- Japan is set to go through a short-term consolidation phase with BoJ temporarily on hold
- ING IM has a firm overweight in High Yield next to a medium overweight in Eurozone Peripheral Treasuries
- The stable growth sectors remain underweight as ING IM believes they are still too popular and expensive
ING IM highlights that the macroeconomic backdrop globally remains positive with some catch-up recently taking place in Europe and China. Also, the no tapering decision by the Fed in the latter half of 2013 implies a clear growth bias in its reaction function further supporting the recovery process.
For the reasons above, ING IM maintains a growth bias in its positioning within fixed income and spread products with an allocation that is underweight Treasuries and overweight Spreads. Within spread products, ING IM has a growth tilt in its positioning. ING IM has a firm overweight in High Yield next to a medium overweight in Eurozone Peripheral Treasuries (EPT).
ING IM foresees that equities will be driven by better earnings fundamentals in 2014 while Europe, Japan and Cylicals are expected to lead the way over the next twelve months.
Patrick Moonen, Senior Equity Strategist, ING IM said: “We expect modest revenue growth with some margin expansion from lowinput costs, especially with regard to labor. Interest and depreciation charges remain low. Share buy backs will be an additional driver for EPS growth. .”
“Over the past year, global capex growth has been on a declining trend due to sluggish economic growth, uncertainty leading to cash hoarding and tight credit conditions. However, now investment intentions and conditions are improving, there is a potential for growth, higher capacity utilization and, as a consequence, profitability.
Turning to key investment themes, ING IM highlights that Europe will benefit from an economic turnaround and strong earnings growth with the most upside set to come from the periphery. This, coupled with the historical discount to the US, high equity risk premium and lower systemic risk means a superior risk/return profile.
With regard to Japan, the investment manager says the region is set to go through a short-term consolidation phase with Bank of Japan temporarily on hold while the Yen remains a dominant driver. However, longer-term prospects are good; borne out by the economic data strength, high earnings growth and a loose monetary policy, which is set to last
In terms of allocation, cyclical sector allocation remains in place considering the improvement in housing markets, labor market and the expected increase in corporate spending. Elsewhere, the stable growth sectors remain underweight as ING IM believes they are still too popular and expensive.