Insights

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.

The potential return of long-muted inflation sparked a meaningful jump in US Treasury (UST) yields in February. Fears of rising price pressures were prompted by the combination of robust domestic data, positive development on the COVID-19 vaccine front and an anticipated increase in US federal spending. Overall, 2-year and 10-year yields ended the month at 0.13% and 1.41%, respectively, about 1.9 basis points (bps) and 34 bps higher compared to end-January.

For corporate bond investors one of the most important points of discussion is spreads. Spreads are the industry term for the risk premium an investor aims to earn in the corporate bond market. It is the difference between the yield a bond is promising and the risk-free rate. If spreads are narrowing it is positive for investors as the price of the corporate bond will increase; likewise, a widening leads to a lower bond price.

We assess the factors that enabled the Nikkei to rise above the 30,000 threshold for the first time since 1990; we also view the recent Robinhood frenzy from a Japanese market perspective.

The introduction of the EU’s Sustainable Finance Disclosure Regulation in March 2021 will see significant changes to the way asset management is conducted. It includes new disclosure requirements for investment firms to address environmental, social and governance (ESG) concerns and we welcome it with open arms.

The investment industry is constantly searching for ways to improve its decision-making processes. Some firms increase their research teams while others move into quantitative fields such as machine learning. Amid this constant search, we focus on an alternative way to enhance the quality of our decisions; mindfulness can make the difference between a rushed, emotional decision and a thoughtful, rational conclusion.

Asian stocks brushed aside uncertainties posed by new COVID-19 variants and climbed higher in January. The MSCI AC Asia ex Japan Index rose 4.1% in US dollar (USD) terms over the month.

The US Treasury (UST) yield curve steepened in January. The prospect of increased federal spending in the US prompted a sharp upward move in UST yields at the start of the year.

In 2020 the COVID-19 pandemic negatively affected a wide variety of Japanese assets, including the real estate investment trust (J-REIT) market. J-REITs have bounced back since, but their recovery has been sluggish compared to the Japanese equity market’s rebound. Despite the slower recovery, we believe J-REITs have ample upside room once the rise gathers pace.

We discuss Japan’s robust manufacturing sector and why it is not about reclaiming the past; we also take a look at the BOJ’s ETF purchases amid the current rally by equities.

Our philosophy is centred on the search for “Future Quality” in a company. Future Quality companies are those that we believe will attain and sustain high returns on investment.

2020 will undoubtedly be remembered as the year of the pandemic. While in financial market terms it is now tempting to think of COVID-19 as old news, the virus still presents substantial risks to the economic outlook.

Asian stocks turned in solid gains in December, buoyed by optimism about a vaccine-led global economic rebound, fresh US fiscal stimulus and robust economic data from China. The MSCI AC Asia ex Japan Index rose 6.8% in US dollar (USD) terms over the month.

The US Treasury (UST) yield curve steepened slightly in December. The UST 10-year bond yield rose 7.5 basis points (bps) to 0.915%, while the 2-year bond yield fell by 2.7 bps to 0.122%. Concerns in the month revolved around rising COVID-19 cases in Europe, particularly in the UK, and over the uncertainty of fiscal stimulus in the US.

We look into the potential economic impact of Japan’s attempt to become carbon neutral. We also analyse why Japan’s fiscal condition draws little attention although the country is on course to spend a record amount in its upcoming budget.

US capitalism was built on large societal divisions, but sometimes such becomes intolerable and the majority of the population revolts. In this case, the virus accentuated the income divide and engendered even greater angst. However, during the past four years, the majority fought back in different ways and ended up fighting each other, while the wealthy prospered more than ever, with high-skill workers reaping gains while lower-skill workers struggled and were often displaced, especially after the virus.

As European Commission President Ursla von der Leyen announced the free trade agreement with the UK and the EU, she quoted T.S. Eliot: “What we call the beginning is often the end. And to make an end is to make a beginning. The end is where we start from.” Well, with the end of 2020 we certainly have a new year to look forward to, but it feels we are more like in the middle of this unsettled time than at an end.

Despite the devastating human and economic toll caused by the COVID-19 pandemic across the globe, and in many emerging economies in particular, emerging market debt investors were rewarded with positive returns in 2020, with local currency, external sovereign and corporate bond indices posting returns in excess of 2.5%, 5% and 7%, respectively.

The last 12 months have seen a significant rotation of topics discussed at investment meetings worldwide. The agenda has moved from macroeconomic data to infection rates, hospitalization rates, vaccinations and other issues related to the COVID-19 pandemic.

We can head into 2021 with New Zealand the envy of many. But it remains to be seen how long this euphoria will last. Agriculture and horticulture are both promising, and the technology sector has been touted as the next big thing, but without a new major driver of growth, there’s no guarantee that our economic reality will match our ambition. Leveraging New Zealand’s exposure to fast growing economies such as China remains an important economic recovery strategy. But our greatest hope for emerging successfully from this period of wider “confidence slump” is that the low and plentiful cash stimulates risk taking and stimulates the economy, propelling New Zealand into its next phase of prosperity.

We continue to spend the vast majority of our time on company research and there are doubtless other observers better placed to predict which path that the market will go down, but it seems more likely to us that the future will look much like the pre-COVID-19 recent past. For instance, central banks have become increasingly politicised in recent years. At the same time, many national governments are more indebted than ever, having rushed through huge wage support programmes—designed to postpone a severe economic reckoning as a result of the lockdowns that they imposed.

We believe 2021 will be remembered as a year that marked the beginning of the end of the COVID-19 crisis as the world develops vaccines to counter the pandemic. In Japan, we expect a gradual recovery of its economy in 2021, as the pandemic’s impact lessens, and economic activity normalises.

The year 2020 is one most would like to forget, but for markets, performance was particularly strong despite the substantial COVID-19-related economic fallout. Certainly, ample liquidity in the form of massive monetary and fiscal stimulus was a key driver of performance, but near-term optimism may also be warranted. The vaccine rollout could return demand to more normal levels in 2021 and potentially beyond, given the pent-up demand on the back of still-massive amounts of liquidity sloshing through the system.

Following the negative performance of 2020, we believe 2021 could see better returns and a recovery for Singapore equities. We believe equity returns will remain supported by the re-opening of the Singapore economy and expect an improved market performance in 2021. With the backdrop of fewer global trade conflicts, accelerating exports, accommodative policy, higher return on equity and low foreign ownership, we expect the outlook for 2021 earnings to improve and that should support better market returns.

Despite the pandemic, markets in China were resilient and we believe that they will continue to reach new highs in 2021. Structural factors that drove the Chinese markets in 2019 and 2020 remain intact and strong leadership enabled the Chinese markets to be among the best performing (if not the best performing) markets in the world. In addition to the structural factors that we have highlighted repeatedly over the past few years, such as import substitution trends, high value-added manufacturing and deep penetration and consumption of e-commerce, new structural factors have started to emerge that stoke our optimism towards the Chinese markets.

We expect North Asia to continue to lead the region’s recovery (at least in the first half of the year). But we also expect the growth divergence between North Asia and the rest of the region to narrow. Unprecedented fiscal support from governments have been pivotal to the ongoing recovery. We expect fiscal action to continue in the coming year but anticipate renewed private sector confidence as the vaccine becomes broadly available and provides a powerful tailwind to regional growth.

Asian countries have, by and large, handled the COVID-19 pandemic better than their western counterparts and are now emerging from that nadir. Most of these countries have plenty of fiscal and/or monetary stimulus headroom. And this superior growth and better national finances are available at a significant discount to developed markets. A languid US dollar will enhance local currency returns in these “risk assets”.

We expect Asian credit spreads will tighten gradually over the coming months, supported by a solid rebound in gross domestic product (GDP) growth for most Asian economies in 2021 and stable to slightly better corporate credit fundamentals.

The global markets surged in 2020 despite the COVID-19 pandemic. While we expect the liquidity-driven rise to continue for a while, we should be prepared for the tide to eventually turn. We identify Japanese industries, notably “Delta ESG” stocks, that could become sources of alpha in the post-pandemic world.

The Nikko Asset Management Global Equity team philosophy is based on the belief that investing in ‘Future Quality’ companies will lead to outperformance over the long term. This paper draws on academic evidence to outline the three fundamental concepts which underpin our definition of ‘Future Quality’ investments.

Wealthy individuals across generations are interested in investing for environmental or social impact, but Millennials are by far the most active in evaluating and indeed, demanding these strategies.

While economic data is likely to remain soft, driven by the more recent lockdowns in the US and Europe, markets are rightly looking through the near-term gloom as impending vaccines for COVID-19 are showing the proverbial light at the end of this nightmarish tunnel. Over 2021, the world, in our view, should gradually return to some sense of normalcy as the pandemic slowly recedes in the rear-view mirror.

Although some on the committee agreed with the market consensus for a moderate continuation of economic growth and equity markets, and a few were even more cautious, especially regarding increased fears of inflation later in 2021, the majority agreed with a more positive scenario in which the global economy outperforms market consensus, while equities, especially those outside of the US, rally sharply.

Japan struggles with an aging and shrinking population and it is important for the country, both from an economic and social perspective, to improve its relatively low labour productivity by efficiently utilising its human resources.

US Treasury (UST) yields rose in October. The US presidential election and the fiscal stimulus deal were the focal points of news headlines and markets in October. Worries about the acceleration of COVID-19 cases in the US and Western Europe, and renewed lockdowns in the latter, partially offset the upward pressure. Overall, 2-year yields ended 2.6 basis points (bps) higher at 0.155%, while 10-year yields rose 19.0 bps to 0.875%.

US presidential election jitters and an uptick in COVID-19 cases in the US and Europe triggered a downturn in global equities in October. Asian stocks, however, managed to turn in decent gains for the month, owing to a slowing pace of COVID-19 infections in the region and growing optimism over China’s economic recovery. The MSCI AC Asia ex Japan Index rose 2.8% in US dollar (USD) terms over the month.

US Treasury (UST) yields rose in October. The US presidential election and the fiscal stimulus deal were the focal points of news headlines and markets in October. Worries about the acceleration of COVID-19 cases in the US and Western Europe, and renewed lockdowns in the latter, partially offset the upward pressure. Overall, 2-year yields ended 2.6 basis points (bps) higher at 0.155%, while 10-year yields rose 19.0 bps to 0.875%.

With the US presidential election now behind us, the two candidates seem to be proceeding in parallel universes. The apparent winner, President-elect Joe Biden, has transition planning and inauguration on his mind while President Donald Trump continues to challenge the election process itself.

We discuss the reasons behind the Japanese equity market’s recent outperformance and the factors likely required for the gains to be sustainable in the longer term. We also assess the recent surge by the Mothers Index and key points to watch going forward.

In order to gain a range of perspectives on the US presidential election, Nikko Asset Management has gathered the views of the following experts and investment teams, representing many of our major asset classes and geographical regions.

The strategy’s performance continued to recover during the last quarter. The strategy’s relative and absolute performances are now positive. Strong results in the banking sector, in particular the lower part of the capital structure (i.e. T2 and AT1 bonds) were a strong driver of the rebound.

We suspect that many investors have become accustomed to a seemingly synchronized world with relatively little currency volatility – in a sense over recent years we seem almost to have been back in the 1960s, a period during which moves in exchange rates were quite rare and there was essentially a single synchronized global economic cycle.

At the time of writing, Democrat presidential candidate Joe Biden leads the polls by 10 percentage points and will likely be elected President of The United States on 3 November 2020. The potential for a Democrat “Blue Wave” with control of both houses easing the passage of legislation also seems possible.

The third quarter of 2020 corresponded to a continued recovery of all emerging markets (EM) debt segments, albeit at a slower pace compared to the second quarter. The market’s positive momentum faded in July and August and a mild consolidation phase even occurred in September.

As China’s fixed income market continues to grow in depth and size, it has helped create interesting trends that are worth following. While some of these trends are not new, we do see finer developments within that could pique investor interest in realising additional alpha.

Coordinated fiscal and monetary stimulus is likely to support global demand and therefore reflation in the years ahead. We see this opening up broader growth opportunities, and ultimately better scope for portfolio diversification.

With the global outbreak of COVID-19 in the first half of 2020, the world was turned upside down. Under such circumstances, Japanese companies are now faced with new challenges to adapt to this “new normal”.