Insights

A better supply/demand balance in Europe, outperformance of “high yield“ globally, positive event-risk in the telecom sector and opportunities in local currencies, as well as other credit related investment themes, all present interesting opportunities for generating positive returns, even in a challenging environment.

Our Nikko Asset Management fixed income experts, led by Simon Down, discuss the prospects for commodity currencies.

In our view, the G-3 economies will fare reasonably well, and basically match the current consensus in the next few quarters; however, there will be significant challenges for each region.

For the time being, we are not estimating a date for reducing the Fed’s balance sheet, but a 2Q16 initiation seems quite logical at this stage.

Although we expected G-3 bond yields to rise, they did so less than we predicted in our June meeting. We expect yields to rise moderately further for the next two quarters.

Our forecasted macro-backdrop scenario has mixed ramifications for global equities, with the US declining but most other regions rising, and it is likely to be very volatile ride

Markets and economies are still being dictated to by unprecedented levels of monetary stimulus. We believe in building a portfolio of companies that are more likely to flourish in the growth environment beyond 2015.

US Treasury (UST) yield curve, along with other asset classes, experienced volatile swings in August. The Chinese central bank’s announcement that it would modify the approach to setting the CNY fixing midpoint effectively weakened the currency against the USD.

Asian equities fell 9.8%, underperforming the MSCI AC World Index by 3.2%, in USD terms. This marked the worst monthly performance for MSCI Asia ex-Japan Index since May 2012.

Looking at how Japanese companies fared with their April-June quarterly earnings, we can see that automobile manufacturers and major electronics producers posted large profit growth on the back of the weak yen and strong sales in the North American market.

We explain how Abenomics is the "icing on the cake" of corporate governance improvement over the last decade.

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.