Neptune is backing Japan and the United States for strong growth over 2015, which the firm said will offer unusually favourable conditions for equity investors.
Charlie Parker, head of strategy at the firm, told FTAdviser that it was rare to see accelerating economic growth accompanied by financial conditions that are not tightening.
“This is because the substantial fall in the oil price over the past six months is bringing down inflation – driving some key central banks to loosen policy – just as underlying growth improves. Globally, oil at this low level could add as much as 0.5 per cent to GDP next year if these prices persist.”
He suggested that Japan will be a key beneficiary of the current strength in economic conditions, as its consumers need the offset the lower oil price provides, to combat the negative impact of the recent sales tax hike and high electricity prices.
“This, coupled with a rich cocktail of pro-growth policies to be implemented by [Japanese prime minister] Shinzo Abe, means we believe earnings will continue to improve in Japan in 2015.
Mr Parker added: “The market should reward these earnings, as domestic buying increases from Japanese institutions, and foreign investors finally wake from their slumber to recognise the success of Abenomics.”
“The increasingly divergent paths of US and Japanese monetary policy should also lead the yen to weaken substantially.”
Conditions in the United States also look favourable for equities next year, with growth trending at around 4.2 per cent since the third quarter of 2013 as a result of the significant lifting of fiscal drag, according to Mr Parker.
“For sterling investors, the US offers the added advantage of a dollar which should appreciate significantly as market expectations catch up with the more hawkish Fed policy, that is already baked into the Fed’s own assumptions.
“Add to this the ‘tax-break’ of lower oil prices and it leaves us optimistic.”
Elsewhere, Mr Parker was less positive about the short-term outlook for Europe. While underlying conditions are progressively improving as the European Central Bank moves slowly towards sovereign quantitative easing, his team sees the timing as hard to call.
Neptune is also cautious on the UK, as it moves “into the most uncertain election for generations”, with similar caution reserved for most emerging markets, with the exception of India.
Mr Parker stated: “We believe 2015 will provide further evidence of the beneficial impact of India’s reforms. We see accelerating growth, improving efficiency, further re-rating and earnings expansion for Indian companies.
“India will also feel the benefit of low oil prices as greater freedom is provided to its inflation-constrained central bank to ease conditions.”
Ultimately, said Mr Parker: “2015 will prove to be a year when the great reformers of our age, Prime Minister Abe in Japan and Prime Minister Modi in India, demonstrate the power of their reforms to drive the asset price reflation from which we stand to benefit as equity investors.”
ruth.gillbe@ft.com
