Watch For A Global Recession
Ruchir Sharma, head of emerging markets equity and global macro, Morgan Stanley Investment Management
“We are now just one big shock away from a global downturn, and the next one seems most likely to originate in China, where heavy debt, excessive investment, and population decline are combining to undermine growth, while relatively low-debt countries from Eastern Europe to South Asia look better positioned to weather the inevitable next turn in the cycle."
Fixed Income Faces A Rocky Road
Dan Fuss, vice chairman at Loomis Sayles & Co. and co–portfolio manager of the $20 billion Loomis Sayles Bond Fund
Yields on the benchmark 10-year Treasury note will likely rise to 2.6 percent to 2.8 percent by the end of 2016, Fuss says, although he cautions that the current geopolitical turmoil makes forecasting especially difficult. For investors with a bond portfolio in these rocky times, Fuss recommends a mix of Treasuries, investment-grade corporates (with maturities of five to 12 years), and high-yield debt has the best chance of success in 2016. And you’ll need to be especially picky when it comes to high-yield bonds instead of relying on an index fund, he says. “It’s quite clear that high yield has the best value relative to stocks, but there’s a lot more scatter there."
Know Which Equities To Watch
Thomas J. Lee, managing partner at Fundstrat Global Advisors
“Equities are going to do really well in 2016, especially banks and blue-chip businesses. Banks will benefit from the Fed tightening and will boost their returns on equity as the economy expands. And when you look at blue chips, they’re going to have the ability to generate stronger returns as the economy picks up."
The EU Faces Its Biggest Challenge Yet
Rebecca Patterson, chief investment officer of Bessemer Trust, which oversees more than $100 billion in assets
The biggest risk for Europe in the year? "It's the refugee crisis," says Patterson. "I think it's the biggest challenge to the European Union yet. The horrible terrorist attacks in Paris increased the risk that the refugee crisis could result in a political and/or policy shift, or simply lead consumers to change their spending patterns. Either could weigh on sentiment around European growth and corporate profits." Patterson is on alert for any such changes but remains overweight European equities and positioned for a weaker Euro, she says. "The Paris attacks sadly shone a light on the European refugee crisis; I assume more investors globally now are thinking more about what millions of immigrants can mean for an economy and respective markets. However, I am still not sure that investors globally have adequately thought through what market spillovers the European refugee crisis could trigger over the coming year."