Nikko AM has been overweight on global equities for US dollar-based investors since September 2011, but as volatility in the US increases, neutral is now the firm's preferred stance, said Nikko AM chief global strategist John Vail.
“We calculated that global equity valuations are at reasonably fair levels and that stocks can rise in Europe, Japan and Australia, but because we are less optimistic on the United States, we do not think it is worthwhile, especially with the recently increased volatility, to be aggressive on global equities overall,” Mr Vail said.
The Nikko AM global investment committee (GIC), which met last month for its quarterly review, indicated that US equities will likely underperform over the next six months to March 2016.
The GIC noted that both Europe and Japan will outperform over the next six months, with the committee lifting eurozone equities to overweight after two quarters of being underweight.
“Even though the euro in our forecast weakens against the US dollar, we expect a 2.9 per cent unannualised return in US dollar terms through December and 5.1 per cent through March so we will move to an overweight stance,” said Mr Vail.
The GIC said Japanese corporate earnings are likely to rise over the next two quarters, producing approximately 5.5 per cent unannualised return in US dollar terms through March 2016.
“We believe that Abenomics is working well, especially for corporations, with the second quarter pre-tax profit margins soaring to historic highs for both manufacturing and non-manufacturing sectors,” Mr Vail said.
Regarding the Chinese economy, the GIC said that China does not appear to be headed for a hard landing despite the difficulties associated with establishing a more balanced economy.
"Certainly, the recent volatility in its equity market and the yuan has lessened confidence in the country's stability, but we expect it to achieve 6.4 per cent half-on-half seasonally adjusted annual rate growth in the next two quarters, which is moderately below consensus," Mr Vail said.
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