Nikko's new house view on global equities moves to neutral

Key points

• Less optimistic view of US corporate earnings moves global equities to neutral from overweight
• Shifts forecasted timing of Fed’s credit tightening to October or December 2015
• China’s economy continues to struggle, but does not appear to be in a hard landing
• Japanese and Eurozone equities expected to outperform over the next six months

“We calculated that global equity valuations are at reasonably fair levels and that stocks can rise in Europe, Japan and Australia, but because we are less optimistic on the United States, we do not think it is worthwhile, especially with the recently increased volatility, to be aggressive on global equities overall,” said John F. Vail, chief global strategist and head of the GIC. “We have been overweight global equities for U.S. dollar based investors, except for one neutral quarter, since September 2011 but we now believe that neutral is the proper stance.”

The GIC members, who consist of senior investment professionals from the company’s global offices, forecasted that U.S. equities will underperform over the next six months to March 2016, thus earning an underweight stance. The S&P 500 is now trading at 16.5 times NTM (next twelve month) bottom-up consensus earnings, which is high in a historical context. Still, the GIC noted that Europe and Japan will outperform over the next six months, with the committee lifting Eurozone equities to overweight after two successful quarters of underweighting.