Developed economies are set to grow at a modest pace backed by healthy economic growth in G3 economies, while receiving support from lower energy prices, according to Nikko Asset Management's global investment committee (GIC), which is maintaining a moderately overweight position on global equities.

The Tokyo-based company's investment committee continued to favour a moderately overweight stance on global equities, with Japan heavily overweight and the US underweight, while global bonds are heavily underweight, with US dollar cash remaining significantly overweight. The committee has favoured an overweight position on global equities in the last 13 quarters out of 14.

"We realized that there are many risks globally and the oil price plunge has surprised us along with nearly all other investors, but we think these risks will be overcome and note that lower energy prices are very positive for most developed economies," said John F. Vail, chief global strategist and head of the GIC. "For the coming two quarters, we expect overall G3 economic growth to rebound at economists' consensus expectations and for the G3 central banks to continue to pursue divergent paths."

On energy prices, Nikko Asset Management's analysts believe the healthy economic growth in the G3 economies, along with declining capital expenditure in the US, will lead to a single-digit rise in Brent crude oil over the next six months. As for geopolitics, Nikko Asset Management continues to see that conflicts will remain mostly localized, with short-lived effects on developed markets, with the Ebola crisis becoming less severe.

The company's analysts expect that the US Federal Reserve will raise interest rates in June or July 2015, but only by "baby steps," that is, after an initial 25bp increase in June or July, 12.5bp hikes thereafter. The analysts continue to forecast that the European Central Bank will initiate moderately sized sovereign quantitative easing in the first quarter of 2015, with a lesser chance that it will occur in the second quarter. For the Bank of Japan, the committee does not expect further major easing for the intermediate term due to the weaker yen.

Nikko Asset Management believes the recent Japanese GDP data overstates the decline in the economy and continues to be optimistic about growth in the world's third-largest economy. Japanese equities could be supported by rising profits, especially as valuations remain attractive and as the BOJ and the Government Pension Investment Fund are expected to be large-scale buyers.

"Deflation is over in Japan and the structural bear market in equities is also dead, in our view," Vail said. "Japanese investors will continue to be forced to change their methods, as TOPIX is already yielding far above all but a few fixed income investments, and this factor should accelerate as we expect the TOPIX dividend to double in the next five years."

Forecasting through June, Nikko Asset Management expects Japan's broader TOPIX index to reach 1,658, which is a 15.5% gain in yen terms (unannualized total return from the company's base-date).

Nikko Asset Management's GIC met on December 11 for its quarterly review of global economic conditions. Based on the findings of its senior investment professionals around the world, the company periodically reconsiders house views on the major global markets and asset classes.

The committee's main forecasts at this time are:

Japan: Half-year GDP growth (January to June 2015) of 2.5% half-on-half, seasonally adjusted, with equities, as measured by TOPIX, rising about 15.5% in yen terms over the next six months to June.

US: Half-year GDP growth of 2.9% half-on-half, seasonally adjusted, with equities, as measured by the S&P 500, rising 2.7% in dollar terms over the next six months to June.

Eurozone: Half-year GDP growth of 1.3% half-on-half, seasonally adjusted, with equities, as measured by the MSCI Europe, rising 5.9% in dollar terms over the next six months to June.