Emerging market exposure cut

The volatile geopolitical situation in Eastern Ukraine and the prospect of prolonged economic malaise in China prompted Nikko Asset Management to cut its stance on global equities from overweight to neutral last month. 

A research report by the firm’s analysts said the situation in Eastern Ukraine could become more unstable than the Crimean example because vital production facilities for military equipment are located in the region, which Russia is unlikely to permit coming under the control of a hostile government.  

“While we did not previously believe that Russia would invade Eastern Ukraine, we have to admit that some form of Russian presence is likely,” said Nikko chief global strategist John F. Vail. 

 Meanwhile, in China, negative news is accelerating on several fronts as property price declines spread to second and third-tier cities, while the Government attempts to rein in the shadow banking system which provides funding to many struggling sectors of the economy, the report said. 

“Falling property prices put a damper on investor sentiment and also lead to less activity in the crucial housing construction industry,” Vail said.  

“Rising defaults among the shadow banks will lead to a rise in banks’ non-performing loans, but in the long run the Government is doing the right thing in instilling some discipline in lending activity,” he said.