As reflationary dynamics gain support from refreshed stimulus in the US and a largely successful vaccine rollout with returning growth already to show for it, the reflation trade appears a bit exhausted as measured by market action. However, we see the current dynamic more as a pause than a conclusion.
The UST yield curve steepened further in March as stronger-than-expected domestic economic data prints, passage of the US dollar (USD) 1.9 trillion stimulus package and a ramp-up in the rate of US vaccinations amid slowing daily infection rates prompted investors to increasingly price in accelerating growth in the coming quarters.
Asian stocks succumbed to profit-taking in March as hopes over a vaccine-led regional economic recovery were overshadowed by persistent reflationary concerns and rising global bond yields. The MSCI AC Asia ex Japan Index fell by 2.5% in US dollar (USD) terms over the month.
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Following a tumultuous 2020 marked by the COVID-19 pandemic, global growth in 2021 is expected to improve on the back of positive vaccine developments and continued government measures. However, the pace of recovery is likely to be uneven among economies and fears of a resurgence of COVID-19 linger. It would be presumptuous to say that we are finally out of the woods.
We provide our view on the Bank of Japan’s latest policy review, under which the central bank decided to allow long-term rates to fluctuate in a wider band and removed its annual target for ETF purchases. We also assess the barring of foreign spectators from the Olympic games.
A large majority of our members agreed on a positive scenario in which the global economy mildly outperforms market consensus, while equities continue to rally.
In February 2021, Japan’s Nikkei Stock Average reached JPY 30,000 for the first time in over three decades. We believe that equities will keep rising, and that amid this shift in the broader market Japanese value stocks are on the cusp of a long-awaited turnaround.
The strong start to the year for global equity markets hit its first bump in the road in February. While most countries are still delivering a positive return for the year, markets have retreated from their highs to varying degrees.
Asian stocks gained in February as investors upheld optimism about a vaccine-led regional economic recovery. The MSCI AC Asia ex Japan Index rose 1.2% in US dollar (USD) terms over the month.