2025

We see Asian local government bonds being supported by accommodative central banks amid an environment of benign inflation and moderating growth. Within the region, we expect investor appetite for higher carry bonds such as those of Malaysia, Indonesia and the Philippines to stay firm relative to their regional peers.

The speed at which AI applications are becoming part and parcel of daily life is breathtaking, with DeepSeek's apparent breakthrough merely accelerating an inevitable, fundamental change in the field. We firmly believe these breakthroughs are the key components needed for sustainable, long-term returns.

The New Zealand equity market paused for breath and dipped in January after posting significant gains towards the end of 2024. Some of the market’s decline reflected a dent in enthusiasm for consumer-facing and cyclical stocks. Global market jitters also appeared to have an impact with disruption risk coming to the fore.

Although the arrival of a new year has brought some optimism after a tough 2024, economic activity remains subdued in New Zealand. The Reserve Bank of New Zealand may further cut interest rates in 2025 with global uncertainties impacting the country's economy.

This month we discuss signs of improvement in the Bank of Japan (BOJ)'s market communication following its recent rate hike; we also focus on Japan's economic resilience amid a flurry of trade-related headlines impacting the markets.

In the 2024 October-December quarter, risk assets largely moved in line with expectations surrounding the US presidential election. We maintained an overweight position on growth assets over the quarter amid indications of resilient economic conditions. Our view of defensives improved with higher yields having made this group of asset classes more attractive.

The Federal Reserve is seemingly following in the footsteps of the Bank of Japan and adopting a strategy of monetary policy gradualism. This measured approach is aimed at balancing rate cuts with inflation expectations and stabilising the economy without triggering price volatility.

We retained our positive view on growth on resilient economic data and dovish monetary policies globally as inflation is now closer to central bank targets worldwide. Our view of defensives improved as higher yields now make the asset class marginally more attractive.

The BOJ increased overnight rates by 25 basis points, raising the Mutan call rate to its highest since 2008. The decision reflects the BOJ's belief that the economy is performing in line with its view, with positive real wage growth and an upgraded near-term inflation outlook. Uncertainty over US tariffs persists, but Japan's need for AI-related technologies may play an indirect role in reducing trade-related risks.

The future of US policy is surrounded by great uncertainty, particularly regarding tariff measures that the US may impose upon its trading partners. We explore options that are available to Japan to safeguard against tariffs the US may decide to implement.