As we enter 2024, expectations of an early interest rate cuts by the Fed and the European Central Bank continue to fade as both central banks downplayed the odds of a cut soon. For the US, this is due to the robust economic data that was released so far. Continued expansion in the US economy suggests that the FED needs to move carefully to not lower rate too soon or risk inflation creeping back up. FED has to also consider the weakening growth in some parts of the economy which may lead to broad-based slowdown. This is a tricky and delicate balancing act for the US FED and could entail policy mistakes in the near term for the US economy and as a corollary, the financial markets if not done correctly. This is in-line with our initial thinking. For the Eurozone, inflation remains sticky on the back of still-high energy price, amongst others.
In China, after the monetary policy easing announcement, the Chinese government followed that up by lowering the 5-year loan prime rate by 25 basis points to 3.95%. Under the property project “whitelist” initiative, commercial banks are encouraged to provide lending to the “whitelists” made by the local governments. These rapid moves recently are a signal that the government is determined to front-load stimulus measures to prevent the weak sentiment in the housing market from spiraling downwards. We believe that these support policies would be progressive to ensure that real estate market recovers on a sustainable trajectory.
We are also seeing initial positive datapoints domestically from the Monetary Aggregate numbers and improvements in domestic travel and spending during the Lunar New Year period. On the external front, China is experiencing export growth for the second consecutive month in December 2023. We expect continued improvement in the overall economy for 2024.
All these moves came thick and fast as the State Council called for “forceful measures” to restore confidence in both the economy and financial market.
For Japan, we are encouraged by the strength of the economy and the market since last year. The corporate reforms in Japan which have been is talked about for years, is finally coming into fruition. The days of the deflationary period appears to be coming to an end. The tepid economic growth has broken out of its 30-year deflationary phase. We believe these reforms should lift corporates’ profit margins and shareholder returns and thus create ample room for further unlocking of value for shareholders.
In summary, we are optimistic on the Asian markets’ prospects, and cautious on the US market given the headwinds we would be facing, and the overcrowded investments in the US Technology sector to date.
23 Jul 2024
23 Jul 2024
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