Nikko Asset
Management, with $156 billion of client money, predicts global equity markets
(as reflected in performance of the MSCI World Total Return Index) will rise by
4.0 per cent by March next year, and remains bullish on global stocks,
preferring Japanese and European equities in particular.

The Japanese
firm’s global investment committee issued an update on its thinking, financial market
expectations and asset allocation positions. The committee meets on a quarterly
basis.

Both the economies
of the US and Japan have
shown strong signs of growth, while the eurozone economy has improved
significantly. In China,
the economy has stabilised somewhat, while inflation remains tame, the firm
said in a statement.

“Nikko AM maintains its two-year overweight stance on
global equities, with a preference for European and Japanese equities,” said
John Vail, chief global strategist and Chair of the Nikko AM Global Investment Committee.

“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. The consumption tax in Japan, which will
be lifted to 8 per cent from 5 per cent next April, is likely to cause a dip in
2014 second quarter GDP, but we expect growth to recover promptly. Further evidence
of strong economic growth will pave the way for additional reforms to be
implemented under Abenomics,” he said.

On the fixed
income side, the Nikko Asset Management house view is to continue an underweight stance on G-3 bonds,
particularly underweighting Japanese government bonds relative to ex-Japan
bonds. Targets for 10-year bonds as at March-end 2014 are 3.00 per cent for US
Treasuries, 0.85 per cent for JGBs and 2.20 per cent for German Bunds.

“We expect the
yen to weaken further in the quarters ahead, as the Bank of Japan maintains its
easing stance relative to the expected tapering measures from the Fed,” Vail
continued.

“After the
September [Fed] FOMC meeting, we now expect tapering to start in December or
January, QE to end in the third quarter of 2014 and the first rate hike in the second
quarter of 2015. We believe the U.S.
government shutdown will be short-lived and that investors would be best
advised to hold onto risk positions through the turbulence,” he concluded.