The Weekly Strategy Report (27 March 2017)Contributor Multi-Asset Solutions
The global reflation theme that has taken hold of markets in recent months
encompasses, in our view, several phenomena, including a broadening of strong
growth beyond the U.S.
Growth has shifted upward in both the euro area and Japan, and solid economic
performance will likely continue through this year for both.
Japan grew at a satisfactory pace last year without much support from fiscal easing,
which should represent a significant tailwind in 2017. Cyclical forces are operating in the euro area after years of weakness, and episodes of country-specific political
uncertainty have not damaged growth recently.
Concerns linger in both markets as investors await the two rounds of the French
presidential election in April and May; and consider the lack of success the Abenomics program has had in changing private sector behavior in Japan.
- As a reflection of these fundamental views, we hold an overweight position in Japanese equities and an underweight in German Bunds, while staying neutral, for now, in euro area stocks.
EXHIBIT 1: ESTIMATED GROWTH EFFECT OF JAPANESE FISCAL POLICY
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