Insights

We have shifted to a mildly positive stance on overall duration, preferring high-yield markets such as India, Indonesia and the Philippines. We expect Asia credit to remain well-supported due to subdued net new supply as issuers continue to access cheaper onshore funding.

The Bank of Japan maintained interest rates at its June meeting, disappointing market participants who expected a reduction in monthly bond purchases. The BOJ signalled a future reduction in bond purchases but only at the next policy meeting in July, without providing further guidance on possible rate hikes or balance sheet reductions.

In the 2024 Indian parliamentary elections, Prime Minister Narendra Modi's BJP won fewer seats than expected. However, with support from pre-alliance partners, Prime Minister Modi will lead a coalition government for a third term, indicating a public desire for policy continuity and reform. While economic fundamentals are strong, the election results also reflect rural distress and the need for job creation, suggesting the government may focus on expanding the manufacturing sector, infrastructure development and digitalisation.

This month we look beyond Japan’s impressive dividends and share buybacks from the perspective of corporate governance reform; we also explain how the “quantity effect” associated with exports may reduce the relevance of currency levels.

As the market comes to grips with the US rate structure potentially remaining high, we expect to see increased market volatility and a potential return of the positive correlation between bond and equities that was evident in the market through 2022.

The ongoing weakness in the yen has led to intense debate over whether Japan can cope with further challenges to its global purchasing power. Although it is a matter of concern, a weak currency isn't necessarily undermining Japan's economic recovery. That said, a prolonged downtrend for the yen warrants vigilance as it could destabilise the economic recovery by triggering inflation.

In terms of duration exposure, we maintain a positive outlook for medium-term duration, finding the current yield levels attractive. We expect Asia credit to remain well-supported due to subdued net new supply as issuers continue to access cheaper onshore funding.

What a difference a month can make. Discussions have pivoted from interest rate cuts in the US to the possibility of an increase, while Chinese equities have rallied sharply on a combination of attractive value and hopes of effective policy implementation.

The US presidential election in November continues to cast a long shadow, and as the race between the 45th (Donald Trump) and 46th (incumbent Joe Biden) presidents quickens, divisions have only widened. The investment world is no exception, and one particularly troubling battleground is the growing regulatory divide regarding ESG reporting.

This month we analyse why the influence of capex and wages on spending behaviour are key to gauging whether an inflationary mindset is taking hold among households; amid an adjustment by Japanese stocks from record highs, we also look for growth narratives to sustain a long term uptrend.