The Bank of England could signal a rate rise this year, but the decision is dependant on growth figures, according to F&C Investments’ macro outlook for this year. While the US and the UK are expected to remain steady, risks continue to shadow emerging market economies such as Russia, Brazil and South Africa due to plunging commodity prices.
Global growth will continue to remain positive and stay above 2.5 per cent on aggregate, the firm believes, while the chance of an economic meltdown remains unlikely at 7 per cent. The economic backdrop is not one of secular stagnation, the outlook says, adding that another year of economic growth in 2016 should help to convince investors that the world is “not stuck in a rut.”
The F&C portfolios are overweight equities and underweight fixed income. In terms of region, the focus remains in Japan, Asia and Europe, neutral in emerging markets and underweight UK and the US.
The recent fluctuations in China, which led to a 7 per cent fall in Chinese stock markets after weaker-than-expected manufacturing data, continue to concern investors who are worried that this in turn could have an impact on both developing and developed countries. However, those bullish on the Chinese economy believe the country will slowly stabilise as the government is currently trying to moves its focus from manufacturing to service.
“China is not going to collapse,” said Thomas Becket, chief investment officer at Psigma Investment Company. He added that, while investors are concerned about China’s growth path an economic collapse would not happen. “China needs to improve its communication with the markets,” he said
The Psigma outlook for 2016 points to further rate rises from the US Federal Reserve this year. While this shows the US economy is strengthening, it could also mean emerging markets will be at risk. But market analysts suggest a gradual rate rise from the Fed is already priced in.
The bigger risk according to both F&C and Psigma is falling commodity prices. With oil prices near $30 a barrel, commodity-exporting countries are bearing the brunt. Meanwhile, commodity-importing countries such as India and Indonesia are seeing a steady level of growth due to the fall in oil prices. Market analysts have predicted that volatility in commodity prices will continue at the start of the year but will slowly stabilise later in the year.
“It could be a year of two halves,” said Gary Potter, co-head of multi-manager at F&C Investments.