– Spurts of volatility may present buying opportunities in global equities
– Only one U.S. federal funds rate hike expected in 2016—if at all
AUCKLAND, 7 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 lackluster 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, New Zealand outlook: ‘creditable rate 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 financial crisis, and ‘mediocre' in that sense, but it's a very creditable pace of expansion for all that."
Mr Harman added that national income growth in New Zealand and Australia 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 labor 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 see the “2016 Global Market Outlook: Q3 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 NZD$356 billion in assets under management (as of 3/31/2016) 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 $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 $1.7 trillion in 2014 through its implementation services business.
Headquartered in Seattle, Washington, Russell Investments operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago and Milwaukee. For more information about how Russell Investments helps to improve financial security for people, visit https://russellinvestments.com/ or follow @Russell_Invest.
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.
First Used: July 2016