Nikko AM has cut its stance on global equities to neutral for the first time since 2011, citing growing geopolitical risks.
The firm's global investment committee held an emergency session on 3 March, where attendees voted to reduce the position from a moderate overweight. The decision was upheld at a second meeting on 27 March.
As well as geopolitical tensions, reasons behind the decision include further worsening economic conditions in China and overly-high equity valuations in the West.
In its latest report, the Japanese fund manager said: “As for geopolitics, we are now more concerned about such than the markets seem to be. While we continue to expect that Russia will avoid invading Eastern Ukraine, we believe that ethnic violence could easily begin there.”
Other geopolitical risks include economic sanctions against Russia, disputes involving China and North Korea, unrest in the Middle East and Emerging Markets political strife, it added.
In terms of additional risks to global equities, the firm highlighted the Chinese wealth management and trust industries: “We still believe that the country’s large hidden bad debts have yet to be fully disclosed and that China’s real estate market is overpriced.”
Chinese economic growth may be further curbed by the need to prioritise a clampdown on the country’s “intolerable” pollution levels, it said.
While the US economy remains “quite firm”, the fund manager said conditions in the Eurozone remain fragile: “Clearly, geopolitical conditions have worsened, and the region, especially Germany, is highly dependent on Russian trade. It would also be highly affected by the continued moderation in Chinese growth.”
Russia's annexation of the Crimea in March triggered a sell-off of Russian stocks, with the Micex index tumbling 11%.
