Asian and Emerging Market Equities
Asian and Emerging Market equities have continued to be strong performers as the Asia region, in particular, has limited the impact of the virus much more successfully than its Western counterparts. The region is also likely to benefit significantly from a global economic recovery as a vaccine is rolled out. Asian and Emerging markets may provide a greater than usual diversification benefit as the global economy decouples in the shorter term due to COVID, but also in the longer term from the rolling back of globalisation, particularly from the US.
Although the allocation has performed well over the year, valuations remain unstretched and the outlook is robust.
Japanese Equities
Japanese equities have performed broadly in line with global peers over the quarter, and over the year as a whole. The Japanese economy and a large proportion of the companies that make up the Japanese equity market will benefit from a resurgent global economy, particularly in manufacturing.
The Japanese Yen, like many currencies, have strengthened against the US dollar, and although this has a positive FX effect on returns for overseas holders, as a large component of the Japanese market is reliant on exports or overseas earnings, it has a limited net impact.
We continue to struggle to gain a strong macro view on the Japanese equity allocation and retain a neutral positioning. Nevertheless, Japanese equities remain good diversifiers and are attractively valued relative to the global equity market.
