An overweight stance on global equities that lasted for over two-and-a-half years has been cut to neutral by Nikko Asset Management’s Global Investment Committee (GIC), the company announced today. Nikko Asset Management is a related entity of Tyndall Investment Management Limited.
In confirming the provisional decision made in early March, the Tokyo-based asset manager cited the following concerns:
1) Heightened fear of geopolitical risk,
2) Accelerating deterioration of China’s economy and financial system,
3) Subpar US and Japanese economic growth, and
4) Little room to re-rate Western equity valuations and continued deterioration in earnings estimates.
“We believe equity valuations have peaked and that markets will trade nervously going forward. On top of that, unsettled geopolitics make us uncomfortable and the fallout from China’s reform efforts could cause some shocks,” said John F. Vail, Chief Global Strategist and GIC Chairman.
“In a few markets we expect equities to do well, but against the tunnel of uncertainty looming out there—and given the slim difference between our bond and equity return forecasts—we feel a neutral view on global equities versus bonds is warranted.”
Vail expressed his views in the firm’s most recent Evolving Markets research report. Elsewhere in the report, analysts reported that 2013 fourth-quarter data on overall corporate profits in Japan (including unlisted companies) was very positive, with a record-setting quarter-on-quarter increase in the pretax recurring profit margin, while the four-quarter average hit a new high of 4.6%.
The report concludes that several other indicators confirm that Abenomics is working much better than the pessimists suggest.