As widely expected, the US Federal Reserve (Fed) raised interest rates by 25bps in December, its third rate hike this year. It also raised its GDP forecast for 2018.
The MSCI AC Asia ex Japan (AxJ) Index returned 2.7% in USD terms in December.
A broad-based synchronised recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
The Japanese equity market rose in December, with the TOPIX (w/dividends) climbing 1.57% on-month and the Nikkei 225 (w/dividends) rising 0.32%.
We see the key investment themes to drive performance in Global Credit in 2018 to be similar to last year. Using the output of our initial market assessment, we have developed our investment themes: Long US High Yield, Long Chinese Tier1 SOEs, Long European Hybrids, Long European Financials, Long Rising Stars.
For 2018 and beyond, we see a story of central bank policy normalization and foresee the global economy growing in a similar fashion to how it did in 2017: low growth coupled with comparatively low inflation data.
We expect the economic backdrop for Asian credits to remain constructive in 2018, but remain cognizant of several risks including rising interest rates, robust supply, unexpected weakness in China, geopolitical developments and cross-asset volatility.
The global recovery is expected to continue, albeit at a more moderate pace. Meanwhile, we see policy normalisation and an acceleration of inflation in Asia. Political action will move to South Asia in the wake of upcoming elections there.
Going forward, a robust global economy and well telegraphed withdrawal of monetary stimulus in advanced economies provides a good back-drop for export-oriented Asian economies.
US Treasury (UST) yields declined during the month. The nomination of Jerome Powell as the next US Federal Reserve (Fed) chairman overshadowed stronger US economic data, but was subsequently offset by increased geopolitical risks in the Middle East and a setback to US tax reform.
The MSCI AC Asia ex Japan (AxJ) Index returned 0.6% in USD terms in November.
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%.
US Treasuries (USTs) fell in October, as prospects of higher growth and inflation increased after the US Senate approved the Republican-backed budget for 2018.
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%.
US Treasuries declined in September, prompted by the possibility of a rate hike by the Federal Reserve in December and Trump's tax reform bill being passed by Congress.
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 US Treasury (UST) market grinded higher in August. Rising tensions in the Korean peninsula and a lack of direction from the US Federal Reserve and the European Central Bank on the outlook for monetary policy put pressure on US Treasury yields.
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.