Skandia Investment Group’s global asset allocation committee, whose views influence a number of the company’s portfolios, has changed its view of Japan to positive for the first time since August 2008.
Chief investment officer James Millard (pictured) says at the end of November the markets were encouraged by Japanese efforts to fight deflation and to tackle the currency concerns.
“We are not diving in head first, but if the government steps up its effort to end deflation, weaken the yen and boost growth, Japan has the ability to perform well relative to other equity markets, and so we have increased our exposure from small underweight to small overweight.”
SIG has significantly increased its exposure to emerging markets, especially Asia Pacific ex Japan, which it has increased from one to six per cent. Asia Pacific ex Japan has performed poorly over recent months on fears that monetary policy tightening could derail the recovery. SIG thinks these fears are overblown and expects the region to start to outperform again in the near future.
After strengthening at the start of January, equities weakened into month-end as fears grew over Greece’s fiscal position, possible monetary policy tightening in China and proposed banking sector regulations in the US. SIG remains overweight equities and thinks that the rally that began in March 2009 will continue, as these fears should not offset the ongoing boost from economic recovery and very low interest rates.
“Headline inflation rates rose in many parts of the world, mainly the result of increased energy prices. However, core measures of inflation (i.e. those excluding energy prices) remain at very low levels in the developed world. We expect core inflation to stay at very low levels because of the large amount of slack in many economies, allowing interest rates to remain on hold,” adds Millard.