- Equities: US and Europe stock marketscontinue to make record highs onpositive technology earnings. China andHong Kong rise on interest rate cuts andincrease in travel consumption spending
- Credit: Corporate credit spreadtightening despite elevated Treasuryyields underscores strength of high-quality corporates in higher-for-longerrates. Avoid duration risks givenunresolved US debt sustainabilityconcerns
- FX: DXY's downtrend not confirmed;EUR/USD could slip below 1.08 again asinterest rate futures see the ECB loweringrates by the same 75-100 bps as the Fed
- Rates: While the 2Y/10Y looks like it wants to retest -50 bps, we maintain our view ofcyclical curve steepening for the year
- The Week Ahead: Keep a lookout for USChange in Initial Jobless Claims; JapanIndustrial Production Number
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Global equity markets powered higher. The Dow Jones, S&P 500, and NASDAQ rose 1.3%, 1.7%, and 1.4%, respectively for the week (ended 23 February). Stellar earnings from Nvidia propelled US markets higher as the outlook for the technology sector improved. Europe’s stock markets similarly cheered Nvidia’s results as well as the performance of its semiconductor, pharmaceutical, and software sectors, powering the market to record highs. The Stoxx 600 rose 1.2% for the week.
In Asia, Japan’s Nikkei 225 continued to rally 1.6% last week, hitting new highs. China and Hong Kong markets jumped as the People’s Bank of China cut its benchmark 5Y loan rate by a larger-than-expected 25 bps to 3.95%. As most mortgages are pegged to this rate, the cut is beneficial for the property sector. Increased travel spending during the Lunar New Year holiday also boosted market sentiment. The Shanghai Composite Index jumped 4.8% while the HSCEI and HSI climbed 3.7% and 2.4% respectively for the week.
Topic in focus: AxJ Equities – Favourable prospects lie ahead. AxJ equities are poised for a recovery in 2024, fuelled by forecasted earnings growth exceeding 20% for AxJ corporates, which is significantly higher than global markets. This positive earnings momentum is underpinned by the stable economic growth across the region, and we expect further policy support and implementation of fiscal stimulus in China to bolster growth prospects.
Despite improving fundamentals, AxJ equities are trading at a significant discount on a P/B basis compared to global peers. We believe this discount is largely sentiment-driven and should narrow as confidence in the region's growth prospects and fundamentals improve. According to market forecasts, key financial ratios, including profit margin and ROE, are expected to rebound from the trough observed in 2023 and continue on an upward trajectory throughout 2024 and 2025. Our constructive stance on AxJ remains intact, supported by attractive valuations, the peaking of US interest rates, and robust earnings growth. We recommend staying selective and thematic-driven, focusing on industries that stand to benefit from government expenditure and stimulus.
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