Focus: Asia in the spotlight
Asia is 60% of the world’s population, near 40% of GDP, and with GDP growth rates 2–4x those of western markets. It is as diverse as 1.4 billion person consumer giants China and India across to tech titans Taiwan and Korea, and the world’s 2nd largest equity market Japan. Despite this it has significantly underperformed global equities this year, especially hit by the covid virus 3rd wave and China’s tech crackdown. Whilst we are cautious short term, the long term opportunity is clear and available via broad ETF’s like AAXJ and portfolios like @AsiaDragons or more thematic @ChinaTech and @ChinaCar.
Ready to return to school
It was a resilient week for global markets given the Fed’s Jackson Hole get-together and weaker-than-expected global PMI growth data. Markets are up 7% over the summer, bucking traditional weak seasonality, and have now not seen even a 5% pullback since November. This is the 8th longest winning market streak in history. Whilst a pullback of some magnitude is well-overdue we see markets as well-supported and to keep successfully climbing the ‘wall of worry’ over the virus third wave, Fed policy tightening, and ongoing China tech crackdown.
The Fed tightening two-step focus
The Fed’s Jackson Hole get-together continued the long march towards the Fed starting the unprecedented process of reducing its $8.3 trillion balance sheet and raising interest rates off 0%. They will move slowly, and markets can take it, but expect some volatility.
Not all tech is created equal
Big Tech (FAANG) performance has left peers in the dust. This may accelerate as slowing GDP growth and higher interest rates sap demand for tech disruptors with few earnings and high financing needs. We also analysed the reassuring history of tech founders handing over control. This is key for Amazon (AMZN) today.
Crypto eases but adoption builds
Bitcoin (BTC) briefly regained its $50,000 price milestone, but crypto asset strength was led by Cardano (ADA), Binance Coin (BNB), and Tezos (XTZ). Adoption was further boosted by Paypal’s (PYPL) crypto offering expansion to the UK, and payments giant Visa (V) non-fungible token (NFT) buy and bullish outlook on their use.
Oil leads commodity relief
Brent crude jumped 10% as global growth fears eased and the USD retreated. Investors remain likely too cautious, with crude oil futures prices backwardated (lower than current), whilst new drilling activity is 40% below pre-crisis levels, all supporting medium term oil upside.
The week ahead: Jobs and China
1) US monthly jobs data (Fri) in focus as Fed considers timing of its policy tightening. 2) China’ forward-looking purchasing managers (PMI) data as the world’s no.2 economy slowed. 3) Q2 earnings from semiconductor Broadcom, Crowdstrike, Veeva, Chewy, and Netease.
Our key views: Staying the course
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support, offsetting virus third wave and Fed tightening risks. We favour assets most helped by this growth rebound: equities, commodities, crypto, and value, and are cautious about fixed income, USD, defensive equities and China.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.