Nikko AM has revealed it is still forecasting a victory for Democrat Joe Biden in the US Presidential election and has predicted that the global economy’s recovery will continue with a “disinflationary tenor”.
In its global investment committee outlook, chief global strategist John Vail set out that under a Democratic administration, the US Federal Reserve's "massive, multi-pronged" stimulus will increase further.
Vail wrote: "Perhaps the question now is what will the Fed not do? We still do not expect negative rates, but there is some chance (especially if its bond market becomes unruly) that it will adopt yield curve control, pegging three-year maturities to about 0.3% in 2021, hoping, like Japan's case, for a gradually increasing yield curve in the longer part of the curve."
The committee has predicted that the Senate will remain "narrowly" Republican, "leading to a mollified version of the Democratic agenda".
"Global economic growth will disappoint consensus, in our view, and a Biden Administration will instil a decent amount of market and economic concern in Q4, but with the help of vaccines, additional global fiscal and monetary stimulus, and more stable US economic and political relations with the world, equity markets should return to an upward trend thereafter, especially after Q1 2021," Vail said.
But he warned that geopolitical issues remained a concern, namely "relations between the West and China remain fraught with danger".
"China's relations with India, Taiwan and many Southeast Asian nations remain very tense too, although it is trying hard to maintain positive relations with the technologically-advanced nations of Japan and South Korea," he added.
He also cautioned that the Middle East "is even more [of] a powder keg than usual" due to Turkey's involvement in several "intense" conflicts.
Turning to the Covid-19 pandemic, Vail explained the committee expects that virus deaths will continue to be "contained through the winter in the developed world, even without widespread lockdowns".
Meanwhile, in the UK, he predicts Brexit will result in a "relatively poor, but not traumatic outcome", hurting investor and economic sentiment in the European region.
Nikko AM's investment committee said that European equities were expected to continue their long-term trend of underperforming the US and Japan in constant currency terms, and that Japan should be overweighted by global investors given the higher returns even than in the US.