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iBoxx Asian Local Currency Indices Monthly Commentary: July 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: July 2023

U.S. Equities Market Attributes August 2023

U.S. Equities Market Attributes July 2023

Multi-Asset Survey: What's Driving Demand for Multi-Asset Indices

Commentary - Aug 04, 2023

iBoxx Asian Local Currency Indices Monthly Commentary: July 2023

Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.

In late July, the Bank of Japan announced a tweak in its yield curve control framework, potentially allowing the 10-year bond yield to exceed the prevailing cap of 0.5%, a surprising move according to most market analysts. On July 28, the day of the announcement, Japanese Government Bonds, as represented by iBoxx Global Government Japan, fell 0.72% and ended the month down 1.64%.

U.S. Treasuries, as represented by the iBoxx $ Treasuries, also lost ground in July, returning -0.41% as the Federal Reserve raised rates to bring the federal funds rate to a range of 5.25% to 5.5%, a 22-year high. As of today, there is still no consensus on whether we have reached the end of the rate hike cycle.

The jury is still out on the likelihood of a U.S. recession, as the U.S. reported strong employment data and robust corporate earnings. Against that backdrop, the S&P 500^® continued its resurgence with a return of 3.11% in July and 19.52% YTD.

It was largely similar in Asian equities, as the S&P Pan Asia ex-Japan LargeMidCap (USD) posted a 5.35% return in July. This was supported by a good month in Chinese onshore equities, with the S&P China 500 (USD) returning 6.65%.

iBoxx Asian Local Currency Indices: Monthly Commentary: Exhibit 1

Asian local currency bonds, as represented by the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD), were up 2.03% this month. The return was a combination of decent local currency market performances as well as FX gains against the U.S. dollar. Year-to-date, the index has returned 3.30%.

Among the underlying markets, in local currency terms, only Hong Kong (-0.26%) and the Philippines (-0.15%) posted losses. The best-performing markets were Indonesia (0.64%) and China Onshore (0.48%).

The largest gains and losses were concentrated in the 10+ segment. China Offshore 10+ and Indonesia 10+ had the highest gains, at 1.65% and 1.19% respectively. On the other side, the Philippines 10+ (down 3.94%) and Hong Kong 10+ (down 1.42%) extended their losses and were the bottom two segments for the second consecutive month.

As of the end of July, the overall index yield remained relatively unchanged at 3.98%. India remained the highest-yielding bond market in the index, offering 7.27%, while China Onshore (2.73%) represented the lowest-yielding market.

Commentary - Aug 04, 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: July 2023

Jessica Tan

Principal, Fixed Income Indices

S&P Dow Jones Indices

July 2023 Commentary

Following a pause in June, global central banks continued to watch inflation trends and tread carefully on their policy rate decisions. In July, the European Central Bank (ECB) and the U.S. Federal Reserve (Fed) both hiked interest rates by 25 bps, despite slowing inflation.

In Asia, most central banks including China held rates steady in July. Among the few central banks in Asia that made policy moves in July, the Hong Kong Monetary Authority (HKMA) remained committed to its U.S. dollar peg and raised rates by 25 bps in lockstep with the Fed, while the Central Bank of Sri Lanka (CBSL) continued its march in the opposite direction, slashing rates by another 200 bps, following a 250 bps reduction in June.

With signs of inflation losing steam and central banks trying to steer a path toward soft landings for their economies, the S&P 500^® finished the month up 3.11—a run of four consecutive months of gains despite the ongoing rate hikes. Conversely, U.S. Treasuries, as represented by the iBoxx $ Treasuries, retreated by 0.41%. This brought the YTD return of the two indices to 19.52% and 1.47%, respectively.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

As a continuation of the previous month’s trend, the overall index edged up 0.23% in July, mainly driven by a 0.44% gain in the investment grade segment. Most of the gains were contributed by the shorter-end maturity buckets. BBB rated bonds were the only segment with positive returns across all maturity buckets. Year-over-year, the high yield segment posted 8.15%, even as China Real Estate extended its decline from a year ago and posted -5.31%. China Real Estate has played an increasingly smaller role in the performance of the high yield segment, as its weight in the high yield segment shrunk from 46% to 10% over the three-year horizon.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 2

Other than Mainland China (down 0.24%), all other markets that make up the top seven in the index posted positive returns in July. The Philippines (up 0.85%), Indonesia (up 0.70%) and India (up 0.40%) were the best-performing markets.

Commentary - Aug 02, 2023

U.S. Equities Market Attributes August 2023

Key Highlights

The S&P 500^® was down 1.77% in August, bringing its YTD return to 17.40%.
The Dow Jones Industrial Average^® decreased 2.36% for the month and was up 4.75% YTD.
The S&P MidCap 400^® posted -3.04% for the month, bringing its YTD return to 8.85%.
The S&P SmallCap 600^® was down 4.33% in August and had a YTD return of 5.99%.

Exhibit 1: Index Returns - U.S. Equities August 2023

MARKET SNAPSHOT

The June and July celebration (the S&P 500 was up 9.79% over the two months) of the end of Fed interest rate increases, along with the expected start of cuts and end of inflation, came to an end in August, as the market started to focus on the potential of higher interest rates for a longer time period, fueled by a stronger economy (which is being fed by a spending consumer and spending government). That concern resulted in a 4.78% decline from Aug. 1-18, as some profit-taking and reallocation appeared to add to the fall. From that point, economic data (i.e., housing, JOLTS and employment reports) painted a slowdown in growth, and the market increased 3.16%, with the month ending down 1.77%. Breadth improved but remained negative for the month (350 down and 153 up for August compared to 54 down and 449 up for June and July).

For both time periods, the market seemed to be testing its level, looking for its support point with higher volatility (intraday high/low went up to 1.01% from July’s 0.68% and was the highest since March’s 1.51%). The testing is expected to continue next month on an issue level as analysts review their Q4 2023 and 2024 projections ahead of the Fed's Sept. 19-20 meeting. The market (according to futures) is pegging an 89% chance of no change, which becomes a 38% chance of a 0.25% increase at the Nov. 1 meeting. On the bright side of an increase, the market is fully prepared to accept a 0.25% increase, as long as the verbiage indicates that it is the last one. Overall, volatility is expected to increase and differentiate based on industry and issue projections, with any Fed action or commentary raising or lowering all boats.

Of note, current political events have not yet had a significant impact on the market, possibly because the election is 16 months away. Also of note, September is historically the worst-performing month of the year (from 1928), going up only 44% of the time (-9.35% in September 2022, -4.76% in 2021 and -3.99% in 2020), with an average decline of 1.12%.

For August, the S&P 500 closed at 4,507.66, down 1.77% (-1.59% with dividends) from July's close of 4,588.96, when it was up 3.11% (3.21%). For the three-month period, the index was up 7.84% (8.28%), as the YTD return was 17.40% (18.73%) and the one-year return was 13.97% (15.94%). The 2022 return was -19.44% (-18.11%), 2021 was up 26.89% (28.71%), 2020 was up 16.26% (18.40%), 2019 was up 28.88% (31.49%) and 2018 was down 6.24% (4.38%). The index was down 6.02% (-3.39%) from its Jan. 3, 2022, closing high and up 33.12% (41.00%) from its pre-COVID-19 Feb. 19, 2020, closing high. Monthly intraday volatility (daily high/low) increased to 1.01% from last month’s 0.68% (0.88% in June, 0.96% in May) and was 1.09% YTD.

S&P 500 trading increased 1% (adjusted for trading days) for August, after being down 10% in July and up 4% in June, as the year-over-year rate was up 12% over August 2022. The August 2023 12-month trading volume was up 16% over the prior period, after full-year 2022’s 6% increase. In August, 5 of the 23 trading days moved at least 1% (2 up and 3 down), as none of the 20 trading days in July moved at least 1% and 4 of the 22 days in June moved at least 1% (all 4 up). Year-to-date, 46 of the 167 days moved at least 1% (27 up and 19 down), and 2 moved at least 2% (1 up and 1 down). Of the 23 trading days in August, 12 had a high/low intraday spread of at least 1% and none of at least 2% (last month, 2 of the 21 trading days had a spread of at least 1% and none with at least 2%). Year-to-date, there were 80 intraday moves of at least 1%, 12 of at least 2% and none of at least 3% (the last 3% move was on Nov. 30, 2022). The Dow Jones Industrial Average ended the month at 34,721.91, down 2.36% (-2.01% with dividends) from last month’s close of 35,559.53, when it was up 3.35% (3.44%) from the prior month’s close of 34,407.60 (4.56%, 4.68%). The Dow^® was down 5.65% from its Jan. 4, 2022, closing high of 36,799.65. The three-month return was 5.51% (6.10% with dividends), as the YTD return was 4.75% (6.37%), the one-year return was 10.19% (12.58%) and the 2022 return was -8.78% (-6.86%).

Commentary - Aug 02, 2023

U.S. Equities Market Attributes July 2023

Key Highlights

The S&P 500® was up 3.11% in July, bringing its YTD return to 19.52%.
The Dow Jones Industrial Average® increased 3.35% for the month and was up 7.28% YTD.
The S&P MidCap 400® posted 4.05% for the month, bringing its YTD return to 12.26%.
The S&P SmallCap 600® was up 5.43% in July and had a YTD return of 10.79%.

Exhibit 1: Index Returns - U.S. Equities July 2023

MARKET SNAPSHOT

The market continued up in July, as earnings met their slightly lowered expectations and were nowhere near a recession—let’s say it was a “noticeable slowdown,” which is the term U.S. Fed Chair Jerome Powell used when he said the U.S. Federal Reserve no longer expected a recession. The economic outlook improved, as consumers remained strong (but more selective), and earnings came in better, with forward estimates showing growth. The Street, however, seemed to be split on the chances of a recession. The FOMC raised interest rates by 0.25%, and the Street was also split on whether the Fed will do another interest rate hike, with the good news being that it seems to have accepted if the Fed does “one for the road,” as long as it’s a farewell hike; the Street also expects 2024 to be the year of the cut (“don’t expect and you won’t be disappointed,” but expectations are what make trades).

A key trading takeaway for the month was the broadening of returns, as breadth declined but remained strong. For June and July, the S&P 500 TR was up 10.03% (6.61% in June and 3.21% in July). The top 10 issues contributed 34.4%. Gone are the days when 8 issues (7 companies) accounted for all the gains (excluding them, the market would have been negative), as it now takes 331 issues to negate the index for the period after May 31, 2023. Not that size doesn’t count (Apple, NVIDIA and Tesla still headed the June-July list, accounting for 19% of the gains, as Information Technology accounted for 24.5%), but the broad gains helped feed the hope for a full recovery. Of course, the catch-up from the new smaller grunts doing the work and some profit-taking from the big guys has taken a little away from the recovery view. If the trend continues, and if the top is already saturated and fully priced, their contribution will slowly decline in the YTD stats, but for full-year 2023, absent a top belt down, the year should still show a top-heavy contribution list, due to the opening five-month performance.

For July, the S&P 500 closed at 4,588.96, up 3.11% (3.21% with dividends) from last month's close of 4,450.38, when it was up 6.47% (6.61%). For the three-month period, the index was up 10.06% (10.51%), while the YTD return was up 19.52% (20.65%) and the one-year return was 11.11% (13.02%). For the month, all 11 sectors gained, just like they did in June, up from 3 in May and 8 in April. Energy did the best, gaining 7.28% (down 0.50% YTD and up 58.25% from the 2021 close), and Health Care did the worst, up 0.85% (down 1.49% YTD and down 4.99% from the close of 2021). Breadth for the month decreased but stayed strongly positive, as 362 issues were up (454 last month and 124 the month before that), with 77 (152, 32) issues up at least 10% and 7 (20, 7) up at least 20%, while 141 (49, 379) declined, with 12 (3, 91) declining at least 10% and none (0, 11) down at least 20%. Year-to-date, breadth increased, as 329 (300 last month) issues were up, with 221 issues up at least 10% and 129 up at least 20%, as 174 (203) were down, with 72 issues down at least 10% and 19 down at least 20%. On an aggregate basis, the S&P 500 increased USD 1.107 trillion (up USD 6.742 trillion YTD) to USD 38.269 trillion (it declined USD 8.224 trillion for 2022). It was up USD 910.205 trillion from the Feb. 19, 2020, start of the COVID-19 pandemic.

As for August, trading tends to slow down and the streets get hot (hard to believe after last week’s heat wave), as many leave for summer vacation (given the current foot traffic downtown, that might leave no one—even the food trucks are few). It is, however, a great time to visit Washington, which is not expected to be as hot, given the Senate is in recess until Sept. 5 and the House until Sept. 12 (although closed door work on the next crisis situation—the budget—will be going on). Earnings should continue to dominate the first half of the month, as retail also declares and lets us know how much we have spent (and where). The first presidential debate for the Republican party is Aug. 23, and the Jackson Hole symposium (Aug. 24-26) theme is “Structural Shifts in the Global Economy,” though the Street seems more interested in the Fed’s Sept. 19-20 meeting, and what (and when) new bank requirements will be implemented.

Commentary - Jul 18, 2023

Multi-Asset Survey: What's Driving Demand for Multi-Asset Indices

A multi-asset approach that is nimble while targeting higher quality and more liquid assets is the priority for asset owners and managers as they look to tackle volatility and uncertainty for the rest of 2023, finds the latest poll by AsianInvestor and S&P Dow Jones Indices (S&P DJI).

Adapting to uncertain times

As macro, market and geopolitical headwinds continue to ebb and flow, several common asset allocation themes are shaping investment strategies across Asia. At the same time – accentuating the challenges for portfolio planning amid such an unpredictable outlook – investor opinion is divided on some key considerations.

For example, while long-term capital growth is expected to be the main driver for allocation decisions over the next six months, investors want to be flexible and active in their tactical asset selection.

Further, in eyeing multi-asset exposure, different allocators have different priorities. As they look to manage volatility and achieve absolute returns, their key considerations when selecting a multi-asset strategy range from its ability to stay aligned with the defined investment goal, to its track record, to its performance over the benchmark.

Yet in the search for consistent and attractive risk-adjusted returns during the rest of 2023, there is consensus in terms of a preference for high-quality fixed income, across global, Asian and US investment grade (IG) bonds. Investors also want to stay liquid, whether via alternatives or cash.

These were some of the exclusive insights from 101 senior executives at leading asset owners and investment managers in 11 markets across Asia, gathered in May and June 2023 by AsianInvestor in collaboration with S&P DJI. Respondents included insurance companies, public and private pension funds, sovereign wealth funds, government entities, endowments, family offices and asset managers – from Hong Kong, Taiwan, Australia, South Korea, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and India.

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