While the GIC has maintained an overweight allocation in global equities since 2011 despite various global risks, Ukraine tensions and increasing signs of shadow banking defaults in China have spurred the GIC to reassess its current weighting.
Nikko AM said it has long been cautious about China and is also concerned by its declining residential property prices.
While the increase in reforms in China may be beneficial to certain parts of the economy even in the short term, Nikko AM expects economic growth will “moderately disappoint consensus expectations”.
Elevated US equity valuations and a significant rise in US equity prices in the last year are also concerns for the GIC, particularly as earnings growth will be impacted by recent weather disasters.
In terms of the Ukraine, the GIC expects a stalemate will be reached, with the west controlling 95 per cent of the Ukraine and Russia controlling Crimea.
Nikko AM said there is a possibility that local populations may begin to fight with each other, which could potentially lead to an escalation in geo-political tensions.
As the decision to adjust the weighting was made during an ad-hoc meeting, the GIC will make a final decision when it meets again on March 27.
