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iBoxx Asian Local Currency Indices Monthly Commentary: February 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: January 2023

iBoxx Asian Local Currency Indices Monthly Commentary: January 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: February 2023

U.S. Equities Market Attributes January 2023

iBoxx Asian Local Currency Indices Monthly Commentary: February 2023

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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.

February saw losses across major equity and fixed income markets, a reversal of the gains made in January.  The S&P 500® dropped 2.61% as market participants fret about the possibility of higher interest rates backed by persistent inflation and a strong labor market.  At the same time, the 10-2 Year Treasury Yield Spread—a recession indicator—fell -0.89%, its lowest level since the 1980s, sending mixed signals to the market.

Against this backdrop, U.S. Treasuries—represented by the iBoxx $ Treasuries—also gave up most of its January gains and lost 2.44% in February.  

In Asia, the re-opening story of China continued to unfold as the National Bureau of Statistics of China reported that its official manufacturing purchasing managers’ index rose to 52.6 in February, (up from 50.1 in January), its highest in more than 10 years.  In Hong Kong, it was also recently announced that the mask mandate would end effective March 1, 2023, a move that might attract more visitors and businesses back into Hong Kong.

Exhibit 1: iBoxx ALBI Overall and Single Market Returns

Similar to the U.S., Asian local currency bond markets—as represented by the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD)—declined 4.33% in February, effectively erasing gains from January.  Losses were widespread across numerous markets, and at the same time, the U.S. dollar appreciated against all underlying currencies.  

Modest gains were observed (in local currency terms) in China Off- and Onshore, India and Indonesia, with China Offshore leading the pack at 0.44%.  At the other end, South Korea (-3.01%) and Hong Kong (-1.88%) posted the biggest losses.  

The largest losses were concentrated at the long end of the curve, with both Hong Kong 10+ and South Korea reporting losses of more than 5%.  The only market with gains across the yield curve was China Offshore, with its medium-to-long-term bonds leading the gains last month.

At the end of February, the overall index yield increased by 19 bps to 3.98%.  Except for China Offshore (down 0.12 bps), yields across all other markets rose with Hong Kong topping the chart (up 60 bps).  India remained the highest-yielding bond market in the index, offering 7.45%, while Thailand (2.97%) remained the lowest-yielding market.

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iBoxx USD Asia Ex-Japan Monthly Commentary: January 2023

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Randolf Tantzscher

Managing Director, Head of APAC Fixed Income Product Management

January 2023 Commentary

Markets were off to a buoyant start in 2023, as the S&P 500® rallied 6.18% for the month, one of its strongest January returns in recent years.  This was accompanied by a “less hawkish” tone from the U.S. Federal Reserve as inflation numbers eased.  After the meeting on Jan. 31-Feb. 1, 2023, the Federal Open Market Committee (FOMC) announced a more conservative interest rate rise of 25 bps.

As investors continued to speculate on the likelihood of a recession in the U.S., Europe and the U.K. this year, there was more agreement among market participants that numerous significant rate hikes may be a thing of the past (at least for now).  As interest rates begin to stabilize, U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 2.81%, offering a yield of 3.75% at the end of January.

In Asia, markets were also optimistic that China’s reopening will spur market activities, which would especially benefit tourism-reliant economies that depend heavily on Chinese travelers.  With the potential easing of shipping routes and resumption of supply chain normalcy, global trade may benefit from the reopening of the world’s second-largest economy.

As shown in Exhibit 1, after falling 10.43% in 2022, January posted a healthy 3.18% return.  The index yield fell 0.63 percentage points to 5.74% and the index spread narrowed by 27 bps to 199 bps.

High yield bonds returned close to 7% and investment grade bonds posted 2.56%.  On a rolling one-year basis, all indices were still in negative territory, with China LGFVs being the closest to breaking even.

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iBoxx Asian Local Currency Indices Monthly Commentary: January 2023

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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.

Markets were off to a buoyant start in 2023, as the S&P 500® rallied 6.18% for the month, one of its strongest January returns in recent years.  This was accompanied by a “less hawkish” tone from the U.S. Federal Reserve as inflation numbers eased.  After the meeting on Jan. 31-Feb. 1, 2023, the Federal Open Market Committee (FOMC) announced a more conservative interest rate rise of 25 bps.

As investors continued to speculate on the likelihood of a recession in the U.S., Europe and the U.K. this year, there was more agreement among market participants that numerous significant rate hikes may be a thing of the past (at least for now).  As interest rates begin to stabilize, U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 2.81%, offering a yield of 3.75% at the end of January.

In Asia, markets were also optimistic that China’s reopening will spur market activities, which would especially benefit tourism-reliant economies that depend heavily on Chinese travelers.  With the potential easing of shipping routes and resumption of supply chain normalcy, global trade may benefit from the reopening of the world’s second-largest economy.

Exhibit 1: iBoxx ALBI Overall and Single Market Returns

General optimism was observed in Asian bond markets, as the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) was up 4.51% in January. The gain was attributed to capital gains (except from China Onshore and India) and currency appreciation against the U.S. dollar (except for Hong Kong).

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iBoxx USD Asia Ex-Japan Monthly Commentary: February 2023

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Randolf Tantzscher

Managing Director, Head of APAC Fixed Income Product Management

February 2023 Commentary

February saw losses across major equity and fixed income markets, a reversal of the gains made in January.  The S&P 500® dropped 2.61% as market participants fret about the possibility of higher interest rates backed by persistent inflation and a strong labor market.  At the same time, the 10-2 Year Treasury Yield Spread—a recession indicator—fell to -0.89%, its lowest level since the 1980s, sending mixed signals to the market.

Against this backdrop, U.S. Treasuries—represented by the iBoxx $ Treasuries—also gave up most of its January gains and lost 2.44% in February.

In Asia, the reopening story of China continued to unfold as the National Bureau of Statistics of China reported that its official manufacturing purchasing managers’ index rose to 52.6 in February, (up from 50.1 in January), its highest in more than 10 years.  In Hong Kong, it was also recently announced that the mask mandate would end effective March 1, 2023, a move that might attract more visitors and businesses back into Hong Kong.

 

As shown in Exhibit 1, the strong positive performance of 3.18% in January was pared back in February, with the overall index falling 1.38%.  Losses were spread across all rating categories, with investment grade retreating 1.38% and high yield declining 1.35%.  The index yield rose 0.42 percentage points to 6.16%, and the index spread continued to narrow by 4 bps to 195 bps.

Despite the generally negative returns across most markets in February, high yield bonds and China LGFVs have moved into positive territory on a one-year rolling basis; the other categories remain in negative territory.

Exhibit 1: Recent and Long-Term Index Performance

The upward shift in the USD yield curve caused returns to be negative across all rating and maturity categories of one or more years (the only exception was the 10+year band of CCC rated bonds).  In contrast, the very short end of the curve saw gains across almost all rating categories.

Exhibit 2: Rating and Maturity Month-to-Date Index Performance

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U.S. Equities Market Attributes January 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights


- The S&P 500® was up 6.18% in January, bringing its one-year return to -9.72%.
- The Dow Jones Industrial Average® gained 2.83% for the month and was down 2.98% for the one-year period.
- The S&P MidCap 400® increased 9.14% for the month, bringing its one-year return to 0.65%.
- The S&P SmallCap 600® was up 9.40% in January and had a one-year return of -2.53%.

U.S. Equities January 2023 - Exhibit 1

Market Snapshot

This month's Q4 2022 earnings releases demonstrated that following the money (starting with earnings and then cash flow) always seems right, especially if you are paying bills (payroll, CapEx, dividends and buybacks). While the actual Q4 bottom-line results weren't good, they weren't as bad as some feared; the quarter is expected to end 2.7% above Q3 2022 (which would still be down 8.8% from the record Q4 2021, when the S&P 500 closed the year at 4,766). The actual top-line results (sales) showed a slowing of the ability of companies to pass along higher costs (with some extra profit included), as sales for the quarter are expected to be a tick higher (0.9%) than the record Q3 2022 (when consumers were willing to pay more, or "revenge spending" as it's now labeled).

Along with the relatively decent numbers were numerous warnings from CEOs of harder times, squeezed margins (which at 11.48% for Q4 2022 remain significantly higher than the historical 8.29% average since 1993) and consumer pullbacks. Joining CEO commentaries was the lack of long-term pessimism and the belief that they could pull through the current downturn, all of which has pushed the market into the belief of two more FOMC increases of 0.25% each, even as U.S. Fed comments remain a bit more hawkish. The resulting belief was that the sun will come out (in the second half), as the S&P 500 posted its first January gain after three years of declines (up 6.18% this January, compared with -5.26% for January 2022, -1.11% for 2021 and -0.16% for 2020). And a happy January tends to make for a happy year, as "so goes January, so goes the year" has historically been correct 71% of the time.

While Santa Claus didn't show up for Christmas, the benevolent being did make a welcome appearance in January, as the S&P 500 closed at 4,076.60, up 6.18% (6.28% with dividends) from last month's close of 3,839.50, when it was down 5.90% (-5.76%) from November's close of 4,080.11 (5.38%, 5.59%), and October's close of 3,871.98 (7.79%, 8.10%). It was the first January gain after three years of January declines. While the start (and January barometer indicator) was appreciated, the index still had a long way to go to make up for last year's decline. The three-month period posted a gain of 5.28% (5.76%), while the one-year return was -9.72% (-8.22%), the 2022 return was -19.44% (-18.11%). The Dow® ended the month at 34,086.04, up 2.83% (2.93% with dividends) from last month's close of 33,203.93, when it was down 4.17% (-4.09%) from November's close of 34,589.77, when it was up 5.67% (6.04%). The Dow® was down 7.37% from its Jan. 4, 2022, closing high (of 36,799.65). The three-month return was 4.13% (4.68%) (2022 return was -8.78%; -6.86%), while the one-year return was -2.98% (-0.92%).

For January, 8 of the 11 S&P 500 sectors were up (compared with December 2022, when all 11 declined), with Consumer Discretionary doing the best, up 14.99% (after last year's 37.58% decline), and Utilities doing the worst, down 2.04% (after 2022's mild 1.44% decline). On an aggregate basis, the S&P 500 increased USD 1.981 trillion (to USD 34.114 trillion) for the month, while it declined USD 8.224 trillion for 2022. It was up USD 6.050 trillion from the Feb. 19, 2020, start of the COVID-19 pandemic.

For Q4 2022, 170 issues have reported (44.4% of the market value), with 119 (70.0%) of them beating on earnings and 107 of 169 (63.3%) beating on sales. For Q4 2022, earnings are expected to post a 2.7% gain over Q3 2022 and be down 8.8% over Q4 2021. Sales were expected to be up a tick (0.9%) from the record Q3 2022 level (and potentially set a new record) and up 6.5% over Q4 2022. Operating margins for Q4 2022 were expected to be 11.48%, up from 11.28% in Q3 2022 (the average since 1993 was 8.29%, and the record is 13.54% in Q2 2021). Significant EPS impact due to share count reduction for Q4 2022 was posted by 21.40% of the issues, compared with Q3 2021's 21.24%, 14.89% in Q4 2021 and Q4 2020's COVID-19-inspired 6.01%. For fiscal-year 2022, earnings are expected to decline 4.8%, with a P/E of 20.6. For 2023, estimates call for a 11.9% increase, as the forward P/E is 18.4.

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