The internet revolution is coming to the financial sector, addressing inefficiencies in current system and business models. In China’s case we are witnessing a combination of financial liberalisation with an internet revolution in the financial sector.
Even though the current term premium on US Treasuries seems too low, it is unlikely to rise significantly unless offshore bond yields start to rise.
As has long been our view, disappointing economic data should not worry investors in Japanese risk assets very much at all.
While RMB weakness will likely persist for a few months, we don't expect the currency to devalue more than 10% versus USD and we maintain our confidence that the currency will be included into the IMF SDR basket in a year from now.
US Treasury (UST) yield curve bull flattened in July, as yields of short-dated USTs rose on Federal Reserve (Fed) Chairperson Janet Yellen’s statement that interest rates are likely to rise later this year while the yields of longer-dated USTs fell on the weakening inflation outlook.
Asian equities fell 6.3%, underperforming the MSCI AC World Index by 8.1% in USD terms. MSCI EM Asia Index was down 6.9% in USD terms, its worst monthly performance since May 2012.
Spreads in Asian corporate high yields (HYs) have been impacted by recent market volatilities. Risk aversion ruled the market after the surprise change in RMB fixing rule which led to concerns on the weakening growth in China and its impact on the emerging markets (EM) countries.
After the China devaluation, Asia currencies and equities broke down – in effect, catching down to some degree to Latin America, Europe, Middle East and Africa, which had already been significant underperformers.
We will be watching to see how companies respond this year to the Corporate Governance Code, specifically the twin issues of selling cross-shareholdings and improving capital efficiency.
India is a key market to watch in the coming years. Our expert on India, Andrew Holland, CEO of Nikko AM's joint venture there, discusses with Simon Down of our UK fixed income team the forecast for reforms in the country, with some surprising conclusions.
What lies ahead for iron ore prices, particularly with the Chinese economy slowing and undergoing a transition away from a materials-intensive economy to a consumption-driven economy?
Like many countries that have previously refused to reform at all levels, sometimes it takes a true crisis to change.
Yields of US Treasuries (USTs) bear steepened in June, with developments in Europe dominating sentiment. The 10-year Treasury eventually ended the month at 2.35%, 23 basis points (bps) higher compared to end May levels.
The MSCI AC Asia ex-Japan fell -3.7 % in June in USD terms, lagging the MSCI AC World by 1.4%. Asia ex-Japan markets continued to give up year-to-date gains in June as the old adage of sell in May and go away continued to hold true.
The sharp equity market correction in recent weeks after a very strong run over the past year will not have a crisis-level impact to the broader economy.
The IMF has been supportive of China's attempt to be included, but has not indicated that it recommends it. Furthermore, there is a risk that most of these reforms are too new for the IMF to judge whether they are effective or sustainable.
Nikko AM Asia views the recent corrections in Chinese equities, particularly in the onshore markets, as healthy given the sharp increases in value that had occurred due to a frenzied retail market intoxicated by relatively cheap margin financing.
Nikko AM Asia views the recent market corrections in Chinese equities, particularly in the onshore markets, as healthy given the sharp advance on account of a frenzied retail market intoxicated by the relatively cheap margin financing.
Reforms have been a key element of the Chinese leadership and we foresee a continuation of policies aimed at eradicating state inefficiencies and corruption; liberalise and prepare capital markets for more competition; address labour mobility and encourage urbanisation, to name a few.
We believe the global economy should be quite firm for the next year, but not so strong as to cause inflation concerns.
We have a non-consensus, but completely sound call for a more aggressive Fed, whereas we expect the ECB and BOJ to maintain their current aggressive easing program.
Despite good global economic growth, other commodity prices will likely remain quite flat in our view, partially due to a stronger USD.
We calculate that equity valuations are at fair levels and that stocks can grow along with earnings.
Although the recent bond market sell-off may remind the market of 2003, we don’t believe US bonds will be as badly affected. By comparing the worst US bond sell-offs since 2003, we estimate that the 10-year US Treasury yield could hit a high of 2.8-3.2% by October.
Yields of US Treasuries (USTs) rallied in May, with the 2-year and 10-year yields up 4 and 9 basis points (bps) respectively as compared to end-April levels.