Ignoring unpredictable exogenous shocks, we expect that economic growth will be positive but moderate. Although market sentiment is negatively biased we do not see the typical signals of an impending recession. For instance there is currently no widespread over-leverage and no inventory build-up to witness.
We foresee that global economic growth will be consumption-led. The US economy will profit from increased disposable income thanks to lower oil prices. Europe might surprise on the positive side as Quantitative Easing continues and consumer confidence seems to pick up. In fact, some Southern countries, i.e. Italy and Spain, show indications of an economic recovery.
Key macro themes for 2016 remain the fragility of global growth particularly with respect to China’s slowdown, the free-fall of many commodity prices and its impact on the respective economies and (geo-)politics of commodity-related countries, the Fed’s next steps and their impact on the U.S. economy, the USD and risky assets and finally the stability of the EU given the economic and political challenges the union faces including the upcoming UK referendum (“Brexit”).
We remain confident that a cautious investment approach in risky assets, will be the most rewarding for risk-conscious investors, with a long-term investment horizon. In short, we favor Equity L/S managers with lower net exposures, short-duration credit and loans. Regarding equities we prefer Europe, Japan/ Asia over the US.