Nikko Asset Management's Global Investment Committee met on December 8th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.
We only expect mild further easing ahead, especially as the ECB does not wish to cause a rupture while the Fed is hiking rates.
We forecast that Asia Pac ex Japan, Japan and Europe will outperform in the next six months, while the US should underperform and, thus, deserve an underweight stance vs. all other regions.
Looking forward, even though inventories were revised higher, their long depletion means they remain far too low in my view, and should continue start to rise significantly in the quarters and years ahead.
Once again, as has long been our view, disappointing macro-data should not worry investors in Japanese risk assets very much at all.
There are many reasons for the BOJ to defy consensus expectations for more easing.
There is an admirable effort to improve the female participation rate, but it is too early to judge whether the measures will have a major effect.
We explain how Abenomics is the "icing on the cake" of corporate governance improvement over the last decade.
As has long been our view, disappointing economic data should not worry investors in Japanese risk assets very much at all.
We will be watching to see how companies respond this year to the Corporate Governance Code, specifically the twin issues of selling cross-shareholdings and improving capital efficiency.
We expect that profit margins will expand further in coming quarters, driven by a large corporate tax cut and continued industry rationalizations that further prove that Japan's structural profitability trend continues upward.
We expect that Japanese pension funds will continue to shift their investments into risky assets in 2015.
The market isn't overheating even though the Nikkei stock average touched the 20,000 level, nor do we believe that overseas markets are overheating right now.
Due to the developments described in this article, there is ample room for growth at Japanese firms and much opportunity for investment success.
The March “tankan” survey results are not expected to lead to the BOJ's further acceleration of QE.
In sum, there certainly are some worrisome issues, as always, but we find none of them convincing enough to prevent moderate increases in equity prices.
Central Banks: Despite firm economic growth, we believe that a negative YoY CPI through September will steady the Fed's hand.
Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.
The recovery in profits by Japanese export firms should continue to attract the attention of the markets in the first half of 2015.
John Vail updates his long-standing theme: Japan's Successful “Show Me the Money” Corporate Governance.