2024

We retain our positive view on growth on resilient economic data and dovish monetary policies globally as inflation starts to ease worldwide. As for defensives, sovereign bond curves are steepening amid the beginning of the global rate-cutting cycle and bonds are gradually becoming more attractive.

The Fed and the BOJ both made interest rate decisions that were in line with market predictions, with the former cutting interest rates and the latter standing pat on policy. However, uncertainty around future policies and potential impacts of U.S. fiscal and trade policy changes have led to market volatility.

Our comprehensive analysis of the Yanagi Model, which provides an example of how sustainability issues have become a key part of corporate governance practices, showed that ESG integration can drive shareholder value. The significant correlations found, especially in social and governance factors, require our attention; moreover, the analysis shows that integrating ESG factors is essential for long-term value creation.

In what has turned out to be an eventful year for interest rates, one of the major factors for New Zealand's bond market in 2024 has been the impact of monetary policy. We expect the Reserve Bank of New Zealand to continue monetary easing in 2025. In addition to monetary policy, the forthcoming Trump presidency will be another key factor for the bond market in the coming year.

The Reserve Bank of New Zealand began cutting interest rates late in 2024 and is anticipated to ease further in 2025. The interest rate environment is expected to be a positive factor for the equity market, which has seen the retail and property sectors suffer in particular under higher rates.

Very thoughtfully, my father presented me with a compendium of newspaper front pages covering all 60 of my birthdays. There were two sections, one for a “broadsheet” and one for a “tabloid”. In 1964, the front page of the broadsheet was dominated by an informed discussion about the enacting by a Labour Party Chancellor of a shock 200 b.p. rise in the UK Base Rate in order to stabilize the pound.

We have upgraded our near-term economic outlook for the US and anticipate Japan's "virtuous circle" to remain intact. Predicting the timing of any cyclical market downturn remains challenging. However, we also highlight heightened tail risks associated with policy disappointments in the US going into 2025. We continue to see risks as biased towards the inflationary, and we also foresee expansionary US fiscal policy as ultimately unsustainable.

China has been feeling the pressure with Donald Trump due to return for his second term as US president. However, during Trump's first term China actually outperformed the S&P 500 index, which demonstrates the importance of domestic policies over external pressure.

This month we evaluate factors expected to attract attention in 2025 from a Japanese economy and equity market perspective. And as the government compiles another stimulus package, we discuss how Japan could be about to test the Laffer curve theory, which argues that tax cuts can actually increase overall tax revenue.

Asian local government bonds are positioned to perform well in 2025, supported by accommodative central banks amid an environment of benign inflation and moderating growth. We expect Asian corporate and bank credit fundamentals to stay resilient, aside from a few sectors and specific credits which may be impacted by tariff threats or US policy changes.