The Bank of Japan (BOJ) has decided to tighten some restrictions on its ultra-loose monetary policy after Octobers policy committee meeting.
Similar to most developed markets, Japan has a 2% inflation target but headline inflation has been above this target for 17 straight months. Historically, inflation in Japan has always been well below that target and isn’t unfamiliar with deflation.
Post Covid, Japan like many over countries has seen inflation rising, though lower than most developed markets. For example, Japan’s headline inflation rate appeared to peak at 4.3% while in the UK it so far has peaked at 11.1%.
Most central banks have been tightening their monetary policy and raising interest rates to try and slow the economy to lower inflation. Japan on the other hand are the only country in the world to have negative interest rates.
For seven years, the BOJ have used a yield curve control mechanism to cap bond yields. In July, it had risen the limit to 1% up from 0.5%, however, now they are allowing the yield to increase further.
The 1% target is now a reference rather than a hard limit. Meaning they will allow the yield to breach that 1% limit. The BOJ have stressed that they remain willing to buy bonds when the yield goes above this limit but allows them to be more flexible.
In principle, the idea was that the BOJ will buy bonds when the yields increase close to their limit, keeping yields relatively low. The low yields should then encourage consumers to spend and businesses to invest, instead of saving. This should increase economic activity and in principal inflation.
Given inflation is above their 2% target, it has been widely anticipated that the new BOJ governor would remove this mechanism all together.
Why have they pivoted?
BOJ Governor Kazuo Ueda previously explained that ‘they are yet to foresee inflation stably and sustainably achieve their price target.’ So, there is no reason yet for them to pivot from their ultra-loose monetary policy.
Now Ueda believes that Japan was more likely to hit their 2% inflation target on a more sustainable basis. However, he still doesn’t have enough confidence to remove the yield control all together though.
US Jobs continues to beat expectations
In September, the US added 336,000 new jobs, well ahead of analyst expectations of 170,000. This is important because the new jobs report is one of the indicators the Federal Reserve use when making interest rates decisions.
The FED kept interest rates at 5.25-5.5% in September, but with the latest job report coming in hot there are views that the FED might raise rates again in November. Generally, the consensus is that the FED will raise rates at least one more time this year before slowly lowering rates over the next two years but of course only time will tell.
Chinese property sector under more pressure
The Chinese property market continues to have issues. China’s largest private developer Country Garden confirmed they are also heading for default.
The property sector typically drives over a quarter of economic activity, but despite cuts to mortgage requirements and interest rates, the property sector continues to struggle and is undermining consumer confidence in the region.
Evergrande, the world’s most indebted property developer was one of the first Chinese developers to make headlines when they defaulted on bond payments over two years ago. Country Garden has four times the number of housing projects as them and was seen as a stronger developer but have still warned of default.
There were hopes that stimulus measures by the Chinese government would help rally demand for housing, however, it seems consumers and investors remain cautious on property.
How have global markets performed?
Global stock markets have delivered mixed results over the 12 months to the end of September. Over the past year, the broader global stock market has risen 11.04%*. As always though, past performance isn’t a guide to future returns.
The MSCI Europe ex UK index rose 19.99% over the last year. Investors have turned to European shares as they debate whether the high valuations in US companies are still justified.
Companies in Europe have been trading at a significant discount compared to their US peers and some investors have shifted their exposure to capture this. European stocks have also benefited from an improving inflation picture and Euro area inflation fell to 4.3% in September.
The Chinese market on the other hand, fell by 3.57% over the past year. China was expected to be the place to be at the beginning of the year as they re-opened their economy from Covid lockdowns but, the return to growth has stalled.
Consumers were expected to spend pent up savings but, retail spending has been below expectations. The country is also dealing with a stalling property sector where demand has significantly fallen.
Technology had the highest returns of any sector over the past 12 months with a gain of 24.65%.
Gains in the technology space have been fuelled by recent advancements in AI. The consensus is that AI will provide businesses with the opportunity to become more streamlined and efficient as well as provide better services and products. So, the businesses that have the most to gain or have been early adopters have typically been in the technology space.
Utilities had the lowest returns of any sector over the past 12 months, returning -7.71%.
One-year stock market performance
Scroll across to see the full chart.
Scroll across to see the full chart.
Past performance isn’t a guide to future returns. Source: *Lipper IM, to 30/09/2023.
Annual percentage growth
| Sept 2018 To Sept 2019 | Sept 2019 To Sept 2020 | Sept 2020 To Sept 2021 | Sept 2021 To Sept 2022 | Sept 2022 To Sept 2023 | |
|---|---|---|---|---|---|
| MSCI AC World | 7.88% | 5.80% | 22.71% | -3.71% | 11.04% |
| MSCI ACWI Information Technology | 13.00% | 38.54% | 25.24% | -11.12% | 24.65% |
| MSCI ACWI Utilities | 27.33% | -7.46% | 6.42% | 15.93% | -7.71% |
| MSCI China | 1.83% | 27.50% | -11.06% | -21.84% | -3.57% |
| MSCI Europe ex UK | 6.78% | 0.16% | 21.81% | -12.09% | 19.99% |
Source: *Lipper IM, to 30/09/2023.
How have our Wealth Shortlist funds performed?
Global funds on the Wealth Shortlist delivered mixed performance over the past year, some faring better than others.
During the second half of 2022, funds investing in companies undergoing a turnaround or those focused on paying a dividend, (known as ‘value’ focused funds) generally did well. However, so far in 2023, the market rotated and those investing in companies capable of above-average earnings growth (known as ‘growth’ funds) typically performed better.
A year is a short time-period to assess the skills of a fund manager. Managers with different strengths, styles and areas of focus will perform differently over time.
Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.
Remember, all investments can fall as well as rise in value, so you could get back less than you invest. For more details on each fund and its risks, please see the links to their factsheets and key investor information below.
Jupiter Global Value has been the best-performing fund in the global sector of the Wealth Shortlist over the past 12 months. Despite the funds value style of investing being out of favour for much of 2023, the fund has performed very well. The fund returned 12.74%* versus 7.41% for the IA Global Sector.
Our analysis suggests that the managers stock selection has been the main driver of returns over the past 12 months. Particularly the managers selections in North America and the UK as well as investments in financial services and consumer staples have all benefited the funds’ performance.
The Troy Trojan Global Income fund was the weakest performing fund in the global sector of the Wealth Shortlist returning -0.08% over the past 12 months.
The manager’s focus on high-quality companies means we typically expect the fund to hold up relatively well when markets are falling. In contrast, we expect the fund to lag the peer group when markets rise quickly. This has been the case more recently as markets have rallied particular in the US and within the technology sector. We still rate the team’s disciplined investment approach; it’s been used across a range of funds over the years with good outcomes.
Annual performance growth
| Sept 2018 To Sept 2019 | Sept 2019 To Sept 2020 | Sept 2020 To Sept 2021 | Sept 2021 To Sept 2022 | Sept 2022 To Sept 2023 | |
|---|---|---|---|---|---|
| Troy Trojan Global Income | 16.38% | 1.70% | 8.76% | 7.10% | -0.08% |
| Jupiter Global Value Equity Fund | -3.50% | -11.39% | 33.25% | 4.54% | 12.74% |
| IA Global | 5.91% | 6.99% | 23.32% | -8.79% | 7.41% |
Past performance isn’t a guide to the future. Source: *Lipper IM, to 30/09/2023.
FIND OUT MORE ABOUT TROY TROJAN GLOBAL INCOME INCLUDING CHARGES
TROY TROJAN GLOBAL INCOME KEY INVESTOR INFORMATION
FIND OUT MORE ABOUT JUPITER GLOBAL VALUE EQUITY
JUPITER GLOBAL VALUE EQUITY KEY INVESTOR INFORMATION
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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.