UBS predict another year of market volatility in 2016. However, the Bank still forecasts modest gains in global growth and continues in its overweight position towards equities.
The Swiss bank gave its market predictions for the year ahead at a roundtable event in London. The key theme presented indicates that 2015 did not mark the peak of the cycle for risky assets, and that a period of continued volatility is predicted for 2016. Simon Smiles, head of UHNW and alternatives at UBS, said that the forecast for 2016 is "not overly optimistic" but he expects that the markets will perform "ok".
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The bank forecasts that global growth will accelerate modestly in 2016 to 3.4% from 3.1% in 2015. UBS expects growth to be more evenly distributed between developed and emerging markets, with an increase in Indian output and stabilisation in Brazil and Russia. However, the bank predicts that China’s slowdown will represent the biggest drag on global growth in 2016.
The most significant risks to global growth were also outlined:
– US consumption and investment suffering as a result of higher interest rates.
– A renewed political crisis in the Eurozone affecting consumer confidence.
– Japan’s economy continuing to fail to respond to stimulus measures.
– China’s manufacturing sector slowing more rapidly, and damaging consumption, leading to a faster than expected slowdown in overall growth.
– Commodity prices continuing to slide, affecting exporting nations, with importing customers not spending their savings.
– A financial crisis in the emerging markets resulting from escalating capital outflows.
– A geopolitical event which affects confidence, potentially involving Russia and the Middle East.
The bank’s positive outlook towards global equities comes from an expectation that there will be an accelerated level of consumption in developed markets and greater stability in emerging markets – allowing companies to grow with fewer constraints in 2016 than in 2015.
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