Prepare for rocky markets in 2016: report

As we head into 2016, central bankswill continue to prop up the global economy, says an annual outlook report from Manulife Asset Management.

The report identifies possible economic drivers for 2016 and examines the outlooks for a range of investment areas and asset classes, including fixed income, equities and commodities. Click here to check out the report’s accompanying interactive map.

“The drivers [of] the global economy in 2015 will continue to shape the macroeconomic environment in 2016,” says Manulife chief economist Megan Greene. “We live in an age of oversupply, and central bankers are the only policymakers currently poised to provide enough stimulus to significantly try to generate demand.”

Read: Help define, manage volatility for clients

Report highlights

• Oversupply of debt is constraining the ability of governments to provide enough fiscal stimulus to generate demand. Central banks have stepped in with significant monetary easing, but that has led to oversupply of liquidity in the macroeconomic system. Read: 5 things to watch for in 2016
• For the next five years, we’ll continue to live in a low-growth, low-rate and low-inflation environment for the next five years.
• The U.S. will lead the global recovery throughout 2016. Its economy will be supported primarily by consumer demand. Also, as households continue to deleverage and repair their balance sheets, lower oil prices will eventually start to feed into better retail sales data towards the end of the year. Read: U.S. business owners optimistic about economy and Fed hike is a brave experiment
• Another bright light in the recovery of developed countries is the U.K, which is forecast to see growth of roughly 2.3% over the next five years. But, one potential risk is a likely referendum on EU membership in 2016.
• Japan is unlikely to provide much spur to global growth in 2016, or during the subsequent five years. We will likely see further fiscal and monetary stimulus in Japan, but in the absence of structural reforms, growth and inflation will stick around 1% over the next five years. Read: 2016 investing preview
• The greatest risk to the global economic recovery is in China, which is currently trying to rebalance its economic growth model away from investments towards consumption. But that process may take longer than expected.

When it comes to clients’ portfolios, tell them to expect the following trends, says Bob Boyda, co-head of Asset Allocation for Manulife.

• The U.S. will continue to plod along with no material risk of recession over the next five years.
• Very low inflation numbers will make for modest nominal returns, by historical standards. Overall, inflation isn’t a risk.
• Current asset markets are experiencing series of slow climbs in prices, followed by significant dips. This will continue in 2016, so ensure clients are prepared for volatility. Read: Brace for “potential periodic scares” in 2016: HSBC
• Experts are optimistic about the state of the global economy, and about risk assets such as global equity, real estate and credit markets. Read: No housing correction in 2016

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.