Japanese equities might outperform world equities next year on the weaker yen, which is expected to fall below 118 against the US dollar, Schroders Investment Management Ltd said last week.
“Japan continues to get strong monetary stimulus,” Schroders head fund manager in Hong Kong Richard Coghlan said at a news conference in Taipei on Wednesday last week to share his predictions for the global economy next year.
Coghlan said the continuous monetary easing from the Bank of Japan (BOJ) to generate inflation should see the yen weakening further to 118 versus the greenback, leading to inflows of more capital to raise Japanese equities next year.
In addition, gold and energy prices would continue to trend lower next year, with global commodity prices remaining under pressure, Coghlan said, adding that major automakers might benefit from low energy prices.
Overall, “global decoupling” is the term to depict development of global economy next year, Coghlan said.
Coghlan said the US might continue to recover next year, with Europe struggling, leading to a divergence in growth, inflation and consequently monetary policy between the two sides in the West.
In the Asia-Pacific region, China might see GDP growth continue to slow, further dragging down the mining sector in Australia and causing the latter to fall into recession next year, he added.
Differentiation might also occur among emerging economies next year, Coghlan said. India is likely to benefit from falling agriculture prices, which contain inflation, while weak commodity prices would cause Brazil’s economy to continue to struggle.
Coghlan said Taiwan’s economy is set to benefit from the US recovery and the transition toward consumption-led growth in China, largely driven by the demand in the information technology sector.
While the US dollar is showing signs of strengthening against regional currencies in Asia, the New Taiwan dollar could still be relatively stable next year, as Taiwan has a strong current-account surplus — more than 10 percent of GDP — which is higher than that of South Korea, Hong Kong and other major emerging markets, he added.
Meanwhile, HSBC strategists said major Asian currencies could face higher volatility next year, considering their recent weakness against the US dollar, with some even starting to underperform the euro.
“For most of 2014, we have been fixated with the [US] Federal Reserve and the knock-on implications for Asian currencies,” HSBC Global Research head of Asia currency research Paul Mackel and his colleagues wrote in a commentary published on Thursday.
“But through the course of this year, it has become steadily clearer that Asian currencies are held hostage to more than just the Fed. The ECB [European Central Bank] has become increasingly important and suddenly so too has the BOJ again.”
With lower inflationary pressure and slowing growth outlook for many Asian nations, policymakers could be less inclined to curb local currency weakness this time, HSBC strategists said.
However, as the Chinese yuan is susceptible to greater volatility again next year — as it was earlier this year — and could become more commonplace, HSBC said it could further upset the region’s currencies going forward.
“Tighten your seatbelts — the turbulence for Asian currencies looks set to continue,” they wrote.
Additional reporting by Kevin Chen
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