Markets End Higher in Global Rebound But Post Weekly Losses

After a slow start to March, markets ended higher this week. However, investors continued to take note of more stern words from Federal Reserve Chair Jerome Powell and fret over potential extended rate hikes.

Even after a strong start to 2023, the equity market remains roughly 19% off its record high. That's similar to the average decline at this stage during prior bear markets.

U.S.

After a prolonged, gradual decline in global equity markets that was compounded by worries of an imminent Fed rate hike, stocks ended the week higher. Japan's Nikkei index rose 0.78% while China's Shanghai and Hong Kong markets experienced declines of 2.95% and 6%, respectively.

Though the global market rebound is encouraging, it comes against a backdrop of rising bond yields and growing concerns over U.S. bank stocks, particularly SVB. The decline in short-term Treasury yields was caused by speculation that SVB's troubles might prompt the Fed to delay interest rate increases in order to prevent additional banking system issues from arising.

Policymakers at the Fed may still be hesitant to alter course this year, particularly if economic growth remains on track with their expectations. They anticipate inflation falling below their 2% target over the next two years, which would allow them to gradually transition away from an easing bias.

It appears the United States may just avoid a full-blown recession this year, though unemployment remains high and consumer price pressures are on the rise. More economic weakness could spark a Fed change this year if unemployment continues to increase.

Despite these uncertainties, we believe markets will make progress towards a new bull market in 2023. That being said, this remains an uncertain environment for stocks which typically experience bear markets when their values fall 20% below their high point.

By 2022, the stock market had fallen by 19% from its record high on January 3 of that year. This was about as low a percentage as any past bear market has experienced--with the exception of 2008/'09 due to the global financial crisis.

We remain worried about a significant recession in 2023, yet we believe global economic growth should pick up and usher in an era of bull markets starting 2023. As previously stated, it may take some time for the Fed to reverse course and start easing again, so investors should keep an eye on inflation rates.

Europe

Europe ended Tuesday's session higher, reflecting a global recovery, but still posted weekly losses as banks recovered from turmoil. Many European stock markets, including Germany's DAX, France's CAC 40 and the U.K.'s FTSE 100, rose in value during this session.

Bank stocks recovered some of Monday's loss as Credit Suisse (CS $2) said it could borrow up to $54 billion from the Swiss National Bank, allapping some worries after its top shareholder yesterday said no further capital assistance is being provided. Some investors also speculated that the Fed may cease its aggressive rate hike campaign next week while Europe's central bank released data showing inflation rose in February.

The euro and British pound traded higher against the dollar on Tuesday, as bond yields in the region also moved higher. The Stoxx 600 Index finished up 1.45%, providing a boost to overall markets following a turbulent session on Wall Street.

On Wednesday, China's official Manufacturing and Services PMIs came in stronger than anticipated, suggesting growth across both sectors after the reopening of their markets from Covid-19 restrictions. These figures, coupled with other economic reports that were more positive than anticipated, boosted investor confidence in the world's largest economy and sent markets worldwide higher on Wednesday.

Still, there is much to watch out for in the coming weeks as several companies release earnings and interest rate decisions are made by various central banks. Furthermore, the U.S. CPI inflation report will be a key factor in the Federal Reserve's policy decision later this month.

In 2023, we expect global economic growth to pick up steam. With core inflation declining, central banks will likely shift towards an easing bias sooner rather than later; we anticipate a global economic recovery to begin by year-end 2023.

The market is currently facing numerous difficulties, such as the continued decline in tech stocks, additional regulatory obstacles and no central banks to come to the rescue when things go awry. If investors remain calm, they should be able to avoid another year of market declines and witness a global economic recovery by year's end.

Japan

Japanese stocks ended the week higher on a global rebound, yet posted weekly losses as concerns of an overall weakening in the global economy returned. The Nikkei 225 lost 2.88% while the Topix index dropped 3.65%.

Japan's economy has mostly recovered from the 2011 earthquake and tsunami, though growth is slowing due to structural issues and a shrinking population. To combat these challenges, the government has implemented Abenomics: an expansionary monetary policy, flexible fiscal policy and structural reforms designed to promote investment, infrastructure building and economic expansion.

The government is investing in human capital, technology and innovation, green initiatives and digital services with the aim of creating jobs and stimulating growth. This strategy is also expected to assist Japan tackle its aging society and shrinking population.

Japan's flourishing business climate can be attributed to its stable political system and respect for the rule of law, as well as strong protections for intellectual property rights. The nation has become a global leader in consumer electronics, engineering, aviation, advanced technology and research and development - not to mention car manufacturing!

Foreign companies can benefit from Japan's dynamic and highly competitive market through foreign direct investment (FDI). A variety of sectors are attractive for investment, such as motor vehicles, electronics, iron and steel, petrochemicals, pharmaceuticals, shipbuilding, aerospace as well as banking and insurance services.

Though Japanese business culture is distinct from that of other nations, it has been adapting to the digital era. There are now more opportunities than ever for innovators to create new products, services and solutions in a range of areas from payments and fintech to online advertising.

As with any business venture, there are many factors to consider and a thoughtful approach is key. For instance, many foreign businesses find it advantageous to collaborate with local partners who can guide them through the complexities of Japan's business climate.

To achieve this, conduct thorough market research and collect intelligence about your sector and potential customers. These insights can then be utilized to craft effective strategies for your company's long-term growth.

China

China's stock market ended higher on Friday as global recovery continued, though it posted weekly losses nonetheless - Shanghai's index ending 2.95% lower and Hong Kong's benchmark Hang Seng down nearly 6% in local currency terms. Despite signs of improvement from industrial output which rose for the first time since October last year, growth fell short of forecasts.

Chinese equities are likely to remain under pressure due to slowing demand, and the government must address structural challenges and policy gaps that have hindered potential growth. To ensure China's long-term economic viability, more balanced high-quality growth must be prioritized.

After years of rapid expansion, China has reached a structural plateau that limits its capacity to sustain debt-fueled investment-led growth and propel its economy towards higher levels of productivity. To avoid further financial risks or an extended period with higher interest rates and slowing growth rates, careful macroeconomic policy adjustments must be made.

Nevertheless, the Chinese economy remains a major global driver and its growth outlook remains optimistic. The government has promised to inject more liquidity into the system and strengthen bank balance sheets; additionally, infrastructure spending is expected to fuel growth this year.

The Chinese government has set an annual growth target of around 5% for this year, and Premier Li Keqiang declared the country would strive to maintain economic stability and expand consumption. He also revealed plans to overhaul both the central government and science and technology ministry, both riddled with corruption.

At its annual parliament session, China's legislature adopted a radical reform of government institutions. This included creating a national financial regulatory body and data bureau. The changes aim to consolidate banking supervision while increasing government control over key sectors.

However, there are grave concerns that China's financial system reorganisation could exacerbate recent bank failures such as Silicon Valley Bank and Signature Bank. Investors worry about how these events may impact all aspects of banking, from local lenders to systemic issues.