Zurich investment specialist Angus Crennan said the US economy is benefiting from the energy revolution and the improvement in the housing market, while Abenomics has led to a recovery in the Japanese economy and a “strong, sustainable rally in Japanese equities”.
The Japanese economy’s ability to absorb another rise in the consumption tax from five per cent to eight per cent will be a key factor in its continued performance in 2014, Mr Crennan said.
“Rising wages would undoubtedly help, though the Bank of Japan will be at the ready to inject even more monetary stimulus if required,” he said.
Mr Crennan did warn, however, that over the medium term the Abe government’s “tough economic reforms will become increasingly difficult to achieve with weakening approval ratings”.
“Hopefully, rising territorial tensions in the East China Sea won’t derail market sentiment,” he said.
Mr Crennan also expects a continuation in growth in Europe, with macro data for the region mostly positive.
There may even be some “mild overheating” in Germany, he said, “given full employment and its leverage to stimulatory financial conditions and strong trading links”.
“While the cost has been significant, countries like Spain have achieved remarkable progress improving their international competitiveness and addressing their fiscal imbalances over the last few years,” he said. “Having said that, a lot of heavy lifting remains to be done, especially in Italy and France.”
Mr Crennan also believes fears over a crisis in China are overblown.
“The country is a net creditor; a large part of their financial system is funded from household deposits, backed by a government with significant foreign currency liquidity cushions and low levels of debt to GDP,” he said.
