The financial landscape has been taking different twists and turns over the years. While we have seen a lot in 2015, ranging from the dipping prices of oil to corporate bond inventories going below zero, the year 2016 may come with some surprises. Here are 8 predictions in the world of finance coming from the brightest minds.
1. An impending worldwide recession
One big shock may be about to happen, and that’s a worldwide recession. According to Ruchir Sharma, who serves as the head of Morgan Stanley Investment Management, an emerging markets equity as well as global macro, he says that a global downturn may give us a rude awakening. This time, it seems that it may start from China.
Excessive investment, heavy debt, and population decline may be undermining growth. However, low debt countries within the Eastern Europe region and Southern Asia may be more aligned to shield themselves from the looming downturn in global economy.
2. Equities likely to do well
The managing director, Fundstrat Global Advisors, Thomas J. Lee says that 2016 may see improvements in equities especially in blue chip businesses and banks. Financial institutions like banks will take advantage of Fed tightening, something that may help boost the returns on equity. Blue chips are likely to generate more returns owing to the expanding economy.
3. Fixed income may face a rough road
Yields on the 10-year Treasury note benchmark may go up from 2.6 percent to about 2.8 percent according to Dan Fuss, who is the chair of Loomis Sayles & Co. Fuss is a co-portfolio manager of Loomis Sayles Bond Fund that is valued at $20 billion. However, Fuss cautions that it is quite difficult to forecast on the Treasure note due to prevailing geopolitical turmoil.
Fuss advises investors to consider a mix of Treasuries, high yield debt, and investment grade corporates. Investors need to be specifically picky when it comes to high yield bonds rather than focusing on an index fund. High yield seems to have the best value when compared to stocks.
4. EU may sail through harder times
A chief investment officer serving at Bessemer Trust, Rebecca Patterson, says that the biggest risk that Europe faces is the refugee crisis. The Paris attacks have compounded the risk, which may result in policy and political shift. Consumers may also change their spending patterns. A weaker Euro may also be experienced. Investors are thinking about what kind of market spillovers the refugee crisis in Europe may cause to the economy over the next year.
5. A more stable oil price
The year 2016 may come with brighter days for the oil investors as the prices are expected to rise to about $60 per barrel. A recovery in the prices attached to natural resources is likely to occur mainly due to political reasons. Already sovereign wealth funds are beginning to decline including Saudi Arabia and Norway, says Barbara Byrne who heads investment banking within Barclays Capital.
6. Latin America may create new investment opportunities
Argentina is shining and creating new investment opportunities but the landscape in Brazil is still uncertain. Mexico will continue benefiting from the recovering US economy. All these indicators mean that there may be some new entry points for investors in Latin America as Tulio Vera mentions. Vera is the chief global investment strategist serving at the J.P. Morgan Latin American Private Bank.
7. Impact investors set to target cancer
It’s no secret that the world’s population is aging. There is increased demand for cancer treatment. On the other hand, the supply of capital within the riskiest stages of life seems to be constrained. Investors are focusing on later-stage research, something that provides opportunities for early investors to be able to gain long-term returns. This is a practice, which is dubbed impact investing, and it is expected to become common as investors seek to align themselves with their social values and generation of returns, according to Mark Haefele, who serves at UBS Wealth Management as the global chief investment officer.
8. Rise of the millennials
Long-term investment effects are expected to be seen due to rise of the millennials, says Katie Koch. The spending patterns of millennials are becoming steeper and doubling compared to those of baby boomers. This spending trajectory is bringing an impact on the long-term investment. The baby boomers are showing reduced spending as they retire but the millennials are spending more.
Brands like Nike, Netflix, H&M, as well as Taiwanese e-commerce company called PChome Online may see increased business activity. This is because they have prioritized things like instant information, healthy living, and quick consumption’s— all of which are themes that strongly resonate with the needs of about 2 billion people in the world who were born between 1980 and 2000. Katie Koch is a managing director working with Goldman Sachs Asset Management, a company that manages more than $100 billion worth of investment in global stocks.
These are some of the trends, which we are likely to see in 2016. However, experts are perhaps expressing different views about what may happen in China. Ruchir Sharma of Morgan Stanley Investment Management feels that a global downturn may start in China because of the heavy debts and disproportionate investment, but Yang Zhao who is a chief China economist serving at Nomura Holdings thinks that there isn’t going to be a hard landing in China.
Zhao says that the labor market is pretty well balanced. The economy will still create jobs despite its 5.8 percent GDP growth. One particular area where jobs are expected to increase is in the sector of labor-intensive services. On top of that, Zhao feels that since many of the institutions in China are backed by government, it is unlikely that the financial industry may be headed for a disaster.