We believe the global economy should be quite firm for the next year, but not so strong as to cause inflation concerns.
We have a non-consensus, but completely sound call for a more aggressive Fed, whereas we expect the ECB and BOJ to maintain their current aggressive easing program.
Despite good global economic growth, other commodity prices will likely remain quite flat in our view, partially due to a stronger USD.
We calculate that equity valuations are at fair levels and that stocks can grow along with earnings.
Although the recent bond market sell-off may remind the market of 2003, we don’t believe US bonds will be as badly affected. By comparing the worst US bond sell-offs since 2003, we estimate that the 10-year US Treasury yield could hit a high of 2.8-3.2% by October.
Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.
We expect that profit margins will expand further in coming quarters, driven by a large corporate tax cut and continued industry rationalizations that further prove that Japan's structural profitability trend continues upward.
We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.
Since the Fed starting hinting at the normalization of interest rates a year ago, Asian central banks' foreign reserve accumulations - except for India and Hong Kong - have either incurred substantial losses or remained flat.
With many markets having rallied from major support levels when they were in highly oversold positions, we believe that bond markets should stabilise or rally from current levels.
We expect that Japanese pension funds will continue to shift their investments into risky assets in 2015.
Oil-producing countries have seen the largest drop in their foreign exchange (FX) holdings over the last year. In our view, Saudi Arabia can afford to handle oil prices at their current level for some time but ...
The importance of President Xi Jinping's strong leadership cannot be stressed enough. Under him China is undergoing dramatic changes. While the most thorough cleansing of state corruption is ongoing, elements of China's grand strategy are becoming more evident both domestically and on the global stage.
The market isn't overheating even though the Nikkei stock average touched the 20,000 level, nor do we believe that overseas markets are overheating right now.
Due to the developments described in this article, there is ample room for growth at Japanese firms and much opportunity for investment success.
Given the significant proportion of real estate investment as a percentage of GDP, as well as the proportion of local government revenue generated from land sales, the property market remains a crucial driver of the Chinese economy.
The March “tankan” survey results are not expected to lead to the BOJ's further acceleration of QE.
Interest rate and foreign exchange volatility has begun to increase as the market anticipates the time when the US Federal Reserve will start to reduce monetary accommodation and raise interest rates.
In sum, there certainly are some worrisome issues, as always, but we find none of them convincing enough to prevent moderate increases in equity prices.
Much as we expected, China's economy has continued to slow faster than consensus, but does not appear to be in a hard landing.
Central Banks: Despite firm economic growth, we believe that a negative YoY CPI through September will steady the Fed's hand.
Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.
The recovery in profits by Japanese export firms should continue to attract the attention of the markets in the first half of 2015.
John Vail updates his long-standing theme: Japan's Successful “Show Me the Money” Corporate Governance.
Through 2014, one of the largest asset classes in the world was virtually unnoticed as an indicator that Europe is not pushing the global economy into widespread deflation.
There are several credible reasons to expect that QE will boost corporate earnings in Europe, though by not as much as in the US. However the risk of disappointment relative to inflated expectations remains high.
In 2015, markets will be looking for any pick up in European and Japanese inflation as a result of their QE programmes. With growth picking up, we may start to see signs of a rise in US inflation.
The disappointing economic data should not worry investors in Japanese risk assets very much at all.
The key theme of the past few years has been quantitative easing. Although the US has come to the end of its version of this experiment, QE programmes have begun or are about to begin in Japan and Europe.
In a pre-GFC and pre-QE world, zero or negative interest rates on a German, Japanese or US 10-year bond would have been considered highly implausible. However...
We expect the next phase of the global evolution to be driven by a growing global population, rapid urbanisation and for most of it to happen in emerging markets with increasing focus on "green" development.
ECB's QE: The major question is, will this program work given the European model of debt creation is via the banking system and not the bond markets?
The steel industry and its underlying iron ore industry are witnessing excess production and deflationary forces that are similar to the global energy markets.
The QE announcement was a major step forward for Eurozone. It is not without dangers and questions about implementation, however, so markets should not get over-enthusiastic about it.
Now that oil prices have declined, if a central bank targets its overall CPI at 2.0% for 2015, it would likely be labeled as being overly aggressive and perhaps attempting to unfairly weaken its currency.
As the Fed continues to unwind its stimulus, even amidst threats of global deflation, there are hopes that China will accelerate the liberalization of its capital account and take over the Fed's role as the global supplier of liquidity.
We expect oil prices to rebound and for the time being, we will stick with our call for Brent to rebound to $72 by end-June 2015, although $65 is a more plausible goal.
Supply-side shocks and market distortions have created a degree of uncertainty over the short to medium-term outlook for the New Zealand dairy industry.
Brazil can no longer continue as “business as usual” and it is at an important crossroads as to whether it can exit the well-known “middle income country trap.” Domestic issues aside, EMs will continue to encounter major headwinds as an asset class in early 2015 due to negative stories from large countries, such as Brazil and Russia.
These reforms coupled with strong balance sheets and demographics will support higher levels of global growth for decades to come.
The investment world is changing quickly and 2015 should prove to be a very interesting year, but we see no reason to change our long-held positive view on global equities.
Recently, two major voices in the "core Fed" (Fischer and Dudley) have indicated that despite low inflation, the Fed's main scenario is to begin hiking rates in mid 2015.
China's economy likely slowed much more than the official statistics show; otherwise, the government would not have reversed course on its various crackdowns, especially on the property market.
Our Global Investment Committee always seems to meet in the middle of great volatility, and this time was no exception, with the investment world facing all sorts of new challenges.
In our view, the LDP coalition's maintenance of a strong two-thirds majority in this election will greatly help Prime Minister Abe and his party's reform efforts, while likely bolstering Yen weakness to some degree.
Asia is evolving rapidly, which has implications for investors globally. It should no longer be viewed as just a cheap manufacturing hub, but a region with high value-added industries catering to an increasingly wealthy middle class.
As we move further away from the turbulent period between 2007 and 2009, interest in credit has increased rapidly as investors globally search for extra return in a low yield environment.
If the RBA does cut interest rates, it is likely that they will make more than one cut, so we could see Australia's official cash rate at 2.00% by the second quarter of 2015.
Many empirical studies have shown that a value style approach to investing in Australian shares has consistently outperformed growth investing - and with less risk.
The three main points from our prior report on this topic have not changed; however, there are a few more anomalies in the data this time.