The steep correction in the Japanese stock market since last week and the recent rise in bond yields (JGBs and USTs), coupled to lower inflation readings in the developed world and some allegedly disappointing economic data (HSBC PMI for China) have raised questions about the possibility of a directional change in the markets.
Axa IM believes that these concerns are exaggerated. The global economy is progressively healing, beginning with the US consumer sector and fears of a hard landing in China are unjustified. The asset manager also believes that deflation is unlikely to take root and, therefore, that global fundamentals remain positive for equities and negative for government bonds.
Yet, as the world comes closer to a fundamental shift in the stance of US monetary policy, as well as to the implementation of a monetary experiment in Japan of a scale never seen before, Axa thinks it should be no surprise to witness higher volatility in financial markets, adding that as long as global fundamentals remain well oriented, they would rather see downside corrections in risk assets as buying opportunities.
Axa IM’s two main investment conclusions are:
- Japanese Equities: buy on dips but mind the beta factor
- Stay away from US Treasuries and do not fear a JGB market crash
You may access the complete report through this link