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Multi-Asset Survey: What's Driving Demand for Multi-Asset Indices

iBoxx USD Asia Ex-Japan Monthly Commentary: June 2023

iBoxx Asian Local Currency Indices Monthly Commentary: June 2023

iBoxx Tadawul SAR Government Sukuk Indices – Q2 2023

U.S. Equities Market Attributes June 2023

Multi-Asset Survey: What's Driving Demand for Multi-Asset Indices

A multi-asset approach that is nimble while targeting higher quality and more liquid assets is the priority for asset owners and managers as they look to tackle volatility and uncertainty for the rest of 2023, finds the latest poll by AsianInvestor and S&P Dow Jones Indices (S&P DJI).

Adapting to uncertain times

As macro, market and geopolitical headwinds continue to ebb and flow, several common asset allocation themes are shaping investment strategies across Asia. At the same time – accentuating the challenges for portfolio planning amid such an unpredictable outlook – investor opinion is divided on some key considerations.

For example, while long-term capital growth is expected to be the main driver for allocation decisions over the next six months, investors want to be flexible and active in their tactical asset selection.

Further, in eyeing multi-asset exposure, different allocators have different priorities. As they look to manage volatility and achieve absolute returns, their key considerations when selecting a multi-asset strategy range from its ability to stay aligned with the defined investment goal, to its track record, to its performance over the benchmark.

Yet in the search for consistent and attractive risk-adjusted returns during the rest of 2023, there is consensus in terms of a preference for high-quality fixed income, across global, Asian and US investment grade (IG) bonds. Investors also want to stay liquid, whether via alternatives or cash.

These were some of the exclusive insights from 101 senior executives at leading asset owners and investment managers in 11 markets across Asia, gathered in May and June 2023 by AsianInvestor in collaboration with S&P DJI. Respondents included insurance companies, public and private pension funds, sovereign wealth funds, government entities, endowments, family offices and asset managers – from Hong Kong, Taiwan, Australia, South Korea, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and India.

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iBoxx USD Asia Ex-Japan Monthly Commentary: June 2023

Contributor Image
Jessica Tan

Principal, Fixed Income Indices

S&P Dow Jones Indices

June 2023 Commentary

After all the speculation leading up to the Federal Open Market Committee (FOMC) meeting, the U.S. Federal Reserve tried to put all rate cut expectations to rest by holding interest rates steady, while simultaneously signaling a higher long-term trajectory.  Other central banks such as the European Central Bank (ECB) and Bank of England have also stepped out to express the same sentiment, as inflation continued to hover above many central banks’ 2% targets and remained a significant concern.

In Asia, the majority of central banks opted for the same pause and kept rates unchanged in June.  On the other hand, the People’s Bank of China continued to move in the opposite direction, easing rates by 10 bps; Vietnam and Sri Lanka joined China in dropping rates to boost their economies.

The S&P 500® remained unfazed by the higher-for-longer narrative and climbed 6.47% in June, bringing its quarter-to-date return and YTD return to 8.30% and 16.05%, respectively.  On the other hand, U.S. Treasuries slid by 0.69% in June, bringing their quarter-to-date return and YTD return to -1.39% and 1.89%, respectively.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

Following a month of declines observed across all rating and maturity segments in May, the overall index inched up 0.22% in June, supported by a rebound in the high yield segment (up 2.00%).  In contrast to the high yield segment, investment grade bonds continued their trend of waning slightly (down 0.04%) from May.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 2

The Philippines, Indonesia and India led the top seven largest markets in the index, with upticks of 0.67%, 0.50% and 0.45%, respectively.  South Korea (down 0.38%) and Singapore (down 0.33%) were the worst-performing markets.  Spreads continued to dwindle across the top seven largest markets in the index.

iBoxx Asian Local Currency Indices Monthly Commentary: June 2023

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.

The first half of 2023 concluded with markets in general showing stronger performance than for full-year 2022, despite downbeat headlines in the early months of the year such as talks of a possible recession, persistent inflation (triggering more rate hikes) and fears of a banking crisis.

Stock markets rallied in June, ending the first half of 2023 on a positive note.  The S&P 500® posted a return of 6.47% on the back of strong economic data.  Year-to-date, the index has gained 15.91%.  

In June, the U.S. Federal Reserve also announced a pause in its hiking of rates, with general expectations for smaller increases before the end of the year.  As the market digested this information, U.S. Treasuries, as represented by the iBoxx $ Treasuries, fell 0.69%.  However, U.S. Treasuries were still in the black YTD, up 1.89%.

Equities in Asia, as represented by the S&P Pan Asia ex-Japan LargeMidCap (USD), lagged U.S. equities with a return of 2.05% YTD.  Chinese onshore equities, as represented by the S&P China 500 (USD), had a poor run in the first half of this year, losing 6.40% YTD.

iBoxx Asian Local Currency Indices: Monthly Commentary: Exhibit 1

Similar to U.S. Treasuries, Asian local currency bonds, as represented by the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD), were in the red this month, down 0.68%.  Year-to-date, the index has posted a slight gain of 1.24%.

Performance was mixed in the underlying markets, with Indonesia (up 1.03% in local currency terms) posting the highest return, while the Philippines (down 1.15% in local currency terms) recorded the largest loss.

Once again, the largest gains and losses were concentrated in the long end of the curve.  Indonesia 10+ and China Onshore 10+ posted the highest returns, at 1.46% and 1.09%, respectively, while the Philippines 10+ (down 2.58%) and Hong Kong 10+ (down 1.62%) were the worst performers.

As of the end of June, the overall index yield increased 7 bps to 3.99%.  India remained the highest yielding bond market in the index, offering 7.22%, while China Onshore (2.77%) represented the lowest yielding market.

iBoxx Tadawul SAR Government Sukuk Indices – Q2 2023

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Paulina Lichwa-Garcia

Associate Director, Fixed Income Indices

S&P Dow Jones Indices

iBoxx Tadawul SAR Government Sukuk Index

The iBoxx Tadawul SAR Government Sukuk Index total return level saw less volatility compared to the two previous quarters, staying in a narrow range between 103 and 106 for the entire quarter.  Index duration continued to fall, alongside the number of bonds.  The index closed the quarter with 51 constituents, compared with 52 at the end of second quarter and 53 at the start of the year.  Annual yields dipped at the start of the quarter but shifted to an upward trajectory in June.

iBoxx Tadawul SAR Government Sukuk Indices: Exhibit 1

iBoxx Tadawul SAR Government Sukuk Indices: Exhibit 2

iBoxx Tadawul SAR Government Sukuk Indices: Exhibit 3

U.S. Equities Market Attributes June 2023

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

MARKET SNAPSHOT

S&P 500 breadth turned strongly positive in June, as 454 issues were up (with 155 up at least 10%), compared with May’s 124 gainers, which has turned the YTD breadth positive, with 300 up (116 up at least 20%), as all 11 sectors were positive for the month.  For June, the S&P 500 total return was up 6.61%, with broad contributions across issues, compared to previous months when high-market-value issues dominated the market; underlying breadth (and contributions) remained negative.  That dominance still exists, as the index’s total return was up 16.89% YTD, but without the top 44 issues, the index would be negative YTD, though that 44 was 8 in May.  Apple (AAPL) and Tesla (TSLA) were still on top for the month, with Alphabet (GOOG/L) (then Salesforce [CRM]) the largest negative contributor for the month. 

Meanwhile, the positive contributions were broad for June, even though they remain highly concentrated YTD.  The index is still top heavy, with the top 10 issues accounting for 30.5% of the market value below 20% is more typical).  Of note to the top of the market, semiconductor issue NVIDIA (NVDA) joined the USD 1 trillion in market value club this month, as Apple (which set a record at 7.72% of the index) became the first public issue to trade above USD 3 trillion in market value; the other three members of the club are Microsoft (MSFT), Alphabet and Amazon (AMZN).

The IPO market came back to life (with mixed performance) as Mediterranean restaurant CAVA (CAVA) broke the drought; offered at USD 22, opened at USD 45, reached USD 47 and closed the month at USD 40.95.  Korean BBQ group GEN Restaurant (GENK) followed with an IPO at USD 12 and closed the month at USD 16.99.  Also completing their IPOs were Vesta Real Estate (VESTA), which develops and manages industrial properties in Mexico; Kodiak Gas Services (KGS), a natural gas compression company in Texas; Savers Value Village (SVV), a for-profit thrift store operator; and Fidelis (FIHL), a specialty insurer and reinsurer.  July typically is busy for IPOs, and this recent run gives hope for this year (there are typically few IPOs in August).

The U.S. Federal Reserve released its annual banking stress test, which emulated a 10% unemployment rate, a 40% decline in commercial real estate, a 38% decline for house prices and 4.5% minimum capital ratio for 23 big banks (minimum of USD 250 billion in assets: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, among others).  The Fed reported all 23 banks had sufficient funds to operate under a severe recession scenario.  Of note, the assumed USD 541 billion in potential losses was the USD 100 billion for commercial and residential real estate losses, compared to USD 120 billion for credit cards, implying greater credit exposure.  Also in the notes, the Fed estimated that the 23 banks hold 20% of downtown commercial real estate loans held by banks—which means 80% are held by mid-size and small banks, which were not tested and do not have the same global resources (or “too big to fail” classification).  Tests for mid-size banks of USD 100 billion-USD 250 billion are conducted in alternating years, and this was not one of them, as the current regulatory review is expected to change the review to every year.

As for July, the headliner is expected to be the Fed, as the FOMC is expected to increase interest rates by another 0.25% on July 26, with the market baking in an 84% chance.  The market appears to have accepted another 0.25% after that, but not until either the September 20 or November 1 announcement dates; the first cut now appears to be in Q2 2024, at the May 1 meeting.

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