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 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.
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.
Notwithstanding a brief rebound in yen strength in mid-June, the Japanese currency has continued its weakening trend against the U.S. dollar, with the yen recently dropping to its lowest level in over 12 years.
Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.
We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.
Since the Fed starting hinting at the normalization of interest rates a year ago, Asian central banks' foreign reserve accumulations - except for India and Hong Kong - have either incurred substantial losses or remained flat.
With many markets having rallied from major support levels when they were in highly oversold positions, we believe that bond markets should stabilise or rally from current levels.
Yields of the US Treasuries (USTs) traded in a relatively tight range, eventually ending higher at month-end. At 2.03%, the 10-year point on the UST curve was up 11 basis points (bps) compared to the level at end-March.
The Japanese stock market has continued to rise, punctuated by the Nikkei 225 recently closing above 20,000 points for the first time in 15 years.
Oil-producing countries have seen the largest drop in their foreign exchange (FX) holdings over the last year. In our view, Saudi Arabia can afford to handle oil prices at their current level for some time but ...
Prices of the US Treasuries (USTs) ended March higher, with 2-year and 10-year USTs yields closing the month 6 basis points (bps) and 7bps lower respectively.
With the dollar/yen hovering around JPY120 to the U.S. dollar, Japanese stocks have recently been showing extraordinary strength, marked by the Nikkei 225 breaching the JPY20,000 level on April 10 for the first time in roughly 15 years – a level that it retook on 22 April and has stayed close to ever since.
Defaults from Chinese companies have been on the headlines recently. First, the default of property developer Kaisa Group last Monday (20 April 2015) was expected given the challenges in the ongoing debt restructuring.
Interest rate and foreign exchange volatility has begun to increase as the market anticipates the time when the US Federal Reserve will start to reduce monetary accommodation and raise interest rates.
Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.
Prices of the US Treasuries (USTs) weakened in February, with yields of the 10-year USTs higher by about 35 basis points (bps).
In 2015, markets will be looking for any pick up in European and Japanese inflation as a result of their QE programmes. With growth picking up, we may start to see signs of a rise in US inflation.