Investors should expect volatility in 2016, even if the fundamental picture remains stable, according to Fidelity’s Nick Peters.
The portfolio manager at Fidelity told FTAdviser volatility looks set to continue due to uncertainty around global monetary policy movements and the sustainability of Chinese growth lingers on into next year.
“Looking ahead to the start of 2016, it is striking how many of the same themes from the start of 2015 remain relevant today.
“Questions over the extent of the economic slowdown in China are but one example of this, with investors also worried about the impact of rate rises by the Fed and continuing low commodity prices.
“While we might have expected greater clarity on these issues as we progressed through 2015, there is still a great deal of uncertainty as to how these issues will play out.”
Mr Peters said opinion is divided among investors and many expect global growth to face a more challenging backdrop in 2016, particularly with the potential for more rate rises by the US Federal Reserve and concerns over the extent of the slowdown in China.
“But to what extent are fears over these two factors justified?” he questioned.
“China’s slowdown is a part of a necessary long-term rebalancing of the economy. Although the manufacturing and export sectors are struggling, China’s services sector continues to expand and now accounts for around half of Chinese GDP.”
He noted that China is undoubtedly an increasingly important part of the world economy, with its strong demand for commodities having played a significant role in driving emerging market growth in recent years.
“However, commodity price weakness has also benefited several members of the EM sphere, with countries such as India benefiting from a significant narrowing in their current account deficit.”
Mr Peter suggested that while China’s slowdown may have a dampening impact on overall global growth expectations in the shorter term, there are winners as well as losers.
“A rise in US interest rates could have a significant effect, but I think tightening is likely to be slow and shallow, with there being potential benefits here too – such as a stronger outlook for the US financial sector.”
He argued that the current slowdown does not represent a fundamental change, but investors still need to think carefully about their positioning as we head into 2016.
“I continue to believe that investors can benefit from equity exposure. However, it may also be beneficial to have a cash reserve to take advantage of any market volatility.
“In this context, active management can help investors, by selecting those opportunities which offer the best risk-reward trade off.”
katherine.denham@ft.com
