2021 MARKET OUTLOOK – A WHOLE NEW PERSPECTIVE ON SHAPING YOUR INVESTMENT PORTFOLIO

As we enter the new year, it’s natural to think about how our investments could perform and try to establish if any adjustments are needed. This is never an easy task, especially in a rapidly changing world.
Given recent events, we, therefore, think it’s time to establish a new perspective on shaping investment portfolios.

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VACCINE FOR COVID-19: IS THE WAIT FINALLY OVER?

Biopharmaceutical manufacturers Pfizer/BioNTech and Moderna recently announced encouraging interim data for their COVID-19 vaccine candidates, with efficacy results exceeding expectations at above 90%. In this investment note, portfolio manager Steven Slaughter looks at the short and long-term implications of the latest development, and how the base-case scenario of a Biden presidency and a split Congress might impact the pandemic and future healthcare reform.

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THE POTENTIAL IMPACT OF THE US PRESIDENTIAL ELECTION ON GREATER CHINA EQUITIES

On Tuesday, 3 November 2020, American voters decided who holds the balance of power in Washington. President-elect Joe Biden won the election (7 November, ET), and at the time of writing (9 November, HKT), President Trump has not formally conceded defeat. In this note, Kai Kong Chay, Greater China specialist, will examine the potential investment implications for Greater China equities after the election.

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US ELECTION: WHAT’S NEXT FOR ASIAN MARKETS?

On Tuesday 3 November 2020, American voters decided who holds the balance of power in Washington. President-elect Joe Biden won the election (7 November, ET), and at the time of writing (9 November, HKT), President Trump has not formally conceded defeat. The control of the Senate is still unknown as there are two run-off races to be held in January 2021 in Georgia. In this investment note, Ronald Chan, Chief Investment Officer (Equities, Asia ex-Japan) examines the potential investment implications for Asian equities under Joe Biden’s presidency.

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How should investors approach the upcoming U.S. election?

It’s not at all unusual for volatility to spike and uncertainty to rise as we enter the final stretch in the lead up to the U.S. election. Chief Economist Frances Donald remains broadly constructive on risk assets, but she is also vigilant about the risks associated with election cycles.

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IN FOCUS: US INFLATION FORCES

Framed as a subtle shift in policy, U.S. Federal Reserve (Fed) Chair Jerome Powell recently announced an important, if widely expected, shift in the way it thinks about employment, inflation, and interest rates—with far-reaching implications for investors. Our Chief Economist Frances Donald shares her views.

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FINANCIAL MARKETS AND THE U.S. ELECTION

As we get closer to November, investors are likely to become increasingly preoccupied with a new source of uncertainty: the U.S. presidential election. The coming months represent a period in which opinion polls could have an outsize influence on market sentiment, making it even more important for investors to focus on the bigger picture and the key issues that matter. 

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SOUTHEAST ASIA: A BRIGHT SPOT IN A CHALLENGING ENVIRONMENT

The COVID-19 outbreak, growing resistance to globalisation, and rising US-China trade tensions—once again—are a perfect recipe for a challenging macroeconomic backdrop. But the news isn’t all bad—according to our Senior Macro Strategist Sue Trinh, the tough operating environment could reveal important growth opportunities for Southeast Asian economies.

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US ECONOMIC OUTLOOK: MACROECONOMIC HEADWINDS VS. TAILWINDS

Opposing economic forces formed in the wake of the COVID-19 outbreak are pulling the US economy in different directions. But as our Global Chief Economist and Global Head of Macroeconomic Strategy Frances Donald notes, economic headwinds are gathering strength and look set to outweigh the positive developments. In her view, the coming months could be challenging. 

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SOUTHEAST ASIA: VULNERABLE FOR NOW, BUT RESILIENT OVER THE LONGER TERM

In this market note, Sue Trinh, Senior Macro Strategist, Manulife Investment Management, examines the immediate impact of COVID-19 on markets in Southeast Asia. She also assesses the potential longer-term effects of the outbreak on the region’s economies. Particular attention is paid to GDP growth in Indonesia, India, and the Philippines.

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INVESTING WHEN MARKETS ARE VOLATILE

In times of extreme market volatility, staying calm and thinking long-term are sensible decisions that investors can make to use time to their advantage.

This current market situation is not new to us. We’ve been through other crises before and there are lessons that investors can learn and apply at present times.

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ASIA PACIFIC REITS: LONG-TERM FUNDAMENTALS SHOULD NOT BE OVERSHADOWED BY SHORT-TERM FLUX

The global spread of COVID-19, coupled with a notable deceleration in economic activity, are posing challenges for Asia-Pacific Real Estate Investment Trusts (AP REITs). In this investment note, Hui Min Ng, Portfolio Manager, explains why active bottom-up fundamental research is more important than ever, especially when constantly changing government policies are leading to short-term price dislocations. Furthermore, the defensive properties of the asset class could make it more resilient in an economic downturn.

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FROM CORONAVIRUS TO CREDIT MARKET STRESS

It’s been a rocky week for financial markets, as investors react to policymakers’ response to limit the economic impact of the coronavirus outbreak. While much of the media’s coverage has focused on the number of infections and the market reaction, our Global Chief Economist Frances Donald believes it’s just as important for investors to keep an eye on one area: the fixed-income space.

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THE FED’S HISTORIC STIMULUS PACKAGE

The Fed sent a jolt through the financial markets on Sunday, 15 March, by cutting interest rates by a full percentage point three days before its scheduled rate-setting meeting. While an imminent rate cut had been expected, the timing of the announcement was a surprise. The decision brings the US interest rate back to the level it was during much of the 2008 global financial crisis (0%–0.25%). Our Global Chief Economist and Global Head of Macroeconomic Strategy Frances Donald takes a closer look.

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EMERGENCY INTEREST-RATES CUTS ARE HERE

The Fed has lowered interest rates by 50 basis points (bps) in its first intermeeting cut since 2008. While an interest-rate cut was widely expected, market reaction suggests investors might have been underwhelmed. Our Global Chief Economist and Head of Macroeconomic Strategy Frances Donald shares her views:
 

  •  The team now expects every major central bank, including the Bank of Canada and the European Central Bank, to ease rates either at or before their next respective rate-setting meetings
  •  In addition, the team believes the Fed will follow up with an additional 25 basis points (bps) interest-rate cut when it next meets on 18 March.
  •  The global economy will likely slow dramatically in Q1, Q2 and possibly Q3.
  •  Lower rates, which act like a tax cut, can boost refinancing activity.
  •  Inventory restocking and the absence of inflation could support growth.

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CORONAVIRUS UPDATE: A MATERIAL ECONOMIC REASSESMENT

Mounting concerns that the coronavirus could spread further have sent markets into a tailspin. In this note, our macroeconomic strategy team, led by our Chief Economist Frances Donald, explains why the outbreak could nudge the US Federal Reserve into lowering interest rates sooner than expected. According to the team, a March rate cut isn’t entirely unthinkable.
 

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THOUGHTS FROM MACROSTRATEGY TEAM – CORONAVIRUS: WHAT DOES IT MEAN FOR INVESTORS?

Financial markets are reeling as a result of the coronavirus outbreak. While the experience with SARS from some years back suggests calm would be restored soon, good sense and logic can remain in short supply in the meantime. Frances Donald (Chief Economist) and Sue Trinh (Asia Strategist) from our macroeconomic strategy team take a closer look.

Key takeaways:

  •  Coronavirus can be seen as an important economic shock, but not a permanent one
  •  Comparisons with SARS may underestimate the potential impact of the current outbreak
  •  Global growth hasn’t bottomed yet: there’s still scope for downside surprises
  •  We believe there’s more scope for interest-rate cuts to be priced into the market in the coming weeks
  •  We believe the current “interruption” could be seen as an opportunity from a more strategic perspective and we continue to expect equities to end the year higher

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GLOBAL RISK-OFF MARKET SENTIMENT PREVAILS

Investors have reacted in a risk-off manner to the uncertainty surrounding the economic impact of the coronavirus outbreak. Endre Pedersen, Chief Investment Officer, Fixed Income (Asia-Pacific), believes that Asian fixed income markets are awaiting further information to assess the economic impact on China and the rest of the region.

Key takeaways:

  •  Gaming sector and tourism-related credits most affected, so far
  •  Asian currencies are generally weaker against the greenback
  •  The trajectory of the virus will drive the market's reaction

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THE IMPACT OF CORONAVIRUS ON CHINESE EQUITIES

Concerns about the economic and financial impact of the coronavirus outbreak have seen some offshore Chinese equities come under pressure. However, Ronald Chan, Chief Investment Officer, Equities, Asia (ex-Japan), believes that if these worries lead to a broad-based correction, then any market decline should be short-lived or contained.

While economic uncertainty could also hurt China’s first-quarter manufacturing and GDP numbers, Chan thinks that the government could introduce further policy easing measures to ensure growth stability. As the viral outbreak may improve with warmer weather in the coming spring, investment sentiment should gradually improve. In the meantime, investors should remain focused on the market’s long-term fundamentals.

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US-CHINA PHASE-ONE TRADE DEAL: THE DEVIL IS IN THE DETAILS

On 15 January 2020, the United States and China signed the long-awaited phase-one trade deal. The agreement, which addresses issues ranging from Chinese imports of US goods to currency, came as no surprise to the market, as both sides had been publicly discussing the pact since the middle of December.

In this market note, Sue Trinh, Senior Macro Strategist, Manulife Investment Management, assesses the significant aspects of the deal and notes that the real test will be in implementing the details of the agreement and setting the agenda for the next phase of talks.

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US-CHINA TRADE AGREEMENT, UK ELECTION, FED EASING: STRONGER BASE CASE, BUT RISKS REMAIN

A trio of market-relevant news hit the headlines within the space of 24 hours on Thursday: a trade agreement between Washington and Beijing, a decisive UK vote, and more monetary easing from the US central bank.

Our Global Chief Economist Frances Donald assesses if this will translate into a sunnier outlook for 2020.

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CHINA CREDIT WATCH: FIRST DE FACTO OFFSHORE DEFAULT FOR A CHINESE SOE SINCE 1998

On 25 November 2019, Tewoo Group, a commodity trading company owned by the Tianjin municipal government, revealed a debt restructuring plan for US$1.25 billion of bonds. The programme offers bondholders a choice: suffer losses of up to 64% or accept delayed repayments. The announcement marks the first de facto default for a Chinese state-owned enterprise (SOEs) in the offshore US dollar bond market since 1998.

In this investment note, Fiona Cheung, Head of Credit, Asia, explains the significance of Tewoo’s de facto default and examines the broader implications for investors in Asian credits.

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US interest-rate cut

On 18 September (US time), US interest-rate cut represents a continuation of the global easing cycle. Our Chief Economist and Head of Macroeconomic Strategy Frances Donald takes a magnifying glass to the proceedings and identifies the key themes from the US Federal Reserve (Fed) communications and the problems that the central bank is facing.
 

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US-China trade war: A framework for thinking about new tariffs

In early August, the US government unexpectedly announced tariffs on the remaining US$300 billion of Chinese imports. These levies, which could impact the consumer, were scheduled to begin on 1 September. However, the start date for duties on certain goods was deferred to 15 December in order to mitigate the potential impact on Black Friday and Christmas sales.

This game-changing development alters our earlier, more bullish view of the markets. In addition to our traditional thoughts about the impact of tariffs on the global economy, we are now considering additional factors that create nonlinear headwinds to growth. Furthermore, we now expect the Fed to cut interest rates by 50 basis points in September with the potential for more further reductions down the line.

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Market Note ─ The Fed’s next chapter: this is no regular interest-rate cut

The US Federal Reserve (Fed) trimmed rates by 25 basis points (bps), as has been widely expected. Frances Donald, Chief Economist and Head of Macroeconomic Strategy, believes that the Fed’s going to cut at least once more, probably in September, and the 2016/2018 hiking cycle is now over. Donald also explains why Wednesday’s interest-rate decision is far more significant than it may initially seem.

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Market Note ─ Tariff threat trips the circuit breaker, setting the scene for a 50 basis points Fed rate cut in September

On 1 August, the Trump administration announced a new set of tariffs on the remaining US$300 billion of Chinese goods to be imposed on 1 September. The US-China trade war further escalated on Monday with the US Treasury Department designating China as a currency manipulator and the US dollar/Chinese renminbi (USD/CNY) rose above 7.00. Equity markets plunged around the world. Frances Donald, Chief Economist and Head of Macroeconomic Strategy, explains why this phase of the trade war is different.

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Market Note ─ G20 Meeting Recap: Seven Macro Takeaways

The G20 meetings in Osaka have produced a moderate de-escalation of trade tensions between the US and China. In this market note, our Chief Economist and Head of Macroeconomic Strategy Frances Donald identifies the seven macro takeaways from the meetings.

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The fog of uncertainty has thickened

Generating economic forecasts is never straightforward, and in 2019 the task has become even more challenging. Our Asset Allocation Team believes that three evolving themes will dominate the global economy in the second half of the year: trade tensions, Fed monetary policy, and the impact of China's stimulus. All three issues are shrouded in a fog of uncertainty.

An era of protracted trade tensions now seems likely, shaving growth in China, the US and Europe, and hitting US consumers hard. Meanwhile, investors who are now fixated on the Fed’s next interest-rate cut might be missing two bigger pictures.

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Why China's rising tide may not lift EM boats

Traditionally, an improvement in the outlook for China has inferred there will be important spillover effects on the global economy, particularly emerging markets in Asia. However, our Asset Allocation Team believes that the current Chinese stimulus and resulting stabilisation is different – spillovers into emerging markets in Asia are likely to be more limited and with a longer lag than we have seen in past cycles.

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Investment Note: Sino-US trade tensions enter a new phase

After months of apparent progress in bilateral trade talks, the US unexpectedly raised tariffs on US$200 billion of Chinese imports to 25%, effective 10 May 2019, and added a threat to place tariffs on all Chinese imports. The Chinese government responded by announcing 25% tariffs on US$60 billion of US imports from 1 June 2019. The escalation in tensions between the world’s two biggest economies has left investors wondering what will come next. In this investment note, Ronald Chan, Chief Investment Officer (CIO) of Asian Equities (ex-Japan), lays out a basic roadmap to help investors understand the possible scenarios that could lead to a resolution of the current dispute.

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Market Note: Latest tariff threat could derail a Sino-US trade deal

On Sunday 5 May 2019 (US time), US President Donald Trump signalled his intention to increase tariffs on US$200 billion of Chinese imports from 10% to 25% starting Friday 10 May 2019, while another US$325 billion of untaxed goods could face 25% duties “shortly”. The warning comes ahead of this week’s scheduled talks between the US and China, which market observers still hope will result in the finalising of a trade agreement. In our market note, the investment teams from Manulife Asset Management share their views on this latest development.

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FLIGHT OF THE DOVES

When the US Federal Reserve turned dovish in January by revealing that it would be “patient” before introducing any further interest rate rises, global central banks soon followed suit. While this accommodative monetary stance has helped to extend the Goldilocks environment, it still pays to be wary of the risks that remain.

That’s why it’s essential to be aware and remain agile like a dove. Read the insights from our Asset Allocation’s Macro Strategy Team.

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MAKING SENSE OF THE MARKET REBOUND

The start of this year saw the return of risk-on sentiment as investors welcomed a newly dovish Fed and signs the Chinese economy is over the worst – but geopolitical tensions and the growth outlook are lingering concerns.

Would strengthened stimulus from China and a solid economic growth in the US economy be enough to stabilise global markets? Our Asset Allocation Team shares latest views.

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MARKET NOTE: THE FED STRIKES A DOVISH TONE

Following a two-day meeting, on 30 January (US time) the Federal Reserve put rates rises on hold and said it will be “patient” in determining any future interest-rate moves, as well as signalling flexibility on the path to shrinking its balance sheet. In this market note, Megan E. Greene, our global chief economist at Manulife Asset Management, believes that the Fed has turned overwhelmingly dovish, and outlines what she thinks could happen next.

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