SSGA: Favourable environment for European equities in 2016
2016 might look like 2015 in a way, Bill Street, head of EMEA at State Street Global Advisors, said in an 2016 outlook briefing. After a disappointing 2015, a few elements such as lackluster growth, low inflation and limited tightening should remain next year.
Volatility will be an unknown, Street assessed, and might open up to policy mistakes.
In the US, Street highlighted mixed economic data, with on the one hand US government purchases being low and a robust non-manufacturing activity and on the other hand, a number of factors that have taken a toll on manufacturing and mining and inventories being built.
Street does not see reasons for market improvement or deterioration in economic conditions next year and assessed the US growth will reach around 2.5% in 2015 and 2016.
Commenting the Fed moves, Street compared the institution to “an elephant in a room”. He bets the Fed would probably begin to move its rates with a 25 basis points upgrade after its meeting next 15 December and then once a quarter in 2016, talking of “baby steps”.
On the US equity side, a blip might happen because of a bunch of factors including the collapse of oil prices, the strength of the dollar and zero inflation. Street remains confident. He said earnings growth should turn positive again in 2016 albeit less robust. Street advised to consider consumer discretionary companies
As for Europe, Street explained the region presents good potential for 2016, as employment and productivity have risen in 2015 even though this has been offset by the ongoing Greek situation and the migrant crisis.
If there is no sign of a sharp growth acceleration, Street assessed that factors such as the weaker euro, low interest rates, the Grexit case temporarily over, low raw material prices and low energy prices will create a very favourable environment for European growth,
He expects Europe’s growth to reach 1.4% in 2015 and 1.6% next year with a possibility of hitting above that rate.
Street explained European small caps and cyclical equities would be good to play next year and underlined good earnings growth with double digit figures for European companies.
Japan might face a slight rise in its growth in 2016 according to Street who emphasised no significant progress on growth, inflation and structural reforms has been stressed in the country despite Abenomics.
As for China, SSGA’s head of EMEA said growth is likely to slowdown from 6.8% this year to 6% in 2016. The downside risk from capital outflows and a devaluation of the renminbi will remain but China will stabilise, Street explained. He also assessed renminbi as a reserve currency would be good news for China.