Henderson Investors is overweight Japanese equities amid expectations the domestic economy will cont...
Henderson Investors is overweight Japanese equities amid expectations the domestic economy will continue to improve.
Overall, the group has moved underweight equities in general, believing many of the main world stock markets to be overvalued, with Japan making up its only overweight equity market position.
European equities are overvalued in the short term and US stocks are too highly price especially amid a background where domestic interest rates are set to rise, says Rupert Thompson, director, equity strategy at Henderson Investors.
"Our position in Japan reflects the fact that valuations there are reasonable as in the UK, but we are more impressed with Japan than with the UK, he says. The market itself is pessimistic on Japan but we believe the recovery will continue to strengthen over the next couple of years."
The group has moved overweight bonds with this position focused on overseas markets including the US.
Henderson Investors expects the yields on US bonds to have fallen by around 0.5% in 12 months time.
It predicts that by this point much of the work in terms of raising interest rates to cool the economy will have been done and the market will be speculating on rates falling in the US. The Treasury market may also be supported by investors shifting into this asset class from equities.
Martin Clements, director, asset allocation at Royal & SunAlliance Investment Management, is favouring European over Japanese equities.
He says: "The stock markets have done alright recently but the weakness of the euro has been a bit of a killer.
"We are keen on Europe as we believe there will be continued consolation in its industries and with the technology story Europe did extremely well towards the end of last year. Deals such as the proposed merger between Deutsche and Dresdner banks were the sort of developments we were looking for, but sadly that fell through."
The group is overweight equities amid its confidence in the continuance of global growth and is underweight bonds and cash.
Clements says: "We do not believe a hard landing for the world economy is a likely scenario but the risks are increasing, especially with US interest rates going up. We have seen commentators saying recently that the peak in US interest rates may be 7% to 7.5% when not long ago the predicted peak was 6.25% to 6.5%.
"The UK is still not our favourite area as the story in terms of corporate earnings looks dull. We are marginally overweight to support our general overweight equities exposure.
"The US market has surprised us to a certain extent and the strength of the dollar has meant the US market has performed decidedly better than other areas and earnings growth in the US remains pretty healthy."
Royal & SunAlliance is underweight Japan as it does not believe the economy is showing the necessary strength to support the stock market.
Thompson is neutral on the Pacific markets as although he likes the long term growth story, he is concerned about Hong Kong, noting that Hong Kong's currency peg to the dollar marks it susceptible to US interest rate rises.
He also believes emerging markets may have already delivered their best returns and that there will be concerns about this asset class if it becomes clear that global growth has peaked.