Andrew Hunt Commentary

While last month witnessed only its usual quota of central bank policy meetings, we suspect that it will ultimately go down in history as representing the beginning of what we suspect may become the Great Divergence within central banking. Having spent a generation moving in similar directions in an overt effort to suppress currency volatility, it now appears that the central banks within the major Economic Blocs are beginning to move in different directions. We believe that this development has the potential to dramatically alter the investment universe.

According to our Global Investment Committee, which concentrates on the intermediate term-view regarding developed markets for pension funds and other long-term investors, 2022 looks to be a challenging, but positive year for risk assets. We believe that the G-3 central banks will become more hawkish, and such pivots can often cause potholes and at the very least headwinds, but we trust that policymakers can traverse their new course successfully overall.

The global economy should match the consensus for strong growth, thanks to vaccinations, continued fiscal stimulus, acceptable global geopolitical conditions, and continued low interest rates despite increasingly hawkish central banks. Such, via increased corporate profits, should allow equity markets to perform very well ahead, with impressive returns in each region, particularly in Japan.

Although the late 1980s’ “Lawson Boom” in the UK was an interesting first real-time introduction to a credit boom, the author’s first authentic experience of the “madness” that can accompany a credit boom was centred on Japan in 1988 and 1989.

Although it is often overlooked (perhaps because it is yet another rather inconvenient truth), the simple fact is that the COVID-19 Pandemic and the various Supply Chain Disruptions that have followed it has made most of us poorer.

During the late 1980s, at the height of the Bubble Economy, and at a time during which seemingly everyone wanted to emulate the Japanese economic model, we were lucky enough to have high level access to the Bank of Japan.

Out of the six scenarios presented, a narrow majority of our committee agreed again on a positive scenario in which the global economy matches the market consensus for solid growth, while equities continue to rally.

Out of the six scenarios presented, a solid majority of our committee agreed again on a positive scenario, in which the global economy matches the market consensus for very strong growth, while equities continue to rally.

It may not be quite as profound as the eternal “chicken and the egg question” but nevertheless we suspect that deep in the bowels of some academic institutions, aging economists are still debating which came first, money or credit? Did the flow of money into the banks allow them to make loans, or did the loans create the money?

A large majority of our members agreed on a positive scenario in which the global economy mildly outperforms market consensus, while equities continue to rally.

There is a relatively simple narrative dominating markets at present, namely that the US economic recovery will accelerate as the latest stimulus measures are enacted, the output gap will close (if you believe it is negative – or it will widen further if you think as we do that it is already positive,) and US inflation will pick up by some amount.

In February 2021, Japan’s Nikkei Stock Average reached JPY 30,000 for the first time in over three decades. We believe that equities will keep rising, and that amid this shift in the broader market Japanese value stocks are on the cusp of a long-awaited turnaround.

For corporate bond investors one of the most important points of discussion is spreads. Spreads are the industry term for the risk premium an investor aims to earn in the corporate bond market. It is the difference between the yield a bond is promising and the risk-free rate. If spreads are narrowing it is positive for investors as the price of the corporate bond will increase; likewise, a widening leads to a lower bond price.

The investment industry is constantly searching for ways to improve its decision-making processes. Some firms increase their research teams while others move into quantitative fields such as machine learning. Amid this constant search, we focus on an alternative way to enhance the quality of our decisions; mindfulness can make the difference between a rushed, emotional decision and a thoughtful, rational conclusion.

During the 1980s, the favourite worry for most economists – or Cassandras - was always deficits, be they fiscal or current account deficits (and the USA of course had both throughout the 1980s).

US capitalism was built on large societal divisions, but sometimes such becomes intolerable and the majority of the population revolts. In this case, the virus accentuated the income divide and engendered even greater angst. However, during the past four years, the majority fought back in different ways and ended up fighting each other, while the wealthy prospered more than ever, with high-skill workers reaping gains while lower-skill workers struggled and were often displaced, especially after the virus.

The last 12 months have seen a significant rotation of topics discussed at investment meetings worldwide. The agenda has moved from macroeconomic data to infection rates, hospitalization rates, vaccinations and other issues related to the COVID-19 pandemic.

The Nikko Asset Management Global Equity team philosophy is based on the belief that investing in ‘Future Quality’ companies will lead to outperformance over the long term. This paper draws on academic evidence to outline the three fundamental concepts which underpin our definition of ‘Future Quality’ investments.

Wealthy individuals across generations are interested in investing for environmental or social impact, but Millennials are by far the most active in evaluating and indeed, demanding these strategies.

2020 was a year of fear, anxiety, uncertainty and global economic defibrillation. And yet for investors and owners of assets – from art, to gold to property – it was also one of growth, prosperity and increasing confidence. This asset price pop should not have come as a surprise to anyone following our commentary through 2020, however the wider reaction has been one of disbelief.