In 2018, our key focus is to produce and maintain alpha in stock selection. Looking back, the year of 2017 has indeed been a year of strong expansion in terms of equity performance and this has brought much cheer to investors. The STI (Dividend Reinvested) Index has returned more than 20% year-to-date, a performance not seen since 2012 and that ranks amongst the top five best annualised returns in the past 20 years. This naturally leaves us with the question: what does the year ahead hold following such strong gains?
The MSCI AC Asia ex Japan (AxJ) Index returned 4.7% in USD terms in October, outperforming the MSCI World Index which returned 1.9%.
The Japanese equity market rose in October, with the TOPIX (w/dividends) climbing 5.45% and the Nikkei 225 (w/dividends) rising 8.16%.
The Japanese equity market moved upwards in September, with the TOPIX (w/dividends) climbing 4.34% on-month and the Nikkei 225 (w/dividends) rising 4.28%.
The MSCI AC Asia ex Japan (AxJ) Index fell by 0.1% in US dollar (USD) terms, underperforming the MSCI AC World Index which returned 2.2%. Profit-taking and currency weakness relative to the USD pressured returns in September.
The MSCI AC Asia ex Japan (AxJ) Index rose by 1.3% in US dollar (USD) terms, outperforming the MSCI AC World Index and bringing year-to-date returns to 31.1%. This was the eighth straight month of positive returns.
The MSCI AC Asia ex Japan Index rose by 5.3% in US dollar terms, outperforming the MSCI AC World index and bringing year-to-date returns to 29.4%. This was the seventh straight month of positive returns.
In a survey conducted by the Nikkei in March 2017, 80% of respondent companies indicated that they were either planning or considering the implementation of productivity enhancing investments. Furthermore, more than 70% of respondent companies indicated that they would invest in productivity enhancing technology to address excessively long employee working hours.
The MSCI Asia ex Japan (AxJ) Index rose by 1.6% in US dollar (USD) terms. Year-to-date (YTD), the index returned 22.8%, outperforming MSCI World by over 12%.
In the Japanese equities market, high dividend strategies have significantly outperformed other strategies. We believe that – in a low growth, low interest rate environment where investors yearn for yield – these strategies will continue to outperform.
Following four years of intense consultation and three failed attempts, MSCI has just added China A-Shares into its international indices. We view this as expected and in some ways, long overdue. Although the initial size of the inclusion is symbolic in nature, the implications are far reaching.
MSCI Asia ex Japan (AxJ) gained 4.7% in USD terms, outperforming the MSCI AC World and MSCI Emerging Markets Indices. The results of the French presidential elections buoyed sentiment and outweighed patchy economic growth data.
We believe inflation will pick up gradually in the second half of 2017, in which case the rational expectations of Japanese consumers are likely to shift towards anticipation of even higher inflation. Higher inflation expectations are precisely what BOJ Governor Kuroda has been seeking to achieve. Therefore such a development would be positive for the Japanese equity market.
MSCI Asia ex Japan (AxJ) was up another 2.2% in USD terms, outperforming the MSCI AC World. All AxJ markets ended higher in April. Robust economic data from China offset concerns over President's Trump's ability to pass through sweeping corporate tax cuts in the US.
MSCI Asia ex Japan (AxJ) was up 3.3% in USD terms, outperforming MSCI AC World. All Asian markets rose over the month, with gains led by India and Korea. The Indian Rupee was also the best-performing currency in March. The US Federal Reserve raised interest rates by 25 basis points (bps), as widely expected.
MSCI Asia ex Japan (AxJ) was up 3.4% in USD terms, marginally outperforming MSCI AC World. Absolute returns were positive for all AxJ markets except the Philippines. The Taiwan Dollar (TWD) was the best performing currency in AxJ followed by the Korean Won and Indian Rupee. Buoyed by the partial unwind of the post-election Trump-trade, gold was the best performing commodity.
In line with our market outlook going into 2017, we previously observed the prospect of attractive opportunities emerging during the year. This was expected to be driven by a rebound in earnings growth, attractive valuations and accommodative policy conditions.
Asia ex-Japan (AxJ) equities returned 6.2% in US Dollar (USD) terms, outperforming MSCI World. Singapore, Hong Kong and Chinese equities outperformed while Indonesia, Malaysia and Thailand lagged. Asian currencies generally strengthened against the USD over the month.
Asia ex-Japan (AxJ) equities returned -2.0% in US Dollar (USD) terms, underperforming MSCI World and MSCI Emerging Markets (EM). Currencies across AxJ generally weakened against the dollar following the Federal Reserve's (Fed’s) decision to hike rates. Meanwhile, Gold declined 2.2% while oil jumped 8.66% month-on-month.
Global Equity - Asia ex-Japan Equity - Japan equity
This PDF is a compilation of 2017 market outlook reports by three of our equity teams.