycle on the back of easing inflation. We believe that strong fundamentals, high-quality yields and limited foreign ownership are other factors that are supportive of this fixed income asset class.

Investors have been dealing with elevated volatility in asset prices since the pandemic began. A contributing factor that continues to muddy the waters has been the volatility in economic data due to COVID-led distortions. In more recent months, particularly in the US, unseasonal weather patterns have made reading the economic tea leaves even more difficult.

Global banking turmoil from an Asian perspective

It could be some time before the market stabilises in the wake of the global banking turmoil, and investor appetite toward financial subordinated debt will likely be weak in the near term. That said, considering the current valuations of fundamentally stronger Asian banks, we believe that a large part of such concerns are already reflected in their spreads/price following the re-pricing which took place earlier in March.

Global Investment Committee’s Outlook

We expect fairly rough sailing for the global economy, financial system and markets in the next two quarters, but we do not expect disasters and there should be major relief for stocks later in 2023 as central banks begin to ease policy.

Asian financials: beyond the drama

Asian banks will be more insulated from the current global banking turmoil, in our view, thanks to smaller-scale rate hikes in Asia, prudent supervision by regional financial regulators, outsized capital adequacy ratios and sensible security exposure relative to total assets. We believe this will bode well for the sector in the longer term and enhance its attractiveness.

Net zero made in Asia

We believe that there are substantial rewards for those who are capable of driving the push for global decarbonisation. So, the question is: who is building the kit for the world’s net zero ambitions? We believe that the answer, both now and well into the future, is Asia.

Navigating Japan Equities: Monthly Insights from Tokyo (March 2023)

This month we discuss what the market may initially seek the most from the next Bank of Japan governor; we also look at Japan’s expanding outlays, with tax revenue and inflation in focus.

Thoughts on the 2023 China National People’s Congress

The official GDP growth target of “around 5%” unveiled at China’s annual National People’s Congress was lower than many external forecasts, and fiscal policy looks less accommodative relative to both market expectations and that of 2022. In our view, these conservative targets leave room for outperformance and likely reflect cautiousness over unexpected events and reluctance in overstimulating the economy.

Today’s surgical robot, tomorrow’s robot surgeon

Considered to be one of the greatest modern-day medical breakthroughs, robotic surgery is revolutionising surgical practices around the world. The breakthrough is particularly prominent in China, which could be the next growth frontier for surgical robotic companies.

The just-released 4Q CY22 data on aggregate corporate profits in Japan was somewhat mixed, as the overall corporate recurring pre-tax profit margin fell from its record high on a four quarter average. The non-financial service sector ticked up, but the manufacturing sector fell from its record high.

Thoughts on the BOJ you might not have heard, but should consider

Currently, there is a wide variety of predictions for the BOJ’s actions, with some expecting imminent hawkish decisions based upon some of Governor-nominee Kazuo Ueda’s “anti-distortion” comments, but changes are more likely to be gradual and tentative assuming the global economy continues improving.