Harris Fraser |
Research Insights
20 May, 2022
Weekly Insight May 20

Weekly Insight May 20

  usaUS

The high inflation in the US has triggered fears of tighter monetary policy and recession, with the S&P 500 index posting its biggest single-day loss in two years on Wednesday and the NASDAQ also fell more than 5% on the same day. Fed Chairman Jerome Powell said he would not hesitate to raise interest rates above the neutral level if needed for curbing high inflation. James Bullard, the most hawkish official in the Fed, avoided the topic on a 75 basis point hike, saying that a 50 basis point hike was a good idea. On the inflation target, US Treasurer Yellen refuted the idea that the Fed should raise its 2% inflation target, stating that stabilising price expectations is of paramount importance.

On the economic front, US retail sales rose by 0.9% MoM in April, slowing from a revised 1.4% in the previous month and slightly below market expectations of 1.0%. The number of initial jobless claims rose unexpectedly to a record high of 218,000 since January, suggesting that labour market conditions remain unsatisfactory. In addition, the US Leading Index fell by 0.3% MoM in April, lower than both the previous month’s 0.3% rise and market expectations of a flat reading. Strategists at major Wall Street firms such as Goldman Sachs and JP Morgan believe that fears of a US recession are premature, although some expect this to be the beginning of the correction in global risk assets. Next week, the US will release data on manufacturing PMI and core PCE, and the Fed will also release minutes of its May meeting.

euroEurope

European stocks followed the decline in the US market, with UK, German and French stocks falling by 1.56%, 1.41% and 1.04% respectively in the five days to Thursday. The minutes of last month's ECB interest rate meeting revealed that some officials felt that the current accommodative monetary policy stance was no longer consistent with the region's inflation outlook.   Officials expressed general concern about the prolonged inflation and supported the process of policy normalisation. ECB Governing Council member Madis Muller said he would support a 25 basis point increase in interest rates in July. Next week, the Eurozone will release its manufacturing PMI for May and Germany will release its IFO economic confidence index for May.

chinaChina

The People's Bank of China announced a 15 bps cut in the 5 year Loan Prime Rate (LPR), the largest single cut since the LPR reform, which lifted both Hong Kong and Chinese equities, with the CSI 300 Index rising 1.95% on Friday, ending the week with a 2.23% gain, and the Shanghai Composite Index regaining its 3,100 level. The Hang Seng Index rose by nearly 600 points on Friday, extending the week's gain to 4.11%. Premier Li Keqiang said that policies already in place should be implemented as soon as possible to ensure that the economy stays within a reasonable range in the first half of the year as well as the full year. Vice Premier Liu He also expressed his support for the platform economy and enterprises, supporting the performance of related technology stocks in the short term. Next week, China will release the industrial profits data for April.

 

weekly

 

weekly

Research Insights
13 May, 2022
Weekly Insight May 13

Weekly Insight May 13

  usaUS

As US inflation remains high and the market is concerned about further tightening by the Federal Reserve, US stocks have continued the slide, with technology stocks posting greater losses; the Dow and S&P 500 fell 3.84% and 5.23% over the past five days ending Thursday, while the tech heavy NASDAQ was down 7.69%. The US Consumer Price Index (CPI) rose by a higher than expected 8.3% YoY in April, with Biden calling inflation too high, and blamed it on the epidemic and the Russo-Ukrainian war. The Atlanta Fed President said he would support more action on interest rates if inflation remained high, while former New York Fed President Willliam Dudley even suggested the Fed should raise rates to 5% or higher.


Later, Fed Chairman Jerome Powell, who has just been confirmed for a second term by the US Senate, reiterated that he would raise interest rates by 50 basis points at each of the next two policy meetings, but added that he might be prepared to take more action if the data moved in the wrong direction. Earlier, in its semi-annual Financial Stability Report, the Fed noted that liquidity conditions in major financial markets are now showing signs of deterioration due to increased risks from the Russo-Ukrainian war, monetary tightening, and high inflation. Next week, the US will release data on retail sales in April and the leading index for May.

euroEurope

European stocks followed the US markets lower, but the decline was more moderate due to the lower share of tech stocks. In the past five days ending Thursday, the UK, French, and German indices were down between 1.17% and 3.60%. The European region is facing inflation and tightening issues, with Bank of England deputy governor Dave Ramsden saying that the inflation crisis may take longer to fully resolve and that the central bank must raise interest rates further to deal with the problem. Deutsche Bundesbank President Joachim Nagel also said he would support the ECB's first rate hike in years in the July meeting, if the inflation outlook for next month remains high. Next week, the Eurozone will release its consumer confidence index for May.

chinaChina

The Hong Kong and Chinese stock markets had a relatively stable week, with the CSI 300 Index rising 2.04% over the week, while the Hang Seng Index also outperformed external markets over the same period. On the economic front, China's Consumer Price Index (CPI) rose by 2.1% YoY in April to a five-month high, while the Industrial Producer Price Index (PPI) rose by 8.0% over the same period, easing from its previous value. On the other hand, the Hong Kong dollar hit the lower bound of the currency peg, before the HKMA bought another HK$2.847 billion from the market on Friday, for a total of HK$6.947 billion over two days. Next week, China will release key data on fixed investment, industrial production, and retail sales for April.

 

weekly

 

weekly

Research Insights
6 May, 2022
Weekly Insight May 6

Weekly Insight May 6 

  usaUS

The US stock market had a dramatic turn of events, with the S&P 500 Index rallying nearly 3% on the very day Fed announced a 50 bps rate hike, only to fall 3.56% in the subsequent session, wiping out all the gains made the day before. On Wednesday, the Fed announced a 50 bps rate hike in one go, the first in over 20 years. The Fed also announced that it would start reducing its balance sheet from 1 June onwards, with a size of US$47.5 billion per month at the start, and ramping up to US$95 billion three months later. Chairman Jerome Powell also refuted that a 75 bps rate hike is not on the table in the near future. According to Bloomberg data, the G7 central banks may reduce their balance sheets by a total of US$410 billion over the course of the year.

In the US, the ISM Manufacturing Index fell to 55.4 in April from 57.1 in the previous month, the lowest since 2020; The ISM Services Index also fell from 58.3 to 57.1 over the same period. Meanwhile, job openings rose unexpectedly to a record high of 11.549 million in March, while the number of resignations also reached a record high, suggesting that employers are still having difficulty recruiting staff, reflecting the continuing severity of labour shortage. On the other hand, the US corporate earnings season is coming to an end. Of the 432 reporting S&P 500 index constituents, 78.6% of them reported market beats, but only 68.2% recorded YoY earnings growth, while 30% of them reported a drop in earnings, with the financial sector being the worst sector at 55.7%. Next week, the US will release CPI figures for April and Michigan market sentiment for May.

euroEurope

European stocks followed the US market and were under pressure, with UK, French and German stocks falling 0.08%, 2.53%, and 1.39% respectively over the past five days ending Thursday. The Bank of England raised interest rates by 25 bps to 1% as expected, but the Bank warned that the risk of recession had increased, stating that the country's GDP is expected to contract in 2022 Q4. Olli Rehn of the ECB's Governing Council said that the ECB should start raising interest rates by 0.25% in July this year and gradually normalise interest rates. Next week, the Sentix Investor Confidence Index for May will be released.

chinaChina

Due to the domestic pandemic situation and external factors such as the US rate hikes, Hong Kong and Chinese equities were weaker, with the CSI 300 Index falling 2.67% in the two trading days after the Labour Day holidays, while the HSI lost 5.16% in the four trading days this week. In terms of exchange rates, the US/CNY hit a high of 6.69, briefly approaching the 6.7 level, whereas the Hong Kong dollar also closed in to the 7.85 guaranteed limit. In other news, Hong Kong announced a 4.0% YoY contraction in GDP in 2022 Q1, which was worse than the market expected 1.3% decline. Next week, China will release CPI and export data for April.

 

weekly

 

weekly

Research Insights
27 April, 2022
Fixed income – Negative Outlook

Fallout from the Ukrainian conflict would likely linger, fuelling global inflation. With the global monetary policy outlook unchanged, fixed income markets continued to face difficulties as yields rise and bond prices fall. In the month of March, the Bloomberg Barclays Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bond Indices were down 3.05%, 2.52%, 1.15%, and 2.34% respectively.

With the CPI figures in the US and Europe shooting to new highs in decades, we don’t see a change in the inflation trajectory. The current situation is expected to stay, as sanctions on Russian exports had hit the global supply, disruption in Ukraine and nearby regions affects several agricultural commodity exports. Food and energy prices are expected to remain elevated as these supply constraints will likely stay for the time being. Henceforth, so as to tackle the problem, global central banks will certainly continue to move on their original tightening path. 


At the time of writing, Bloomberg interest rate futures indicate that markets expect at least 200 bps in rate hikes from the US Fed and 50 bps from the ECB. With rates climbing, staying short on duration would limit the downside in the portfolio. We also note that the global economy is slowing down due to elevated inflation and uncertainties, the potential stagflation or even recession casts a shadow over high yield bonds. With the tightening expectations further escalating, the fixed income outlook stays pessimistic, and we would currently recommend underweighting fixed income across the spectrum in the short term.
 

Research Insights
26 April, 2022
Japan – A Step Forward

While Japanese equities rebounded in March, due to the Bank of Japan’s market intervention, the Japanese Yen entered a freefall in the month, falling 5.52% against the Dollar, which brought the equity returns down in US$ terms. In the month of March, the Nikkei 225 and TOPIX gained 4.88% (lost 0.68% in US$ terms) and 3.15% (lost 2.32% in US$ terms).

Fundamentals remain mixed with several key indicators underperforming. The recent announcement to remove inbound travel restrictions from numerous countries was welcomed by the market. However, there is still no plan to reopen the borders to international tourists, tourist as the key sector of the Japanese economy remains restricted. In the short to medium term, growth in the country will likely stay under pressure due to the economy being far from full power, which could put a limit to the upside in the equity market.


Yet, inflation was surprisingly not a problem in Japan, with its CPI remaining below the Bank of Japan’s long term target. The Bank could keep its monetary policy loose, the surplus liquidity should continue support the market’s valuation levels. However, bond yields in Japan also saw upward pressures in line with global markets. In response to rising bond yields, the Bank of Japan vowed to keep the bond yield under the cap with unlimited bond buying, which put huge pressure on the Japanese Yen. Coupling this with the lukewarm economic fundamentals, we would still avoid overweighting in this market.
 

Research Insights
25 April, 2022
EM – Global Inflation and Slowing Economy

Southern Asian market did decent with the FTSE ASEAN 40 index gaining 1.93%, but the overall environment remains challenging. Overall, global uncertainties over the economy and geopolitics remain, EM equities continued to suffer with Chinese equities leading the fall, MSCI emerging markets index lost 2.52% over the month of March.

The situation in Ukraine remains troubling, but further escalation of the current situation seems to be an unlikely event. Henceforth, the direct risks arising from the Ukraine uncertainty should have been well priced into the current market. However, the lingering side effects due to the conflict, including the supply shortage on several key commodities, would likely fuel the high inflation for the time being, posing as a problem to the global economy. We do note that exporting countries could somewhat benefit from the higher commodities prices, but imported inflation remains a problem for many.

Global central banks have raised interest rates and tightened their monetary policy, EM central banks were no exception. While rate hikes could potentially help rein in inflation, they also deal damage to the physical economy, making it a two-edged sword. We still find emerging markets to be less attractive as an investment option, as negative factors such as the weaker economy, capital outflows back to DMs, and the stronger Dollar remain in place for the time being. Henceforth, we remain conservative on EM in the short term, while modestly optimistic on China and Southeast Asian markets over the longer investment horizon.

monthly
 

Research Insights
22 April, 2022
Weekly Insight  April 22

Weekly Insight April 22

  usaUS

The US stock market had initially rebounded strongly after the Easter holiday, but Fed Chairman Jerome Powell's hawkish comments triggered another sharp fall in technology stocks, with the tech-heavy NASDAQ tumbling 3.44% over the past 5 days ending Thursday, the S&P 500 fell 1.19%, while the Dow rose slightly by 0.66%. Powell mentioned that a 50 basis point hike would be discussed at the meeting, and also mentioned that he saw merits in a ‘front-loaded hike’, implying that he was in favour of a more aggressive approach to inflation. Bloomberg interest rate futures data suggests that the probability of a 50 basis point hike at the May 4th meeting has reached 100%.
As for corporate earnings, 91 S&P 500 constituents have reported their latest quarterly results, with 73 of them beating market expectations (80.22%). Two companies caught the market's attention: Netflix's share price plunged 35% in a single day after announcing that it lost 200,000 subscribers in the quarter; while Tesla's stock rose more than 10% intraday following its impressive earnings report, but later narrowed to about 3.23% at market close. In addition, the World Bank lowered its forecast for global economic growth to 3.2% in 2022, down from its original forecast of 4.1%. Next week, the US will release data on GDP for 2022 Q1 and consumer confidence for April.
 

euroEurope

European equities were relatively stable, with the UK, French and German equities markets gaining between 0.62% and 3.63% in the past 5 days ending Thursday. On the economic front, the data all point to an improving economy, with the preliminary Eurozone Manufacturing PMI at 55.3 in April, ahead of market expectations of 54.9, and the preliminary Eurozone Consumer Confidence Index of -16.9 in April was also better than the expected -20. ECB Deputy Governor Luis de Guindos said that the central bank should end its asset purchase programme in July and that a rate hike in July is possible. Next week, the Eurozone will release important data including 2022 Q1 GDP and April CPI.

chinaChina

Fears that the US Federal Reserve might speed up its tightening policies triggered worries over tighter market liquidity, pressuring the Hong Kong equity performance, with the Hang Seng Index falling by 4.09% over the week; China A-shares also failed to rebound, falling 4.19% over the same period. On the other hand, China's economic data was positive, with GDP rising by 4.8% YoY in 2022 Q1, up from 4.0% in the previous quarter. The recently announced 1 and 5 year LPR rates remained unchanged at 3.7% and 4.6%, no further cuts were made. The market will continue paying attention to the liquidity situation. Next week, China will announce industrial profits data for March.

 

 

weekly

weekly

Research Insights
22 April, 2022
Europe – Stagflation & Recession Risks

While European markets did manage to slightly bounce back, existing headwinds didn’t really dissipate. Although the Russo-Ukrainian conflict is mostly priced in earlier, the market sentiment is still marred by the high inflation, geopolitical tensions, and concerns over the economy. Over the month of March, STOXX 600 index only edged 0.61% higher (-0.50% in US$ terms) higher.

Regarding the Ukrainian conflict, unless the highly unlikely event of a full blown war actually takes place, we do not expect further deterioration in the situation, and the majority of downside risks have likely been priced in. Instead, we see risks arising from the fallout of the conflict, namely sanctions and disruptions to the supply chain. Russian and Ukrainian exports have drastically reduced, European supply of key commodities reduced significantly, contributing to the surge in inflation, which will be the next focus of attention. The latest Eurozone CPI was 7.5% YoY, which was a new record. 


To reign in the problem, the ECB is poised to tighten its monetary policy, and market is already pricing in 5 rate hikes before the end of the year. With monetary policies shifting from a highly accommodative one to a tight one, equity valuations would likely remain under pressure. And with the economy is still affected by the weaker sentiment due to the ongoing conflict, as well as the sky high inflation, German think tank have warned that the region could enter technical recession. With a less optimistic outlook, we remain slightly negative on the European equities in the short to medium term.


monthly

Huasong Li

Chief Operating Officer

A key member of Harris Fraser's senior management team, Mr. Huasong Li has been involved in exploring further business growth and strategic planning for the company as a business developer ever since joining Harris Fraser.

Prior to joining the company, Mr. Li had over 13 years of management experience in investment and insurance companies. He was the Deputy General Manager of China Resources Insurance Consultants Company Limited, a subsidiary of China Resources Group. Mr. Li also served as the Overseas Investment Manager of State Grid International Development Company Limited, the Investment Manager of the Equity Investment Department of ChinaAMC Fund, and the Assistant General Manager of the Investment Management Department at China Taiping Insurance Group. His main responsibilities include the management of insurance brokerage business, investment business, personal wealth management, and insurance business.

Mr. Li holds an MBA degree from Guanghua School of Management, Peking University.

Research Insights
21 April, 2022
China – Threat of COVID

Chinese markets had a horrible month with the market significantly underperforming global markets. Political uncertainties remain, pandemic continues to exist as a problem, and the economy has further weakened, Coupled with external geopolitical factors, the overall market sentiment was affected. Over the month of March, the CSI 300 index lost 7.84% (8.28% in US$ terms), while the Hang Seng Index shed 3.15% (3.39% in US$ terms).

The economy further tanked in March, PMIs in China have fallen into the contraction zone, as the country experienced a surge in the omicron wave. The government have decided to stick to the ‘dynamic zero’ policy, where social activities were severely limited to clamp down on infections. Henceforth, economic activities and demand have taken a hit, which inevitably impacts the economy itself. With the pandemic still ravaging different locations, it is expected that the economy will remain under pressure in the short term, which serves as headwinds for the market.

As a result, uncertainty in the Chinese equity outlook increases. Although there has been signals that the government would provide more support via monetary loosening and fiscal incentives, the overall business landscape remains rather tight in the short term, as the Chinese property sector suggests so. With no material changes, the Chinese economy will likely remain under pressure, short term equity market outlook is uncertain. However, in the long term perspective, we think that the current valuation levels are attractive, which might be an opportunity if one does not emphasis on the short term performance.

 

monthly

Subscribe to