Wells Fargo sees 2016 synchronised global economic growth
2016 will see all boats sailing in the same direction. That is the main bet Jim Paulsen, investment strategist with Wells Fargo Asset Management, presented in a 2016 outlook media briefing held in London. Paulsen foresees a global economic growth bounce happening next year.
He said United States are likely to enjoy a sustaining growth around 2.75%. According to him, US recovery relies mainly on the tackling of supply-side economic challenges, such as productivity growth. “Rising productivity dampens wage cost and pressure on employment,” Paulsen argued. Lack of investments in the US economy has also been stressed by Paulsen who said however that a capital investment cycle remains expected.
“We have spent a good part of the US recovery with major pieces of it not functioning. Where we are now reflects all pieces are working together for the first time,” he later added.
Paulsen believed US growth is to be pulled by various forces : credit creation, a better household landscape, a capital spending cycle coming, housing rising again and a better growth abroad which he described key.
Other researches Paulsen highlighted also suggest Fed rate hikes result in a lower dollar. Wells Fargo’s investment strategist predicted a strong euro for $1.15 or even $1.20.
About eurozone, Paulsen explained the region faces the same situation US faced with a two-year lag caused by fiscal austerity policies and might follow the same curve in the unemployment rate. If growth is likely to be lower than in the US, he assessed euorzone shows positive signs of recovery as fiscal austerity policies are coming to an end and this coupled to low oil prices and ECB quantitative easing might help bridge the gap between eurozone and US growths.
Concerning China, Wells Fargo’s investment strategist recalled China’s try to slowdown its growth was successful and that it is now trying to push it back up. He underlined Chinese officials have started easing only recently.
As for commodity prices’ drop, Paulsen said investors have been frightened because that collapse is happening in the middle of a US recovery but, he explained, such dips have been stressed in three of the four last US recovery cycles. Paulsen added in those cases the fall of commodity prices has acted as an accelerator in the recovery, depicting it as “a stimulate for future growth”.
Among advises to play 2016, Paulsen recommended staying overweight stocks, especially global, mid and small caps, and adding some cyclical and beta as well as real asset exposure to portfolios.