Global markets appear vulnerable to fourth-quarter shocks
- U.S. recession risk edges higher, but remains modest
- Asia-Pacific markets on track to end 2016 with creditable performances
- Market pullbacks may provide investment opportunities
SYDNEY, 4 October 2016 - Russell Investments today released its 2016 Global Market Outlook – Q4 Update, offering the latest economic insights and market forecasts from its global team of investment strategists, which help guide the firm's multi-asset portfolios and services.
The team anticipates volatility in the final quarter of 2016, as markets absorb the U.S. election results, the Italian referendum and likely U.S. Federal Funds rate tightening. The strategists' outlook for lacklustre global economic growth remains intact from the previous quarter. The team expects global bond yields to rise modestly as inflation pressures in the U.S. are offset by deflation in other developed markets. In currency markets, the U.S. dollar looks set to test previous highs, while the British pound remains at risk as investors focus on the full implications of the United Kingdom's referendum earlier this year to leave the European Union.
"Asset markets are precariously priced and vulnerable to shocks, but market setbacks could provide opportunities to take on more risk in multi-asset portfolios," said Andrew Pease, Russell Investments' global head of investment strategy. "The ability to dynamically allocate between asset classes is becoming increasingly important."
Asia-Pacific, Australia outlook: some wind in the sails?
The strategists see Asia-Pacific economies and markets as on track to achieve creditable performances for 2016.
"As we draw toward the close of 2016, the risks associated with regional debt, property market excesses and currency headwinds have not completely gone away, but they are in abeyance," said Graham Harman, senior investment strategist for Asia Pacific at Russell Investments. "China is successfully juggling the competing demands of economic rebalancing and a growth slowdown. Japan has delivered a GDP upgrade despite the headwind of a strong yen."
Regarding Australia and New Zealand, specifically, Mr Harman sees a similar theme of controlled inflation and solid growth. "The downdraft from the end of the commodity boom is now losing some of its bite; and, indeed, recent bounces in the coal price in Australia and milk price in New Zealand are putting some wind in the sails of those two economies," he said. "Extremely low inflation is allowing official interest rates to remain accommodative, and the housing markets in both countries remain buoyant for now."
U.S. outlook: despite warning signs, only a moderate risk of recession
In the U.S., the team continues to expect an interest rate hike from the Federal Reserve in December, as well as two hikes in 2017 supported by modest economic growth and a gradual firming in inflation. The U.S. labour market remains healthy, and the strategists do not see signs of imbalances in business investment. However, the team does see warning signs stemming from the corporate sector, including a troubling rise in corporate leverage. Overall, the team maintains an underweight U.S. equities view, though their modeling shows only a modest risk of recession.
For more information on the global report, please see the 2016 Global Market Outlook: Q4 Update.
About Russell Investments
Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm's core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures— to help each achieve their desired investment outcomes.
Russell Investments has more than AUS$327 billion in assets under management (as of 6/30/2016) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has more than US$2.2 trillion in assets under advisement (as of 12/31/2015). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than US$1.7 trillion in 2015 through its implementation services business.
Headquartered in Seattle, Washington, Russell Investments operates globally, including through its offices in New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago, Milwaukee and Edinburgh. For more information about how Russell Investments helps to improve financial security for people, visit https://russellinvestments.com.au.
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
Investing involves risk and principal loss is possible.
Forecasting is inherently uncertain and may be incorrect. It is not representative of a projection of the stock market, or of any specific investment.
Investments that are allocated across multiple types of securities may be exposed to a variety of risks based on the asset classes, investment styles, market sectors, and size of companies preferred by the investment managers. Investors should consider how the combined risks impact their total investment portfolio and understand that different risks can lead to varying financial consequences, including loss of principal.
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (RIM). This document provides general information only and has not prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation or needs. This information has been compiled from sources considered to be reliable, but is not guaranteed.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates, with a significant minority stake held by funds managed by Reverence Capital Partners. Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
First Used: October 2016