What’s happening in the investment markets?

Source: Citiwire

US inflation is on the increase meaning the high dollar is likely to remain about a 20-year high against Asian currencies, which have been trending down.

Surprisingly continued US inflation and expectations of larger rate hikes have brought a renewed burst in dollar strength spelling more trouble ahead for Asian currencies.

China’s renminbi teetered near the psychological 7 per dollar mark and the risk-sensitive Korean won slumped to a 13-year low against the greenback. Speculation that the Bank of Japan may intervene to prop up its currency came after the dollar-yen nearly touched the 145 mark.

The dollar index has rallied 15% year to date to a 20-year high and it could remain at elevated levels.

Further weakness has already been seen in the Korean won, Taiwan dollar, Philippines peso, Indonesian rupiah, Vietnamese dong and Malaysian ringgit.

The dollar would continue to see near-term upside and that strength was likely to persist, said JP Morgan Private Bank Asia head of investment strategy Alex Wolf in a recent commentary.

Citi Private Bank remains overweight US dollar assets, benefiting from the currency’s strength, and warns against rushing to bet against the greenback. ‘While we are slightly underweight global equities and overweight global bonds, we have far higher weightings in US assets than non-US assets. For many non-US investors, unhedged US dollar bond holdings have added value simply through currency appreciation.’

Article 2: Megatrends: helping investors with what sectors to focus on

Source: Pictet

Megatrends are social, demographic, environmental and technological forces of change that are reshaping our world - referred to as Thematic investing. The virtualisation of the economy, the rapid expansion of cities and the depletion of the Earth’s natural resources are just some of the structural trends transforming the way countries are governed, companies are run, and people live their lives. They create opportunities for companies with well-positioned business models and risks for others.

The Pictet framework consists of 21 megatrends organised in six clusters, with some megatrends including additional subtrends.

Source: Pictet Asset

One example: Megatrend cluster: Technology & Science

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Virtualisation and dematerialisation

Trend toward substituting physical objects and processes with digital processes, including areas such as web portals, mobile apps, cloud services.

AI & Computing power

Trend toward substituting human effort / work with machine-based processes. Includes robotisation, automation with AI now becoming the dominant form. Economies benefit from enhanced performance and productivity gains. However, rapid changes create challenges for the current workforce to adapt / retool. Increasing computing power is tightly linked to this trend as an enabler. And while growth in computing power in the traditional paradigm (Moore’s law1) may be losing steam, commercial applications of quantum computing should begin picking up the baton this decade.

Greater interconnectedness

Trend toward an increasingly interconnected world. Includes connectivity between people, between people and objects and between objects (IoT). Greater speed, reliability and bandwidth are part of the trend.

Life sciences and applications

Rapid advancements in fundamental research as well as R&D surrounding living organisms is set to continue in various fields of biology including among others biotechnology, biochemistry, genomics, epigenetics, neuroscience, microbiome research.

New Materials

The need for materials with the highest attainable quality and performance at the lowest economic and environmental cost is leading to the manufacturing and technological breakthroughs. Progress in materials technology, including nanotechnology, is increasingly viewed as a possible solution to environmental and health challenges.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

Financial Planning In a Very Scary World

If you are reading this, you are most certainly the holder of one or more financial products and want to better understand how to manage your wealth in today's world, where we have never (in 80 years) seemed so close to international wars.

The role and importance of a financial planner/wealth manager - having someone to talk to - has never been so relevant.

Always remember the golden rules of financial planning:

1. Don't "time" the markets. History has shown, time and again, the biggest gains are made following market downturns - so stay invested.

2. Always be very clear on your time horizon - both overall (your wealth) and at a product/investment level.

3. Know your risk tolerance (risk profile) and review yearly. Again, not just at an overall wealth level but also at a product level - some will inevitably have a different risk profile from your overall one

4. When dealing with savings or investment products, where you invest by instalment, you should look at market downturns as a positive because of dollar cost averaging.

If your adviser operates under the Just Service Global Network you will, most likely, already have your investment portfolio's well positioned. If, for any reason, you have not reviewed your savings/investment products (containing investment portfolios) make sure they are well diversified and structured to handle ongoing market volatility.

General - and useful - market update

Source: Leo Wealth, 8th July

The high inflation causes more and more social unrest and fear, which in turn increases the odds of a global recession. The moment everyone becomes very negative about the economy, the risk is that it becomes a self-fulling prophecy.

The good news, in this sea of negativity, is that labour markets around the world are still very strong. At the same time, both household and corporate balance sheets are in much better shape than they have been in decades. Other than in China, there are also no major imbalances in property markets like we had in 2007.

Europe

While the U.S. may manage to avoid a recession, it is more likely that Europe will experience one as it is much more impacted by the Ukraine war through sharply rising natural gas prices. While oil can be moved around the world easily, we do not yet have the infrastructure to move large quantities of Liquefied Natural Gas (LNG) around. There are not enough LNG tankers and more importantly the specialized terminals to receive LNG. Most natural gas is transported by pipelines, with the biggest ones between Russia and Europe.

Longer-term the picture is more positive for Europe. Europe has committed to invest 210 billion euros over the next five years to achieve energy independence from Russia. Combined with increased defense expenditures, the IMF expects the structural primary budget balance to swing from a surplus of 1.2% of GDP in 2014-19 to a deficit of 1.2% of GDP in 2022-27.

China

The Chinese economy continues to suffer Covid lockdowns, lower demand for manufactured goods, and a soft property market. Further downturns in the property sector represent the biggest long-term threat. Chinese real estate prices are amongst the highest anywhere. The Chinese economy is very much a managed economy, but eventually the Chinese property market could face the same fate that befell Japan 30 years ago. As was the case in Japan starting in the 1990s, China’s working-age population is now shrinking, which will erode the demand for housing over the coming years.

We have actually turned positive on Chinese growth stocks last month and not only did they outperform, they delivered positive returns in June. We think they can continue to outperform. The Chinese economy is not going to collapse, more fiscal stimulus is likely on its way and Chinese stocks have discounted a lot of bad news. Given current valuations, we recently increased the allocation to Chinese tech companies in our global and Asian portfolios.

Global

Whether we experience a soft-landing or a recession, it is likely that global earnings estimates will come down, but not as rapidly as most investors expect. And this is key as valuations have come down a lot this year, already discounting a lot of bad news, including the increased odds of a recession. The S&P 500 is currently down 21% from its peak in early January. International stocks have fallen by a similar amount.

While global bond yields still have scope to rise over the long term, they are unlikely to rise much over the next 12 months as inflation declines. We now think that the 10-year Treasury yield will finish the year close to the current 3% level, with risks tilted to the downside in the event of a recession. In other words, we don’t expect to see a large movement in bond yields over the next 12 months, which justifies a neutral stance in fixed-income portfolios as yield income is now a lot higher than a year ago.

The U.S. dollar, which is now almost as overvalued as it was 1985, is set to weaken eventually. The trade weighted dollar index (DXY) has strengthened 9.6% since the start of the year and is now up 17.5% since May 2021. Relative to its Purchasing Power Parity (PPP) fair value, the dollar is 29% overvalued. This level of overvaluation now exceeds that reached in 2000 and is close to what was observed in 1985. Over long-term horizon of 5-to-10 years, valuation is an important driver of currency returns. The deviation from PPP has been a reliable indicator of long-term movements in the EUR/USD exchange rate.

The Japanese yen could be the surprise winner during the remainder of the year. The yen is cheap. Very cheap. It is trading at the biggest discount to PPP in its history. Sentiment towards the yen is extremely bearish. The Japanese economy is recovering from the pandemic disruption, while inflation is rising. The reason for the Yen weakness is the dovishness and domestic market intervention of the Bank of Japan, but that could change.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

Can you keep your insurance if you lose your job?

The Covid-19 Pandemic of 2020 has changed the way we work, the way we live, and the way we think. A year ago, you may have been just a little jealous of any friends who were fortunately enough to work from home: no commute, no traffic jams, and flexible hours. Twelve months later, you are doubtless longing for the camaraderie of an office environment. For anyone who has experienced job insecurity in the past year, or has worried about the long-term viability of their position, one thing has become abundantly clear: relying on your employer for medical and life insurance is not a risk worth taking. To put this another way, comprehensive private medical coverage and life insurance calculated as a multiple of annual salary is only as secure as your job itself. Furthermore, depending on you position, your insurance may be limited to the country or region where you live, and not portable should you move to another part of the world. If you are in need of personal medical or life insurance coverage, or you believe it would be prudent to at least know what options are available, talk to your adviser in the JSG network or email us at info@justserviceglobal.com to learn about the international private insurance options available to you and your family. Regards The Just Service Client Service Team