Overweight Stance on Global Equities Intact: Nikko Asset Management's New House View Shows

Press Release

31 March 2015
  • Maintains long-held overweight view on global equities
  • Shifts stance on the Fed's first rate hike to 4Q from June/July
  • Reverses the Eurozone's six-month overweight stance amid rising equity valuations
  • Enthusiastic on emerging economies amid growth prospects in G3 and China

The G31 economies will continue to propel growth and gains in equities prices in the year ahead with valuations remaining steady despite rising U.S. interest rates, according to Nikko Asset Management's Global Investment Committee (GIC), which is retaining an overweight stance on global equities.

The Tokyo-based firm's key investment committee has held an overweight position on global equities in the last 14 quarters out of 15 since September 2011.The G3 economies are set to exceed the current consensus for economic growth going forward, committee members said, adding the United States should rebound from the unusually brutal winter and the West Coast port strike, while the Eurozone and Japan should recover faster than expected.

"There certainly are some worrisome issues, as always, but we find none of them are convincing enough to prevent moderate increases in equity prices," said John F. Vail, chief global strategist and head of the GIC. "Rising U.S. interest rates are consensus now, so although there may be volatility as such crystallizes, it may be no more problematic than the tapering process." He noted that US equities rose very strongly during the tapering process.

On the U.S. Federal Reserve's monetary policy, the committee is shifting its stance on the first rate hike to the fourth quarter from June/July. Nikko Asset Management's analysts believe that a negative year-on-year CPI through September will steady the Fed's hand despite firm economic growth.

"The FOMC roster includes more doves this year and the core Fed leadership is traditionally quite dovish, so we expect the Fed funds channel rate at only 0.50-0.75 percent at the year-end," Vail said.

Surging equity valuations in the Eurozone has prompted the GIC to reverse its six-month overweight stance on the region to underweight. The committee thinks that Europe will underperform in the next six months, while the U.S., Japan and Asia-Pacific ex-Japan should perform the best and, thus, deserve an overweight stance.

"Eurozone equity valuations have surged to rather high levels, as equity prices increased with the lower euro and a rebound in economic confidence from very low levels," Vail commented. "We think the market needs to pause for earnings to catch up, Vail noted.

Regarding U.S. equities, the S&P 500 is trading at 17 times next twelve month (NTM) earnings, which is high in a historical context, but the company's analysts believe this is a fair valuation as interest rates remain structurally lower than any time since the 1950s. The U.S. economy's conditions are mixed, but consumer spending is the most important factor, which the analysts believe will continue to be very firm.

Elsewhere, the company's analysts were optimistic about China and emerging markets economies. China, as the world's second-largest economy, is expected to achieve a 6.9 percent seasonally adjust annual growth rate in the April-September period.

"Given our view of stronger G3 and Chinese growth, coupled with dovish central banks and rising commodity prices, we are now more enthusiastic about emerging economies," Vail said, reversing a long-held negative overall stance. He noted in particular that "we continue to believe that Asian emerging markets economies will remain firm as domestic demand is sturdy and external imbalances are quite small."

Nikko Asset Management's GIC met on March 24th 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 (April to September) of 2.8 percent half-on-half, seasonally adjusted, with equities, as measured by TOPIX, rising about 10.5 percent in yen terms over the next six months to September.
  • U.S.: Half-year GDP growth of 3.2 percent half-on-half, seasonally adjusted, with equities, as measured by the S&P 500, rising 6.1 percent in dollar terms over the next six months to September.
  • Eurozone: Half-year GDP growth of 2.1 percent half-on-half, seasonally adjusted, with equities, as measured by the MSCI Europe, rising 4.1 percent in euro terms over the next six months to September.

1 The United States, Eurozone and Japan
2 In comparison against the base date on March 20.
Note: all dates in this report are Calendar Year (CY)-based unless otherwise specified.

– ENDS –

For inquiries, please contact:

Jeanie Cheah
Tel: +65-6500-5793
Email: jeanie.cheah@nikkoam.com

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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