American Express Asset Management has cut its Japan weighting across its global portfolios as invest...
American Express Asset Management has cut its Japan weighting across its global portfolios as investment consensus grows that the market is recovering.
The group has shifted to a neutral position because it believes opportunities for outperformance are better elsewhere now that the market consensus on Japan has moved up to its forecast to 1.5% growth in 2000,
The investment house has cut back its cyclical exposure to the Japanese market as well as its telecoms, media and technology holdings, moving into more defensive areas of the market such as utilities, pharmaceuticals and non-life insurance.
American Express Asset Management has also reduced its exposure to the Pacific Rim excluding Japan, where it believes growth is at or near its peak.
Suzanne Hudson, international economist at the group, said: "We expect the US Federal Reserve to tighten interest rates by a further 50 to 75 basis points over the remainder of the year. Our US interest rate view has led us to reduce Hong Kong and we are now underweight. We continue to favour Taiwan and India within the emerging universe.
"Reflecting our heightened sensitivity to valuations, we are currently overweight Australia, where we are finding the most attractive 'growth at the right price' stocks."
American Express Asset Management has also increased its US weighting in its global portfolios. It has reduced the size of its underweight position, to buy into pharmaceuticals and also to buy technology stocks which have fallen back in valuation.
Hudson said: "The source of funding for the technology shares came through a reduction in cyclical exposure, namely retail and chemicals. With growth peaking, it appeared unlikely that cyclical sectors would outperform the broader market.
"From a sector perspective, technology, mainly tech hardware, and pharmaceuticals are the main overweight positions within the portfolio. Consumer-related and cyclically exposed industries are significant underweight positions."
The group also believes growth is at or near its peak in Europe and forecasts it will slow slightly next year.
American Express Asset Management forecasts growth in the eurozone will be around 3.4% in 2000, slowing to around 3% in 2001 and it expects the European Central Bank to raise interest rates by 25 basis points by the end of the third quarter this year.
Hudson said: "Given this, we believe the most beneficial position for the portfolio is a combination of attractively valued defensive stocks, good quality, high visibility growth companies and a very low cyclical exposure. During the quarter we sold our remaining GDP sensitive cyclicals and reinvested the proceeds in defensive areas such as pharmaceuticals, utilities and insurance.
"Our central assumption that global interest rates are set to rise further led us to reduce our exposure in the highly-valued technology, media and telecoms sectors, where prices continue to discount high growth rates many years ahead with the greater part of valuations heavily weighted to the future.
"Within the technology arena, we continue to focus on the infrastructure providers and enablers whose competitive positions are strong. In these specific cases valuations can be justified by the ability to continue to make excess returns well into the future."
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