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Global equity markets have staged a strong recovery from April's decline, buoyed by cooling US economic data and a wave of significant share buyback programs. We anticipate that this erratic market behavior will persist until there's more certainty regarding the timing of interest rate cuts, as investors eagerly respond to any hints of monetary easing. With the US elections approaching, we also expect heightened volatility as uncertainty around future government policies grows.
In China, the government has taken direct action to restore confidence in the property sector. Restrictions on home-buying have been fully lifted in major cities like Xi’an, Hangzhou, and Chengdu, with further easing measures introduced elsewhere. More notably, the administration has launched a 300 billion RMB facility for local governments to acquire excess property inventory and convert it into affordable housing. This initiative has been well-received by market participants, leading to sharp price appreciation in China’s equity markets. However, we believe that for the facility to have a meaningful impact on the broader property sector, it will likely need to be expanded further. If these efforts are scaled up, property prices could stabilize, and consumer confidence may return. In addition, the Chinese government’s push for large-scale equipment renewals and trade-ins of durable consumer goods is aimed at boosting private consumption growth over the next few years. Other recent measures, such as removing mortgage rate floors and lowering downpayment rates, further signal China's commitment to supporting its economy.
As Q1 earnings season concludes, we’ve observed mixed results from major US corporations. Consumer discretionary firms report slowing spending and a more selective consumer base, while companies with international exposure have commented on a slower-than-expected recovery from Chinese consumers. In contrast, US technology firms have maintained robust growth, particularly those benefiting from AI adoption. In China, a similar trend emerges: technology firms are expanding, while consumer spending remains tepid in most sectors. However, China's consumer base is on an upward trajectory, whereas the US is seeing a slowdown.
Given the potential turning points in major global economies, we plan to be highly selective in both US and Chinese markets based on our current exposures. While economic data in Japan remains weak, we remain optimistic about the ongoing corporate governance reforms, which we believe will drive improved shareholder returns over the long term.
Looking ahead, we remain focused on navigating these uncertainties and positioning ourselves to take advantage of selective opportunities in the evolving market landscape.
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