A number of different factors have joined together to encourage investors to ditch safe assets and head for riskier investments.
Many professional investors are heading towards Japanese equities because of the country’s weak yen which helps boost exports and increasing confidence among Japanese companies.
Others are ditching Australian bonds and reducing their gold holdings.
The downward slide of the UK pound is also making British equities more attractive, particularly in those firms which trade in dollars or export in volume.
To underline this move, one major player, Baring Multi Asset Fund, has increased its equity exposure in Japan from zero at the end of last year to a current standing of 4% – and they are looking to invest more.
Flagging economy
Fund manager Andrew Cole said that the Japanese government’s manipulating of the yen was helping to boost the flagging economy and, as a result, the recovery in Japanese equities was sustainable.
He added: “The measures taken by the Bank of Japan appear to be more credible than anything we have seen in the past and, as such, we believe Japanese equities are set to provide good opportunities for investors.”
Mr Cole says gold exposure has been reduced and will need an unorthodox fiscal intervention in the US for the price to keep rising.
The fund is also slashing the proportion of assets which are hedged in Sterling from 79% last autumn to 68% in the first quarter of this year.
They are also selling Australian bonds as government debt in safe havens comes under pressure and investors move to riskier profiles against what is seen as an expensive asset class.
The outlook of Barings is underlined by a Credit Suisse report which highlights two reasons as to why investors are adopting a riskier stance for their investments.
Stops and starts
The first, they say, is that economic growth in the US will pick up this year and lead the global recovery and, secondly, that the world’s central banks will raise interest rates this year as they leave their stimulus measures behind them.
However, they warn that the markets will fluctuate dependent on economic data being published but that the swings will be pauses rather than peaks and troughs and that the markets will continue their upturn.
Economists at Credit Suisse are predicting an up-coming slowdown in the world economy but this will not be followed by a sharp decline in growth and that the market’s mood of optimism could be undermined leading to short term falls.
The firm also points to the Japanese economy enjoying a strong rebound this year with better growth figures for both China and Europe.
