Mr Milligan, who heads up the global strategy team at Standard Life Investments, said issues facing the global economy have created a “world of low numbers”.
He said investors are currently experiencing an "unfortunate combination" of low growth, low inflation, low interest rates and low bond yields.
Potentially, he said, these add up to lower returns for financial assets over the “medium term”.
Despite that structural backdrop, he said the corporate profit cycle is improving, which he claimed investors should pay close attention to.
While we expect to see downgrades to this figure, we still expect a positive outcome.Andrew MilliganEven before the US election, which has promoted the potential for much easier fiscal policy in the US, Mr Milligan said he had predicted a moderate upturn in global activity next year, while analysts have predicted earnings global growth of 10 to 12 per cent.
“While we expect to see downgrades to this figure, we still expect a positive outcome,” he said ,adding however, the extent to which this is positive will be determined by wages and productivity growth, changes in energy costs, regulation and taxes, as well as the extent of any further rise in the US dollar.
Mr Milligan made his comments ahead of the Federal Reserve predicting interest rates to be hiked higher than expected this year, despite pointing to the uncertainty around the policies set to be introduced under Mr Trump.
According to minutes from a meeting with the Federal Open Market Committee, the US central bank expects the rate to shift up modestly between 2017 through to 2019, with all the predictions 25 basis points higher than they were back in September.
Mr Milligan also said growth will depend on whether the expected improvement in corporate profits allows the economic cycle to continue, or whether the imbalances slowly building up in China, emerging markets, Europe and the US will finally prove too much.
A rise in inflation appears to be firmly on the cards next year, and Mr Milligan said it was important to see how businesses and households respond, questioning how successful companies will be in driving forward productivity, or whether margins start to come under pressure.
Mr Milligan said the recent jump in bond yields warrants examination, saying the risks for some bond markets are clear against the uncertain political backdrop.
“We assume the US will raise interest rates slowly during 2017, more so in 2018. In the UK, we expect the Monetary Policy Committee to keep rates on hold unless the economy slows dramatically, and Japan to behave similarly unless the yen surges.”
But he said the main area of uncertainty centres on the European Central Bank, adding: “We still expect the central bank to extend quantitative easing (QE) past March 2017, as core inflation is well away from target, but probably at a slower rate.”
He said the financial markets have reached an interesting juncture, as investors move away from expensive dividend yielding stocks towards the cyclical sectors, including financials.
This has been echoed by a number of industry professionals, including the likes of Richard Buxton, who said his unloved holdings in banks are about to see a turnaround in performance as the markets embark on a "huge sea change".
Mr Milligan said sustainable yield will continue to be an important factor when investing, with a particular focus on those markets where pay-out ratios are stretched.
“We see opportunities across asset classes where better corporate cash flow will sustain valuations: a mix of developed market equity, global real estate and higher yielding bonds.”
katherine.denham@ft.com
