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Back to Press Releases

Press Release

Nikko Asset Management Upgrades View on Global Equities to Overweight, Bullish on the U.S. Dollar

22 December 2016

Positive on global equities, backed by solid global growth and improved corporate profits
U.S. Fed likely to raise rates in each of the first three quarters of 2017
Bullish on U.S. dollar versus the yen and the euro, on hawkish Fed

Nikko Asset Management's (Nikko AM) Global Investment Committee (GIC) has lifted its view on global equities to overweight and is bullish on the U.S. dollar in its latest house view, due to stronger prospects for the global economy with the election of Donald Trump as U.S. President and expectations of a hawkish monetary policy by the U.S. Federal Reserve.

The committee, which consists of senior investment professionals from across the firm's global network, met on December 19 to review global economic conditions, following an ad-hoc meeting in late November reflecting the outcome of the U.S. Presidential election. At the ad-hoc meeting, it maintained its positive view on Japanese equities, while moving to a slightly overweight stance on global equities.

Nikko AM Chief Global Strategist and GIC Chairman John Vail said, "This is the most positive view that the Global Investment Committee has had on global equities in a long time. Although the surprising Trump victory carries many uncertainties, the net effect for global economic growth and corporate profits has clearly improved. This justifies an overweight stance on global equities, particularly for the United States and the Developed Pacific ex-Japan region."

Although there is uncertainty about how Trump will deliver, the GIC believes his goal is clear: to spur investment and create news jobs in the United States through lower corporate taxes and decreased regulation. The committee thinks U.S. equities benefit in the intermediate term, forecasting the S&P500 to stand at 2,478 at the end of June and 2,533 at the end of 2017.

Both European and Japanese equities are expected to perform well in local currency terms, backed by strong U.S. and global growth, but their gains are likely to be limited in U.S. dollar terms.

The outlook for Japanese equities in yen-terms is also positive, amid rising corporate earnings helped by a weaker yen and stronger growth both domestically and abroad. As the global economy continues to expand, the Japanese economy will likely grow well above its trend, driven by improved consumer and corporate sentiment, as well as improvements in net trade. In addition, corporate governance improvements, including profit orientation and better returns to shareholders, are prime positive factors. Still, the GIC reduced its stance on Japanese equities to neutral from overweight, based on the view that U.S. equity returns are expected to be higher than those of Japanese equities.

As for currencies, the GIC is bullish on the U.S. dollar against the yen and the euro, on the view that the Fed will take a more hawkish stance. The committee forecast the Fed to raise interest rates in each of the first three quarters of 2017, as the central bank normalizes policy.

The Bank of Japan is expected to take a less dovish monetary stance, but remain dovish relative to the Fed, undermining the Japanese currency. The GIC forecasts the yen to weaken further to 123 against the U.S. dollar at the end of June and to 125 at the end of December 2017. Meanwhile, the committee forecasts the euro to stand around parity by the end of June and at 0.98 against the U.S. dollar at the end of 2017.

For bonds, the GIC expects G-3 (Japan, the Eurozone and the U.S.) yields to continue rising through 2017 as the Bank of Japan, the European Central Bank and the Fed are expected to be more hawkish. For U.S. 10- year Treasuries, the committee's forecast for the end of June is 2.85 percent, while those for 10-year Japanese government bonds and German bunds are 0.25 percent and 0.65 percent, respectively. The GIC believes the BOJ will shift up its 10-year JGB target by 20 basis points in both the 2nd quarter and 4th quarter.

The committee meets on a quarterly basis to review its view of global economic conditions. Based on the findings of its senior investment professionals around the world, the firm periodically reconsiders house views on major global markets and asset classes.

The committee's main forecasts¹ at this time are:

U.S.: Half-year GDP growth (January to June 2017) of 2.5 percent half-on-half seasonally adjusted annual rate (HoH SAAR), with the S&P 500 rising 10.7 percent in dollar terms over the next six months to June 2017.
Japan: Half-year GDP growth of 1.9 percent HoH SAAR, with TOPIX rising 10.1 percent in yen terms over the next six months to June 2017.
Eurozone: Half-year GDP growth of 1.9 percent HoH SAAR, with MSCI Europe rising 8.0 percent in euro terms over the next six months to June 2017.

¹ Total return from the base date of December 15, 2016

Note: all dates in this report are Calendar Year (CY)-based unless otherwise specified.

– ENDS –

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

This material has been prepared solely for the purposes of Nikko Asset Management to communicate about the market environment, etc. It is not solicitation for a specific fund. Moreover, the information in this material will not affect Nikko AM's fund investment in any way. Mentions of individual stocks or sectors in these materials neither promise that the stocks or sectors will be incorporated nor constitute a recommendation to buy or sell. The information in these documents have been prepared from what is considered to be reliable information but the accuracy and integrity of the information is not guaranteed by the Company. Figures, charts, and other data in these materials are current as of the date of publication unless stated otherwise. In addition, opinions expressed in these materials are as of the date of publication unless stated otherwise. * The graphs, figures, etc., contained in these materials contain either past or back-dated data, and make no promise of future investment returns, etc. These documents make no guarantee whatsoever of future changes to the market environment, etc. Opinions expressed in these documents may contain opinions that are not Nikko AM's but the personal opinion of the author, and may be changed without notice. Forwarding or quoting from these materials without the advance permission of Nikko AM's corporate communications representative is strictly prohibited. Please contact Nikko AM's Corporate Communications at +81-(0)3-6447-6775 if you have any questions.

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