Resilient consumer demand across the developed world will push global equity markets higher in 2016, NN Investment Partners expects, predicting Japanese and euro zone stocks will outgun their U.S. peers with high single-digit returns.
Valentijn van Nieuwenhuijzen, the head of multi-asset at NN IP, which has 180 billion euros ($192.47 billion) under management, told the Reuters Global Investment Outlook Summit on Monday that he was overweight global equities, expecting less volatility in 2016 after the swings over the past 12-18 months.
"We see significant upside in euro zone and Japan. Double-digit returns are not a base case, but high single digits is feasible," he said at the summit, held at the Reuters office in London.
Van Nieuwenhuijzen said earnings growth and valuations in both markets were reasonable, while the improvement in economic growth data across Europe was likely to translate into greater consumer spending.
"I would put it the other way round: Why not? Why would you not be investing – this is not the year where you would say markets have moved so quickly, so let's get out," he said. "We are not too fearful of asset price bubbles popping in the next couple of years."
Van Nieuwenhuijzen was more sceptical about U.S. equities, however, noting that with the first U.S rate rise in almost a decade on the horizon, companies were at a different stage of the economic cycle. Low single-digit returns are possible next year, he reckons.
The S&P 500 index has also rallied more than 200 percent since mid-2009 as economic recovery took hold sooner, compared with around 130 percent for European stocks .FTEU3.
Emerging equities, meanwhile, have risen less than 80 percent, their underperformance worsening since 2011 .MSCIEF.
Van Nieuwenhuijzen noted that huge declines in emerging market currencies in the past year meant much adjustment had already happened well ahead of the U.S. rate rise, which is widely expected to come in December.
But he does not favor taking big positions, preferring to stay neutral on emerging market equities and underweight on debt, tactical positions he expects to keep in 2016.
But these views are the broad consensus across the investment community, and van Nieuwenhuijzen was aware of the risks to the strategies, which are predicated on a gradual rise in Fed rates, a soft landing for China's economy and stabilization in commodity prices around current levels.
He does not expect last week's Paris bombings to have a lasting market impact. But risks could be far greater from attacks on oil installations in Gulf states such as Saudi Arabia that led to crude prices spiking overnight to $80-$100 a barrel.
"The number one worry is still China, the number two is escalation in the Middle East ... When I am thinking about things that could go wrong, it is possible attacks in Saudi Arabia disrupting energy supplies globally."
He said he was considering a bigger position in energy and materials shares to position for a commodity price bounce, with risks to the current strategy also coming from positive surprises on emerging market growth.
"We are monitoring this closely. If you see traction on this you can easily see double-digit returns," he said, adding he had gone overweight U.S. junk-rated corporate bonds earlier this year as oil prices stabilized.
NN is more sanguine about the U.S. Federal Reserve, with this week's inflation data likely to cement expectations of a December move. Van Nieuwenhuijzen predicts a "dovish wrapper" around the U.S. hiking cycle but nevertheless sees U.S. interest rates at 1.25 percent by the end of 2016.
But 10-year U.S. yields, currently around 2.25 percent, are unlikely to rise that much, he said.
"It will be accompanied by curve flattening as well. It will not be a one-for-one in long-term yields ... I would say of that 100-125 basis points tightening, probably only half of it will translate into the longer end."
Additional reporting by Karin Strohecker, editing by Larry King