Nomura Asset Management

The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, was up 1.03% for the month of March, as the high yield market continued to benefit from stable U.S. economic growth and steady asset reflation driven by the Fed and global central banks.

We recently indicated on March 14, 2013 that we believed the Yen would remain range bound near the level of PPP (purchasing power parity), which we estimated to be between 90 to 95 Yen/USD. We wrote at the time that though currency movements will be affected by various factors, the monetary policies of both Japan and the U.S. are the most important.

Supportive U.S. economic data drove most markets higher during the first quarter of 2013. China underperformed the region amid concerns that the economic recovery may not be as robust as previously expected, while the National Peoples Congress in March failed to provide any incentives to the equity market given the absence of pro-growth policies. The MSCI AC Asia Pacific Free Index including Japan gained 5.5% while the MSCI AC Asia Pacific ex Japan Free Index closed 2.0% higher during the quarter.

For several quarters ahead, we estimate that the Yen will remain range bound near the level of PPP (purchasing power parity), which is estimated to be between 90 to 95 Yen/USD. Though currency movements will be affected by various factors, we think the monetary policies of both Japan and the U.S. are the most important.

The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, posted a positive total return of 0.46% in February, as the high yield market finished on a positive note, after experiencing heightened volatility throughout the month.

Monthly returns for February 2013 were somewhat mixed, but the Pacific Basin regional markets generally ended in positive territory this month. Outside of Asia, political instability in Italy and concerns that the Federal Reserve might begin to scale back its monetary stimulus in the U.S. led to weaker investor sentiment. Economic data from China was weak, largely due to the effect of the Chinese New Year.

The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, posted a positive total return of 1.38% in January, as the high yield market continued to rally into the new year.

Improving expectations for global economic growth underpinned a solid start to 2013 for the Asia Pacific equity markets. In Asia, interest focused on China, as economic data showed further signs of recovery. On the other hand, the depreciating Japanese yen drew concerns that Asia's main exporters, which include Korea and Taiwan, will become relatively less competitive. The MSCI AC Asia Pacific Free Index including Japan gained 3.0% while the MSCI AC Asia Pacific ex Japan Free Index closed 2.6% higher during the month.

The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, posted a positive total return of 1.59% in December, as the high yield market rallied on the perceived benefits of a fiscal compromise in the U.S.

Equity markets ended the year on an upbeat note, shrugging off concerns over the impending "fiscal cliff" while focusing on better economic data from the U.S. and China. In Japan, expectations of a higher inflation target and a depreciating yen brought some overseas investors back to the Tokyo stock market. The MSCI AC Asia Pacific Free Index including Japan gained 5.6%, while the MSCI AC Asia Pacific ex Japan Free Index also closed 5.6% higher in the October-December quarter of 2012.

The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, posted a positive total return of 0.74% in November, as high yield investors focused on the fiscal cliff and the risk that the U.S. government fails to negotiate a resolution.

The Liberal Democratic Party (LDP) reclaimed power in a landslide victory. Together with coalition partner, the New Komeito Party, the LDP secured 325 seats giving it two-thirds of the total seats, which allows them to pass legislation by using the supermajority position in the lower house. This will enable them to overrule the upper house where no party currently holds an overall majority, otherwise requiring the LDP to consult with opposing parties. In addition, on an individual case by case basis, the LDP would be able to seek cooperation from the third party Japan Restoration Party.

Asian equity markets ended higher this month, although they were heavily influenced by events elsewhere. Improved economic data from Germany, coupled with expectations that Greece will receive a further round of financial support from the European Union (EU), helped to lift sentiment. Meanwhile, investors were paying close attention to the American congressional budget negotiations to avoid the looming year-end "fiscal cliff" risk to the economy, although U.S. economic data was generally positive.

Equity markets derived support this month from improved U.S. economic data and an impression that China's economy might be bottoming out. In addition, the Euro Area Industrial Production numbers came in above consensus. The MSCI AC Asia Pacific Free Index including Japan declined by 0.39% while the MSCI AC Asia Pacific ex Japan Free Index gained 0.44% in October 2012.

Regional equity markets remained largely directionless and volatile during the third quarter amid the summer trading lull. Government policy action towards the end of the quarter triggered the biggest market moves. However, the euphoria was short lived following the announcements of the European Central Bank's Outright Monetary Transactions and the Federal Reserve Board's third round of quantitative easing.

Pacific Basin equity market performances were mixed during August 2012 and generally underperformed markets in Europe and North America, largely due to the drag caused by concerns surrounding Chinas slowing economic growth rate. Numerous statements made by European leaders to support the Euro helped to allay fears and brought yields on sovereign bonds lower during the month.

Most equity markets in the Pacific Basin region recovered somewhat in July after a weak second quarter on expectations of further monetary easing and measures by the European Central Bank to forestall a Euro currency crisis. However, when we examine the sector results, it is hard to conclude that the recovery was accompanied by an improvement in sentiment.

Europe's sovereign debt crisis continued to hound the global equity markets throughout the second quarter, while economic data from the U.S. was also lackluster. Despite a late recovery, the Japanese equity market fell during the April-June quarter, owing to instability in the European financial system, economic distress in Europe, the U.S. and China, and the yens appreciation.

Mainly owing to fears of a potential Euro break up, the decline in the global stock markets in April 2012 continued through May as well. On June 4th, the Japanese equity market (TOPIX) sank to its lowest level in 29 years, declining even further below the bottom set in the aftermath of the Lehman shock in Japanese yen (JPY) terms. However, in U.S. dollar (USD) terms, the level of the Japan equity market is still above its post Lehman low recorded in March 2009.

Depressed market sentiment, high volatility, and low trading volume together resulted in another difficult month for the Pacific Basin regions equity markets. Following a great start to the year, Asian markets gave most of these gains back during May, as worries about the health of the Spanish banking system stoked deeper concerns about the progress of the eurozone debt crisis, with Greek elections looming on June 17th as well. U.S. data continued to disappoint, raising fears that the economic recovery could be stalling.

In April, risk-averse sentiment prevailed throughout the global financial markets amid fresh concerns about the prospects for European sovereign debt. Recent economic indicators have presented mixed signals, with signs that the Western economies are at a standstill together with a recovery for Asian industrial countries. Our outlook for global economic growth remains reasonably optimistic, and financial markets in the near future will be highly dependent on monetary policy. In the developed economies, we believe the authorities will probably take additional easing measures.

Our outlook for global economic growth remains reasonably optimistic. The U.S. in particular has exhibited some surprisingly buoyant conditions driven by improvements in the job market and stronger consumption. Europe for now appears to have disproved the more pessimistic forecasts, whilst Japan will benefit from reconstruction activity. Our sector allocation strategy remains biased towards growth. We hold overweight positions in the Industrials, Consumer Cyclical, and to a lesser extent, Technology, while we remain underweight in the Telecommunications and Utilities sectors.

We still have a broadly positive view of the outlook for the Asia Pacific equity markets. The European Central Banks efforts to provide long-term liquidity support have alleviated the default risk among the peripheral Euro-zone countries. It also appears that the Federal Reserves easy money policy is beginning to have a positive impact on the U.S. economy. Given this optimism, we believe that equities in the region will continue to rally, particularly in the oversold cyclical sectors such as Industrials, Technology and Consumer Durables.

The risk of a meltdown in the peripheral European economies now appears to have been alleviated due to aggressive monetary easing by the European Central Bank. We have also recently upgraded our GDP forecast for the U.S. Japan has started implementing the third supplementary budget for earthquake reconstruction. As such, the countrys growth rate will exceed those of other developed economies in the first half of 2012. A less hostile global environment will be positive for Asian stock markets as investors increasingly appreciate the regions superior fundamentals.

For much of the fourth quarter of 2011, anxiety surrounding the ongoing European sovereign debt crisis has kept the Pacific Basin equity markets largely range bound, although most indices managed to trend higher from their October lows with the help of unexpectedly buoyant economic data from the U.S. The MSCI AC Asia Pacific Free Index including Japan gained 0.66% and the MSCI AC Asia Pacific ex Japan Free Index gained 3.96%, resulting in declines of 17.31% and 17.98%, respectively, for the full year.

In our assessment the market has already priced in the prospect of future earnings deterioration and credit risk spreads. Although we must be watchful for the possibility of a temporary future decline in share prices in the event that investors again become more risk averse, we believe an up-tick in investor sentiment will be enough to support a market rally. Cash levels at institutions are relatively high, valuations are very reasonable and investor sentiment is weak. Nevertheless, support for Asian markets could come from the fresh evidence that the U.S. economy has regained some momentum.

The Japanese equity market ended the month of October almost unchanged. Concerns about Europes sovereign debt crisis and a slowdown in the global economy initially sent the index sliding to a new year-to-date low at the outset. Subsequently, the Japanese stock market rebounded along with a steady retreat from the excessive investor pessimism surrounding overseas economic conditions. Positive U.S. economic indicators, including unexpectedly strong employment figures, housing data and solid GDP growth, boosted market confidence.

Europes inability to find a solution for its current fiscal problems and the weakening macroeconomic outlook sent equity markets into a downward spiral during the July-September quarter. In Asia, concerns about the risk of a hard landing in China resurfaced as well. All country and regional indices declined, with the MSCI AC Asia Pacific Free Index including Japan and the MSCI AC Asia Pacific ex Japan Free Index declining 16.35% and 21.28%, respectively, for the quarter. In the short term, the rush to raise cash could lead to further declines in markets

The global economic environment seems to be deteriorating rapidly. European economies are increasingly weighed down by the de-leveraging of the peripheral countries, while confidence in the U.S. is being sapped by the political paralysis in Washington. As a result, we have significantly downgraded our economic forecasts. For the U.S. economy, we are now predicting 2.0% real growth for 2012. However, we still believe that a double dip recession can be avoided.

Investors can afford to be less nervous in a market that has already declined significantly. Rather, we would recommend that investors should recognize the ability of these companies to generate earnings as well as their ability to sustain their dividends payments. Governments of all major developed and emerging countries have to deal with deteriorating economic forecasts, so until investor psychology calms down, patience may be needed. We will continue to monitor the changing investment environment and identify stocks that offer worthwhile investment opportunities.

Equity markets in the Pacific Basin edged higher in July despite the ongoing sovereign debt issues troubling both Europe and the U.S. and the pressure from a slowdown in Chinas economy. Smaller ASEAN (Association of Southeast Asian Nations) economies continued to provide support this month, so the MSCI AC Asia Pacific Free Index including Japan and the MSCI AC Asia Pacific ex Japan Free Index closed 1.33% and 0.03% higher, respectively.

Faced with the imminent withdrawal of the Fed?s QE2 policy, the ongoing sovereign debt woes in the Euro-zone, and concerns over a slowdown in China, the Asian equity markets were at best only able to range trade during the second quarter. The broad indices remained relatively flat, with the MSCI AC Asia Pacific Free Index declining by 0.50% while the MSCI AC Asia Pacific declined 0.87%. As the immediate concerns over the sovereign debt crisis in Europe subsided, a steady recovery in domestic production also helped to lift the Japanese market and trigger a late rebound in equity prices.

Nomura?s forecast for Japan?s CY2012 real GDP growth is 3.2%, up from an expected rate for CY2011 real GDP growth of just 0.1%. Although there has been a temporary deterioration in Japanese economic indicators due to supply side constraints, such as capital stock damage, supply chain disruption, and electricity generating capacity shortfalls, we have already started to witness signs that these constraints are easing. The supply chain will return to normal this autumn, as production bases in the disaster-affected areas are restored or the users quickly switch to substitute components.

Europe?s sovereign debt woes and inflation fears have plagued the Asian equity markets recently, sending indices lower during May. The eventual withdrawal of QE2 also became a real concern for the markets. Japan?s post disaster market downturn continued in May, but mainly due to negative international factors this time. Meanwhile, domestic concerns about the ongoing negative impact of supply-chain disruption on manufacturers? earnings and the political disarray caused by a divided parliament and a weakened prime minister have continued to weigh on the market.

Equity markets in Asia continued to gain ground in April after a volatile first quarter of 2011. Stock markets ended higher as companies reported strong earnings, while expectations that inflation may have peaked out also helped to support market sentiment. Disruption to manufacturing industry supply-chains and ongoing problems surrounding the Fukushima nuclear power plant have continued to weigh on Japanese stock prices, although the market was able to stabilize from the massive sell-off that followed the Tohoku earthquake.

Asian equity markets began the year in a particularly volatile state as they came to terms with regional inflationary pressure, unrest in the Middle East and North Africa, and the natural disaster in Japan. Notwithstanding these negative factors, most markets in Asia rebounded in late March to end the quarter on a positive note. The MSCI AC Asia Pacific Free Index including Japan, however, decreased by 1.4% in the first quarter of 2011, while the MSCI AC Asia Pacific ex Japan Free Index increased by 1.5%.