2016 outlook and 2015 round-up for Momentum Harmony Portfolios

Consesus view for 2016:

  • Fed: very gradual policy normalisation
  • US 2+2+2 in 2
  • Europe & Japan maintain ultra loose policy, gradual economic recovery
  • EM remain under pressure, credit cycle has further to run
  • China growth slows modestly to around 6 ½%
  • USD remains strong
  • Commodities remain weak
    • Oil lower for longer
    • Industrial metals to fall further
  • Middle East instability rumbles on but does not impact global economy
  • BREXIT: UK stays in
  • Bond yields and equities to rise modestly

Risks for 2016

  • Fed is behind the curve
    • wages accelerate, inflation surges
    • upside surprise to growth
  • “Hard landing” in China
  • Renminbi falls sharply
  • Policy normalisation brought forward in Europe & Japan
  • Instability in Middle East spreads to Saudi Arabia
  • Oil price recovers sharply
  • USD falls, commodities rebound
  • Future of EU called into question
    • UK votes to exit
    • migrant crisis
    • popular discontent
    • Donald Trump becomes US President

Conclusions and implications for portfolio construction in 2016

  • Global growth has stalled – Pressure on corporate earnings
  • Powerful deflationary forces – Financial strength is critical
  • Policy constraints – Monetary policy looser for longer
  • Subdued growth & low rates – Modest return expectations
  • China’s rebalancing, EM structural problems & policy mis-steps – World is vulnerable to adversity
  • Periods of volatility are inevitable – Creates valuation opportunities
  • Sustainable recovery in DM – Very long cycle, stay invested

Please click here to read more and for a round up of the portfolios in 2015

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