The increased political uncertainty is having little effect on market sentiment. ING IM points out that although demand for government bonds increased, equities and riskier bonds are continuing their upward trend.
Unconclusive election results in Italy, unrest about the bail-out of Cyprus and the failure of US politicians to broker a deal on automatic cuts were outweighed by indicators confirming that the global economic recovery is persisting. This recovery is most visible in the US, Germany and Japan, while emerging markets are noticeably lagging behind.
In its last Marketscope ING IM explains how the recovery in Japan, driven by stimulatory fiscal and monetary policies, is one of the reasons for the lack of popularity among emerging markets. “The sharp drop of the yen squeezes other Asian exporters and makes it more likely that currencies in Asia will fall rather than rise in value. This removes a major reason for investors to invest in this región and is resulting in outflow from bond and equity funds. It is also a reason for us to be more cautious about emerging market equities and debt.”
Japan is ING IM’s favourite market
Japan is now the asset manager’s favourite equity market as the sharp drop in the yen is having a highly positive effect on corporate earnings. “We have again raised our forecasts for earnings growth this year, from +25% to +37%. Valuations also remain attractive and foreign investor flows into Japan are clearly on the rise. All in all, we are keeping to our moderate risk-on positioning, with overweights in equities and real estate, but we are being more selective with respect to regions and sectors.”
