1. Japanese equities
Now “too cheap to ignore”, Japanese equities are well positioned to benefit from the Bank of Japan’s commitment to stimulating economic growth and keeping Japanese government bonds well anchored, even as these actions drive the JPY to depreciate. To this aim, the Japanese Central Bank has launched unlimited buying of Japanese government bonds, falling in line with our Who pays the bill theme, as high private and public indebtedness continues to grow.
2. Commodity currencies
Currencies from secured commodity producers like the Norwegian krone and Canadian dollar will play a part in the eventual solution for Europe’s energy independence from Russia. The Norwegian krone is further well positioned given the hawkish Norges Bank. This goes with our 2022 Income repression continues investment theme around the search for income in a low-yielding environment as high-quality cyclical currencies can offer an attractive interest rate for holding them and can also provide portfolio diversification benefits.
3. Investment-grade credit
As central banks like the Federal Reserve raise interest rates, the increased cost of borrowing will send some issuers into default. This benefits investment-grade bonds relative to their high-yield peers and makes investment-grade credit spreads more appealing, with spreads per turn of leverage having turned positive in Asia IG and the US IG yield per unit of duration coming into line with its long-term average. This supports our Great escape theme, as central banks abandon loose monetary policies.
