Chart of the Month
The Chinese government is taking great pains to woo overseas investors to its $5trn sovereign bond market, allowing block trades, improving the settlement process and introducing new tax breaks prior to inclusion in a major bond index next April. Whereas international ownership of the US Treasury may have peaked, foreigners own only 2 per cent of Chinese sovereign bonds. The closing of the yield gap is in sight as the PBoC steps up its lending to commercial banks, enabling them to increase their domestic bond holdings.
While monthly wage data for Japan is notoriously erratic, it is difficult to dispute the steady acceleration of the wage bill over the past 2 years. With labour shortages widespread, companies are offering more full-time contracts to part-time workers as a retention strategy. There have also been boosts to the overall wage bill as more workers have transitioned from irregular to regular employment, a furtively rising migrant population, higher bonus payments and the response to PM Abe’s tax incentives linked to pay growth. Scheduled cash earnings have recorded six consecutive months of stronger readings, averaging above 1 per cent annual growth. Finally, we have lift-off.
Since the global financial crisis, growth stocks in the S&P500 have noticeably outperformed their value counterparts, measured on a return or price index basis. The paucity of meaningful stock price corrections in the past 9 years has not provided the usual opportunities for value stocks to recover ground. To the extent that this is an unintended consequence of post-crisis US monetary policy, the unwinding of this policy invites a market reset that restores hope to value investors.
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