- Spurts of volatility may present buying opportunities in global equities
- Only one U.S. federal funds rate hike expected in 2016 - if at all
- Australian export volumes appear strong enough to support GDP growth
SYDNEY, 6 July 2016 — Russell Investments released its 2016 Global Market Outlook-Q3 Update today, 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.
At mid-year 2016, Russell Investments’ strategists see lacklustre economic and equity market growth globally. The team expects upwards pressure from inflation on U.S. bond yields will be muted by deflation in other major developed markets, meaning low yields are likely to rise, but only modestly. The team also expects global market volatility to continue as implications of Britain’s vote to exit the European Union play out over the coming months. Looking to China, the strategists maintain their case for the country’s economic slowdown to make a “soft landing.”
“We still want to buy equity dips and sell rallies, but even post-Brexit volatility has not been significant enough yet to trigger a contrarian buy signal in our investment process," said Andrew Pease, Russell Investments’ global head of investment strategy. "U.S. equities still look expensive, business cycle fundamentals in developed markets are weakening and government bonds score poorly on value.”
Asia-Pacific, Australia outlook: ‘creditable pace of expansion’
“At the headline level, Asia-Pacific economies are providing few surprises as we move into the second half of 2016,” said Graham Harman, senior investment strategist-Asia Pacific. “The latest Chinese GDP numbers, at 6.7%, may be the slowest since the global financial crisis, and ‘mediocre’ in that sense, but it’s a very creditable pace of expansion for all that.”
Regarding Australia, Mr Harman added that national income growth is being depressed by terms of trade weakness. “However, strong export volumes are supporting the real GDP readings at close to 3% growth, a little ahead of our prior expectations,” he said.
U.S. outlook shows little risk of near-term recession
In the U.S., both the May employment report and concerns over Brexit have contributed to the Federal Reserve’s caution, according to Russell Investments’ strategists. However, even with the decelerating labour market and negative corporate earnings growth, the strategists find little risk of near-term recession in the U.S.
“We expect Brexit will have only a limited impact on the U.S., and the headwind from a stronger U.S. dollar will be offset by more cautious Fed policy,” said Paul Eitelman, investment strategist, North America, at Russell Investments. “We expect the December Fed meeting will be the earliest timing of a rate change, and we continue to expect 2% real GDP growth in 2016, although we cannot rule out a slower growth scenario entirely.”
The report includes a segment focusing specifically on U.S. earnings, outlining the strategists’ expectations for earnings growth to move from negative to zero over the next few quarters as transitory headwinds fade. Longer-term, the team forecasts low single-digit earnings growth and the continuation of expensive valuations.
For more information, please access the Q3 2016 Global Market Outlook Report.
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First Used: July 2016