As has long been our view, disappointing economic data should not worry investors in Japanese risk assets very much at all.
We believe the global economy should be quite firm for the next year, but not so strong as to cause inflation concerns.
We have a non-consensus, but completely sound call for a more aggressive Fed, whereas we expect the ECB and BOJ to maintain their current aggressive easing program.
We calculate that equity valuations are at fair levels and that stocks can grow along with earnings.
We expect that profit margins will expand further in coming quarters, driven by a large corporate tax cut and continued industry rationalizations that further prove that Japan's structural profitability trend continues upward.
We expect that Japanese pension funds will continue to shift their investments into risky assets in 2015.
The importance of President Xi Jinping's strong leadership cannot be stressed enough. Under him China is undergoing dramatic changes. While the most thorough cleansing of state corruption is ongoing, elements of China's grand strategy are becoming more evident both domestically and on the global stage.
Due to the developments described in this article, there is ample room for growth at Japanese firms and much opportunity for investment success.
In sum, there certainly are some worrisome issues, as always, but we find none of them convincing enough to prevent moderate increases in equity prices.
Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.