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.