Nikko Asset Management Keeps Moderately Overweight Position on Global Equities

Press Release

17 December 2014
  • Maintains global equities overweight on G3 economic growth and central bank policies
  • Lower oil prices very positive for developed economies
  • Fed could tighten in June or July, but at a moderate pace
  • Forecasts Japan's TOPIX to reach 1,658 by June

Developed economies are set to grow at a modest pace backed by healthy economic growth in G31 economies, while receiving support from lower energy prices, according to Nikko Asset Management's Global Investment Committee (GIC), which is maintaining a moderately overweight position on global equities.

The Tokyo-based company's investment committee continued to favour a moderately overweight stance on global equities, with Japan heavily overweight and the U.S. underweight, while global bonds are heavily underweight, with U.S. dollar cash remaining significantly overweight. The committee has favoured an overweight position on global equities in the last 13 quarters out of 14.

"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," said John F. Vail, chief global strategist and head of the GIC. "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."

In regards to energy prices, Nikko Asset Management's analysts believe the healthy economic growth in the G3 economies, along with declining capital expenditure in the United States, will lead to a single-digit rise in Brent crude oil over the next six months. As for geopolitics, Nikko Asset Management continues to see that conflicts will remain mostly localized, with short-lived effects on developed markets, with the Ebola crisis becoming less severe.

The company's analysts expect that the U.S. Federal Reserve will raise interest rates in June or July 2015, but only by "baby steps," that is, after an initial 25-basis-point increase in June or July, 12.5 basis-point hikes thereafter. The analysts continue to forecast that the European Central Bank will initiate moderately sized sovereign quantitative easing in the first quarter of 2015, with a lesser chance that it will occur in the second quarter. For the Bank of Japan, the committee does not expect further major easing for the intermediate term due to the weaker yen.

Nikko Asset Management believes the recent Japanese GDP data overstates the decline in the economy and continues to be optimistic about growth in the world's third-largest economy. Japanese equities could be supported by rising profits, especially as valuations remain attractive and as the BOJ and the Government Pension Investment Fund are expected to be large-scale buyers.

"Deflation is over in Japan and the structural bear market in equities is also dead, in our view," Vail said. "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."

Forecasting through June, Nikko Asset Management expects Japan's broader TOPIX index to reach 1,658, which is a 15.5 percent gain in yen terms (unannualised total return from the company's base-date).

Nikko Asset Management's GIC met on December 11th for its quarterly review of global economic conditions. Based on the findings of its senior investment professionals around the world, the company periodically reconsiders house views on the major global markets and asset classes.

The committee's main forecasts2 at this time are:

  • Japan: Half-year GDP growth (January to June 2015) of 2.5 percent half-on-half, seasonally adjusted, with equities, as measured by TOPIX, rising about 15.5 percent in yen terms over the next six months to June.
  • U.S.: Half-year GDP growth of 2.9 percent half-on-half, seasonally adjusted, with equities, as measured by the S&P 500, rising 2.7 percent in dollar terms over the next six months to June.
  • Eurozone: Half-year GDP growth of 1.3 percent half-on-half, seasonally adjusted, with equities, as measured by the MSCI Europe, rising 5.9 percent in dollar terms over the next six months to June.

1 The United States, Eurozone and Japan
2 In comparison against the base date on December 8
Note: all dates in this report are Calendar Year (CY)-based unless otherwise specified

– ENDS –

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Jeanie Cheah
Tel: +65-6500-5793

About Nikko Asset Management

With USD203.9 billion* under management, Nikko Asset Management is one of Asia’s largest asset managers, providing high-conviction, active fund management across a range of equity, fixed income, multi-asset and alternative strategies. In addition, its complementary range of passive strategies covers more than 20 indices and includes some of Asia’s leading exchange-traded funds (ETFs).

Headquartered in Asia since 1959, Nikko Asset Management and its subsidiaries employ personnel representing around 30 nationalities, including approximately 200 investment professionals**. The firm has a presence through subsidiaries or affiliates in a total of 11 countries and regions. More than 400 banks, brokers, financial advisors and life insurance companies around the world distribute the firm’s products.

The investment teams benefit from a unique global perspective complemented by the firm's historic Asian DNA, striving to deliver consistent excellence in performance. The firm also prides itself on its progressive, solution-driven approach, which has led to many innovative funds launched for its clients.

For more information about Nikko Asset Management and to access its investment insights, please visit the firm’s homepage.

* Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of .
** Including employees of Nikko Asset Management and its subsidiaries as of .

Important Information

Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets which are targeted by the fund is not necessarily indicative of the future or likely performance of the fund. Nikko AM Asia reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. Nikko AM Asia accepts no liability for any loss whatsoever arising from any use of or reliance on any of the opinions expressed. Whilst Nikko AM Asia believes that the information is correct at the date of production, no warranty or representation, whether express or implied, is given to this effect and Nikko AM Asia expressly disclaims liability for any errors or omissions. The information contained in this document is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk.

Nikko Asset Management Asia Limited, Registration Number 198202562H

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