Nikko Asset Management’s Global Investment Committee has maintained an overweight position on equities because of expectations of healthy economic growth in G3 economies next year.
In respect of its home market, Nikko said it is “heavily overweight” Japanese equities, but underweight the US. Regarding fixed income, the Committee has decided to take an underweight stance on global bonds. It remains overweight US dollar cash.
John Vail, chief global strategist and head of the GIC said: “We realised that there are many risks globally and the oil price plunge has surprised us along with nearly all other investors, but we think these risks will be overcome and note that lower energy prices are very positive for most developed economies. For the coming two quarters, we expect overall G3 economic growth to rebound at economists’ consensus expectations and for the G3 central banks to continue to pursue divergent paths.”
Oil will remain depressed in part because of declining capital expenditure in the US, where interest rates are expected to rise by June or July – albeit in small steps of as little as 12.5 basis points.
By contrast, Nikko AM expects the ECB to engage in “moderately sized sovereign quantitative easing in the first quarter of 2015”. In Japan, the weaker yen will stay the hand of any further monetary easing in the intermediate term, the manager added. Japan will also benefit from economic growth, which Nikko AM feels is better than recent GDP data suggest. Rising profits will support Japanese equities, it added, especially with both the Bank of Japan and the Government Pension Investment Fund set to be big buyers of the asset class.
“Deflation is over in Japan and the structural bear market in equities is also dead, in our view Japanese investors will continue to be forced to change their methods, as TOPIX is already yielding far above all but a few fixed income investments, and this factor should accelerate as we expect the TOPIX dividend to double in the next five years,” Vail said.