In an extremely unusual move for us, our Global Investment Committee in late June went moderately negative on global equities on a 3-6 month view, based upon the US gradually raising tariffs on the final tranche to 25%. This and the crystallization of other geopolitical problems led us to believe that investor confidence would decline and global economic growth would underperform market expectations, although we did not predict any recessions.
Many markets have moved below our year-end targets, so there could be some settling down at present levels in markets on a three month view. Continued monetary easing, additional fiscal spending (as per the recent US budget agreement) should also assist markets to a significant degree. Equity valuations in Japan are very low, while those in Europe and the US are not extremely high, especially if one expects earnings to grow further next year. Equity dividend yields should also start protecting the downside more now, as risk free rates keep falling.
We don't have a target for the yuan, but personally, I believe that China will not allow the yuan to weaken much more as it will hurt them in many ways, and Trump will likely just increase tariffs on all Chinese goods by the amount of depreciation vs. the USD, citing manipulation. If the CNY does stabilize at present levels, this would likely calm markets quite a bit.
John Vail is chief global strategist at Nikko Asset Management