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.
The key theme of the past few years has been quantitative easing. Although the US has come to the end of its version of this experiment, QE programmes have begun or are about to begin in Japan and Europe.
US Treasuries (USTs) rallied in January, with the 10-year UST yield ending the month at 1.64% which was 53 basis points (bps) lower than end-December.
According to the 2014 Labour Survey recently released by Japan’s Ministry of Health, Labour and Welfare, total cash earnings – i.e., the total of contractual cash earnings (such as fixed monthly salaries) and other special cash earnings (such as bonuses) – of Japanese workers rose 0.8% in 2014, the first such rise in four years.
In a pre-GFC and pre-QE world, zero or negative interest rates on a German, Japanese or US 10-year bond would have been considered highly implausible. However...
ECB's QE: The major question is, will this program work given the European model of debt creation is via the banking system and not the bond markets?
US Treasuries (UST) had a volatile trading month in December and ended the periodwith the 5- and 10-year UST yields 17 basis points (bps) and 0.7bps higher compared to November.
Asia credit recovered strongly in 2014. Long duration bonds gained as the intermediates and long-end US Treasury (UST) yields fell in response to disappointing growth outcomes elsewhere in the world even as the shortend of the curve began adjusting to rate hike expectation in the US.
The overall CNH bond market gained 3.02% in local terms in 2014. Both sovereigns and credits delivered positive returns of 2.6% and 3.14%, respectively.
Through the careful examination of historical data, it is possible to empirically affirm the existence of several anomalies in the stock market, even though there is not always a clear theory or explanation as to why they exist.
As of the end of September 2014, Japanese household financial assets totalled ¥1,654 trillion* (approx. US$15 trillion), representing an on-year increase of ¥44 trillion (approx. US$401 billion), or 2.7%, and surpassing the previous high of ¥1,645 trillion (approx. US$16 trillion**) recorded at the end of June 2014.
US Treasuries (UST) ended the month stronger, trading within a relatively tight range for most of November. At month-end, 10-year UST was yielding at 2.16%, 18 basis points (bps) lower than October.
As we move further away from the turbulent period between 2007 and 2009, interest in credit has increased rapidly as investors globally search for extra return in a low yield environment.
If the RBA does cut interest rates, it is likely that they will make more than one cut, so we could see Australia's official cash rate at 2.00% by the second quarter of 2015.
Growth continues to be a strong theme in Asia making the case for investing in the region a compelling one. The Asia ex-Japan (AxJ) region has more than doubled its share of the global economy since the Asian financial crisis.