We see upside to global economic growth prospects but also greater market volatility in the fourth quarter. This comes after a summer lull in volatility, record highs for US equity markets and a rebound in emerging market (EM) assets…..
Richard Turnill Global Chief – Investment Strategist BlackRock Investment Institute
BlackRock : Global Investment Outlook Q4 2016
We see early signs of a regime change for market returns due to US reflation and a global pivot from monetary stimulus to fiscal support, even if the immediate economic impact is limited.
Our key views:
• Policy limits: we expect the US Federal Reserve to press on with slow interest rate increases while other major central banks start to approach limits of their easy policies.
• Low returns: our return expectations are at post-crisis lows across asset classes, but we believe investors will be compensated for taking on risk in equities, selected credit, EM and alternative assets.
• Volatility: central bank asset purchases have smothered volatility and pushed investors to take greater risks, but we could see short bursts of heightened volatility as the limits of monetary policy become clearer.
• Risks: equity and bond returns are becoming more correlated and could fall in tandem, while rising long-term yields are a tail risk that could cause an unwanted tightening of financial conditions. A divisive US presidential election is the top political risk. Near-term China risks have receded amid a gradual currency depreciation and a pick-up in Asia’s export machine. China’s yuan stability and debt build-up remain medium-term risks, however.
• Markets: we prefer shorter-duration US government bonds and favour selected eurozone peripheral debt over other sovereigns. We generally like investment grade corporate bonds in the eurozone, UK and US. We find EM debt attractive but have become more selective, and we see further upside in EM equities. Dividend stocks may come under pressure from higher bond yields, so we prefer companies that can sustainably grow dividends.