Manulife Asset Management has issued its annual "Year Ahead" report, which highlights monetary policy divergence, the need for structural reform in many economies, declining oil prices and a strengthening U.S. dollar as key topics of interest to investors in 2015.
Drawing together the individual views from Manulife Asset Management's investment and economic teams on the ground in the U.S., Canada, Europe and in ten markets across Asia, the report addresses the outlook for 15 investment areas and asset classes - including fixed income, equities, commodities and asset allocation.
Accompanied online by an interactive map showing global growth and inflation forecasts as well as a video featuring Chief Economist Megan E. Greene, the report is available at: www.manulifeam.com.
"The year ahead is likely to see the global economy caught in a tug-of-war between a modest recovery in the U.S. on one hand and a slowdown in China and low-to-no-growth in Japan and Europe on the other," says Ms. Greene. "We expect these competing influences to keep global growth bumping along a baseline of around 2.5 percent."
Among the insights covered in the report:
Monetary policy divergence – With the U.S. and UK likely tightening, other major economies are likely to loosen monetary policy or continue in a holding pattern. The timing of a U.S. interest rate rise is uncertain but experts agree that it is unlikely to happen until the second half of 2015 at the earliest, and possibly may be delayed until early 2016.
The need for signs of progress towards structural economic reforms particularly in Japan, Europe and emerging markets.
Impact of a stronger U.S. dollar on global economies and markets – A repeat is not expected of 2013's 'taper tantrum,' which resulted in outflows from Emerging Markets and Asia.
Views from Manulife Asset Management's investment teams are also quoted in the report:
The Global Multi-Sector Fixed Income team outlines why it will be important for Japan, Europe and emerging countries in Latin America to make progress with needed structural reforms in 2015, in order to regain the confidence of investors. The team believes we are in the midst of a multi-year uptrend in the U.S. dollar and suggests it will be vital for investors to understand the impact of this in the year ahead.
The Asian Fixed Income team provides a local perspective from 10 bond markets in Asia on why they will continue to focus on credit with relatively short duration due to the potential for a rise in interest rates. The team expects to be overweight carefully selected credit issuances which offer higher spreads – including high yield credit – and favor hard currency bonds in the year ahead.
The Emerging Market Debt team explains why 2015 is not a year for simply getting beta by accessing the market indiscriminately. Rather, they advise focusing on discerning those emerging markets that are likely to be the most resilient in the current economic environment and to avoid weaker markets that may struggle to push through the longer-term reforms needed to put their economies on a surer footing.
The U.S. Equities team believes U.S. equity returns could be in the high single digits in 2015 if the economies of its trading partners stabilize. They also explain why they see particular opportunities in the U.S. financial, housing and energy sectors.
The Asian Equities team outlines the attractive valuation opportunities in some Asian markets, notably South Korea and Taiwan. They find that many Taiwanese companies have robust balance sheets and therefore are well-positioned to pursue growth while at the same time maintaining decent dividend pay-outs to shareholders.
From the Global Natural Resources team, a view on oil prices: If prices remain weak over a longer period the team expects investment in future production to be curtailed as the average supply cost for industry break-even is closer to $90 to $100 per barrel. Over the long run, the team anticipates oil prices to range between $80-$100 to sustain investment to meet future oil demand needs.