Some of the top financial experts warned us of recessions and crisis, while others shared their tips for finding yield.
Watch for a Worldwide 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.”
Growth Is Coming … in 2017
Joseph LaVorgna, chief U.S. economist at Deutsche Bank
“I’ve got growth accelerating a bit because it seems like there are reasons that the economy should get better, but it’s concerning that 2010 was the best year for growth since before the recession. As I look forward, the message is ‘more of the same,’ with maybe some optimism into 2017 that whoever the U.S. elects president will pursue growth policies, since this economy hasn’t done well.”
China Will Be Just Fine
Yang Zhao, chief China economist at Nomura Holdings, which cut its 2016 GDP forecast to 5.8 percent from 6.7 percent on Oct. 6
“Is there going to be a hard landing in China? I don’t think so. The labor market remains largely balanced; even with 5.8 percent GDP growth, the economy will create jobs, especially in the labor-intensive services sector. And it’s unlikely that China’s financial industry is headed for a crisis because most of the country’s institutions are backed by the government. Should any systematically important financial institutions have any problems, we believe that the government will step up to rescue them.”
Think Like a Millennial
Katie Koch, a managing director at Goldman Sachs Asset Management, which oversees almost $100 billion in global stocks
“The rise of the millennials will have long-term investment implications,” Koch says. “Their spending trajectory is getting steeper and increasing compared to baby boomers, who are decreasing their spending as they retire.” In 2016, Koch is especially keen on Netflix, Nike, H&M, and PChome Online, a Taiwanese e-commerce company, because they prioritize instant information, quick consumption, and healthy living—themes that resonate with the 2 billion people worldwide born from 1980 to 2000.
Barbara Byrne, vice chairman of investment banking at Barclays Capital
“We will begin to see a recovery in the prices of natural resources for largely—and critically important—political reasons. We’re beginning to see sovereign wealth funds decline—Norway, Saudi Arabia. I think we’ll see a reversal on that; countries will not be able to afford fluctuations in their reserves. We’ll probably move to a more stable oil price, which I would say is $60 per barrel. And I think energy assets that are investing in sustainability at the same time that they’re focusing on meeting the needs of the current demands will probably do well.”
Study Latin America
Tulio Vera, chief global investment strategist for the J.P. Morgan Latin American Private Bank
“There’s a ray of sunshine from Argentina,” says Vera. “That’s not only important for the country but also for the region.” While Vera says the investment landscape in Brazil remains uncertain, he sees Mexico continuing to benefit from the U.S. economic recovery, especially in the auto industry. “There will be some very interesting entry points in Latin American assets between now and the end of next year,” he says. “We are getting closer to a re-entry moment for some of these markets.”
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."
The Search for Yield Will Intensify
Russ Koesterich, global chief investment strategist at BlackRock, the world’s largest money manager
“The Fed is going to be less important in 2016,” says Koesterich, who expects Janet Yellen & Co. to raise interest rates incrementally. He predicts global growth will stay sluggish, increasing the thirst for higher-yielding assets. Investors who have relied on high-coupon bonds they bought before the financial crisis are running out of those securities, he says—and there’s little to replace them that’s a slam dunk.
“You won’t be able to find income without risk. Asset classes from [master limited partnerships] to high-yield bonds each have their own risks—and none of them are cheap. You’re going to have to have a multi-asset-class, diversified-yield play.”
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