• Overview

    Financial conditions are starting to show signs of tightening and that may become a headwind for stocks. Equities have already been struggling to regain momentum in the face of lofty valuations and earlier than expected rate hike chatter. The recent strength in the US dollar is the main culprit behind the tightening of conditions.

    Chart 6: US financial conditions tighter

    Source: Bloomberg


    The negative case on China is well known: a government crackdown on private enterprise, a slowing economy and a property crisis. The question is whether the worst is behind us? A string of positive news is giving hope. The central bank is signalling an easing bias; the government is looking to ease fundraising rules for its beleaguered property developers; and financial support is being provided to small businesses. There has also been a slew of positive media reports ranging from the possible resumption of game approvals to Didi’s plan to relaunch its apps to new licenses for after-school tutoring.

    Chart 7: Some green shoots in Chinese equities (CSI 300 Index) struggle

    Source: Bloomberg


    US equities was the pick of the international developed markets in 2021. Year-to-date investors saw returns of 25% in the US S&P500 compared to 20% in European equities and just 6.5% in Japanese equities.  

    European equities have slumped most recently on the back of higher COVID case numbers leading to the re-imposition of mobility restrictions in some parts of Europe.

    Japanese equities remain unloved, particularly among fund managers. A net 7% of managers say they are overweight Japan (the current figures for the US and Europe are 16% and 34% respectively) according to the most recent BoAML Fund Manager Survey.

    Chart 8: The place to be invested in 2021 (Index: 31/12/20=100)

    Source: Bloomberg

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