Weekly Market Recap

Asia Pacific

19/09/2022

Week in review

U.S. CPI inflation rose to 8.3% y/y, hourly earnings increased 5.2% y/y
UK CPI declined to 9.9% y/y
China industrial output rose 4.2% y/y

Week ahead

U.S. FOMC meeting and rate decision
Eurozone and U.S. PMIs
Japan CPI inflation

Thought of the week

A combination of a hawkish Federal Reserve and safe haven seeking capital flows have pushed the U.S. dollar (USD) further into overvalued territory, with the USD index gaining more than 14% year-to-date (YTD), reaching a five-decade high on a trade-weighted basis. It is no secret that Asian currencies have underperformed against the USD this year: the Japanese Yen has declined 20%, the Chinese Yuan down 8%, while Association of Southeast Asian currencies have fallen more than 6% on average. While a weaker currency typically implies stronger earnings per share growth for Asia ex-Japan companies as it serves as a tailwind for exports, currency depreciation also eats into an investors’ total return. Over the past 15-years, close to 10% of international equity underperformance relative to U.S. equity can be attributed to weak foreign exchange performance against the USD. With the Fed’s hawkish stance unlikely to budge in the near-term, its likely that greenback will remain at elevated levels for the time being. What should investors do? While hedging offers short-term benefits, the effect washes away over time and investors also need to consider the increased cost of hedging. For long-term investors, investing in Asia ex-Japan equities on an unhedged basis could help capitalize on re-opening tailwinds in the region as well as benefit from the eventual reversal of the U.S. dollar to fair value as structural economic fundamentals such as trade balance, growth and inflation dynamics take hold.

Sources of Asia ex-Japan equity returns

Total return, U.S. dollar

Source: FactSet, MSCI, J.P. Morgan Asset Management. Data reflect most recently available as of 17/09/22.

0903c02a82467a72

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions.

For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be used as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our Company’s Privacy Policy. For further information regarding our regional privacy policies please refer to the EMEA Privacy Policy; for locational Asia Pacific privacy policies, please click on the respective links: Hong Kong Privacy Policy, Australia Privacy Policy, Taiwan Privacy Policy, Japan Privacy Policy and Singapore Privacy Policy.

This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA; and J.P. Morgan Investment Management Inc.

In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.