the United States has been recording 40-year high consumer inflation while Britain's annual inflation rate jumped in January to 5.5%, the highest in almost 30 years. The annual inflation rate in the Euro Area also jumped to a fresh record high of 5.1% in January of 2022 from 5% in December, beating market expectations of 4.4%. Rising energy prices and supply-chain disruptions led to a spike in inflation.
As a result of rising inflation, rates started to creep higher as the central banks have been adopting tighter policies. European Central Bank members said its bond-buying could end in the third quarter. Bond buying under the ECB’s 1.85 trillion euro ($2.19 trillion) Pandemic Emergency Purchase Programme, or PEPP, is
due to end in March. The Fed has also sped up its QE policy and will hike rates several times in 2022.
At its meeting ending on Dec 15, 2021, The Bank of England's Monetary Policy Committee voted by a majority of 8-1 to increase bank rate by 0.15 percentage points, to 0.25%. Ten-year bond yields in the Euro zone rose 12 bps to 0.15% in early February, the highest since early 2019. On Feb 15, the benchmark U.S. treasury yield rose to 2.05% from 1.81% recorded on Feb 1, 2022.
Against this backdrop, should you turn to the East for investments?
The year was completely downbeat for China investing as the region’s stocks suffered heavily due to the regulatory crackdown on various sectors and debacle in the property market. But chances of monetary policy easing, cheaper valuation and probabilities of a muted crackdown in 2022 make China a buying opportunity.
As opposed to the West, China’s inflation is slowing, giving chances to the policymakers for monetary easing. Investment banks like Credit Suisse, BlackRock, HSBC, UBS and Goldman Sachs are clamoring it as a buy. At the same time, Morgan Stanley, Bank of America and J.P. Morgan Asset Management are neutral on mainland China,
as quoted on CNBC. Global X MSCI China Consumer Staples ETF ( CHIS Quick Quote CHIS - Free Report) – up 4.2% past week, down 2.3% YTD Global X MSCI China Materials ETF ( CHIM Quick Quote CHIM - Free Report) – up 3.4% past week, up 2.7% YTD KraneShares CSI China Internet ETF ( KWEB Quick Quote KWEB - Free Report) – up 1.9% past week, down 0.6% YTD India
India's CPI Inflation rose to a seven-month high of 6.01% in January, topping the upper tolerance level of the medium-term inflation target of 4+/-2% set by the Reserve Bank of India (RBI), per government data. The rise was mainly on account of high food inflation. However, last week, the Reserve Bank of India had projected India’s average inflation to
ease to 4.5% in 2022-23, down from an estimated 5.3% in 2021-22.
India’s stock market has hit a brake lately, thanks to the rising rate worries in the United States. However, the trend may be shifting for the better in the coming days due to strong global cues and budget outcome, which were largely supportive for the economy and market. In late January, IMF forecast India's GDP growth rate at
9% for fiscal 2022 ending in March. The World Bank projected India to be the fastest-growing economy in early January. iShares India 50 ETF ( INDY Quick Quote INDY - Free Report) – down 2.9% in past week, down 4.3% YTD iShares MSCI India ETF ( INDA Quick Quote INDA - Free Report) – down 3.4% in past week, down 5.3% YTD WisdomTree India Earnings Fund ( EPI Quick Quote EPI - Free Report) – down 4.1% in past week, down 3.3% YTD Japan
Japan's consumer inflation remains trapped around 0.5%, well below Western nations and the BOJ's 2% target. This means there is no threat from the policy tightening in the country. Last year, Japan stocks are around a 31-year high. Though the winning momentum of Japanese stocks has cooled a bit this year, extreme volatility in the Nikkei or the Topix like Westen equity gauges are less likely.
First Trust Japan AlphaDEX Fund (– up 0.7% past week, down 0.3% YTD FJP Quick Quote FJP - Free Report) WisdomTree Japan SmallCap Dividend Fund ( DFJ Quick Quote DFJ - Free Report) – up 0.4% past week, down 0.8% YTD