According to Nikko AM, the situation in eastern Ukraine may be more unstable than people realise, given Russia is unlikely to permit production facilities for military equipment within the region, including missile, aircraft and naval engines, coming under the control of a hostile government.
Nikko AM chief global strategist John Vail said while the Nikko AM did not expect that Russia would invade eastern Ukraine; it “did expect ethnic violence to occur”.
“However, now we have to admit that some form of Russian presence, perhaps ‘peacekeepers’ requested by the separatists, is likely,” said Mr Vail.
“Whether opponents of strong Russian control in eastern Ukraine decide to fight these peacekeepers is a key question, but it clearly could become more unstable than the Crimean example.”
While Nikko AM believes China will be able to "avoid a hard landing", it still holds concerns about the declining property prices, with secondary prices beginning to fall among many second and third-tier cities, and the government’s push to “reign in the shadow banking system”.
“Falling property prices put a damper on investor sentiment, and also led to less activity in the crucial housing construction industry,” said Mr Vail.
“Rising defaults among the shadow banks will lead to a rise in banks’ non-performing loans, but in the long run the government is doing the right thing in instilling some discipline in lending activity.”
Nikko Asset Management said it is cautious on emerging equities as a whole and warned investors to be cautious about the political risks associated with this asset class.
The asset manager said some countries do, however, offer excellent prospects, including India, Korea and Mexico.
It views Chile, Egypt, Russia, South Africa, Thailand and Turkey, on the other hand, as the most unattractive.
