The GIC committee believe equity markets will remain attractive and expect the MSCI World Total Return Index to increase four per cent by March next year.
John Vail, chief global strategist and chair of the Nikko AM GIC, said Nikko AM would continue its two-year overweight stance on global equities with a preference for Japanese and European equities, reflecting the strong signs of growth in both these economies.
Mr Vail told a media briefing yesterday the Japanese economy is soaring from the three per cent rise in the rate of consumption, a rapid increase in house sales, stable government consumption, strong growth in net trade and an enthusiastic consumer sentiment towards its ‘Abenomics’ economic policies of prime minister Shinzo Abe.
“Now is definitely much more a positive situation than I’ve seen over the last 25 years,” said Mr Vail.
“In our view, Japan’s GDP in the second half of 2013 will be above consensus due to low inventories, and we expect this will provide a boost to financial markets.”
Mr Vail said the rise in consumption tax in Japan from five per cent to eight per cent could impact the 2014 second quarter GDP, but he expected the growth to recover quickly.
“Further evidence of strong economic growth will pave the way for additional reforms to be implemented under Abenomics,” said Mr Vail.
While the committee said the eurozone is still likely to experience ‘occasional jitters’, they expected domestically-orientated companies to recover, following the European multinationals already experiencing significant growth. Nikko AM has established a growth target of six per cent for the European market, seven per cent for the Japanese market, and a milder growth of three per cent for US equities.
At the briefing, Mr Vail also argued that the ASEAN region was the best place to invest money over the next 10 years, as economic growth is predicted to be very strong and significant investment is expected to flow into the region from the United States, Canada and China.
Nikko AM has underweighted Japanese government bonds, predicting the yen will weaken in the following quarters as the Bank of Japan maintains its easing stance, responding to expected tapering measures from the US Federal Reserve.
Mr Vail said following the September FOMC meeting, they expected tapering to begin in December or January, with it ending in the third quarter of 2014, and a rate hike to occur in the second quarter of 2015.
“We believe the US government shutdown will be short-lived and that investors would be best advised to hold onto risk positions through the turbulence,” said Mr Vail.
