This is a good article by Goldman Sachs. I have the following funds in my portfolio:
1. For CPFSA: First State Bridge (Asian Equities and Bonds), Templeton Global Balanced Fund (Global Equities / Bonds).
2. CPFOA: First State Dividend (Asian Equities), Templeton Global Fund (Global Equities), First State Regional China (Greater China Equities), First State Global Resource (Mining and Energy Equities, a small position leftover after I have cut my position).
3. Cash: Schroder Asian Income (Asian Equities / Bonds), JPMorgan Global Income (Global Equities / Bonds).
For equities, I prefer China due to the cheap valuation and growth at around 5 - 10% per year. I also believe that Asian equities will outperform the US or Europe going forward.
One thing though, I don't foresee European or Japanese equities outperforming, even though these two regions are the only ones embarking in QE from now on, with the US exiting finally. The earnings from Europe and Japan simply aren't coming through. I believe that Europe has a better chance of outperforming in future than Japan though, because Europe seems to be more capable of reform than Japan. For Japan, the key problem is the third arrow, which has failed to execute properly. Domestic demand can never pick up without population growth.
So ride along for the final stretch. In 2015, I believe some cracks will begin to show. It could be China's credit bubble finally breaking, some high yield bond defaults.... But generally, the picture is that of growth and recovery in the west, including Japan. So I'm 6/10 in terms of bullishness for equities.
For currencies, I am shorting EURUSD and long USDJPY too. These are the two best bets in FX...
1. For CPFSA: First State Bridge (Asian Equities and Bonds), Templeton Global Balanced Fund (Global Equities / Bonds).
2. CPFOA: First State Dividend (Asian Equities), Templeton Global Fund (Global Equities), First State Regional China (Greater China Equities), First State Global Resource (Mining and Energy Equities, a small position leftover after I have cut my position).
3. Cash: Schroder Asian Income (Asian Equities / Bonds), JPMorgan Global Income (Global Equities / Bonds).
For equities, I prefer China due to the cheap valuation and growth at around 5 - 10% per year. I also believe that Asian equities will outperform the US or Europe going forward.
One thing though, I don't foresee European or Japanese equities outperforming, even though these two regions are the only ones embarking in QE from now on, with the US exiting finally. The earnings from Europe and Japan simply aren't coming through. I believe that Europe has a better chance of outperforming in future than Japan though, because Europe seems to be more capable of reform than Japan. For Japan, the key problem is the third arrow, which has failed to execute properly. Domestic demand can never pick up without population growth.
So ride along for the final stretch. In 2015, I believe some cracks will begin to show. It could be China's credit bubble finally breaking, some high yield bond defaults.... But generally, the picture is that of growth and recovery in the west, including Japan. So I'm 6/10 in terms of bullishness for equities.
For currencies, I am shorting EURUSD and long USDJPY too. These are the two best bets in FX...
Expect low returns in coming years
Goldman: Growth gap between US and rest of world will narrow, helping global stocks to catch up with US equities
New York
GLOBAL markets from stocks to bonds are "priced to offer low absolute rates of return" in coming years, with equities, particularly in Japan, poised for the biggest gains, according to Goldman Sachs Group Inc. Japan's Topix index will rise 18 per cent by the end of 2015, while the S&P 500 Index will increase about 3 per cent, according to analysts including Dominic Wilson who focus on translating Goldman Sachs' economic views into market forecasts. Yields on sovereign bonds from the US to Japan and Germany will climb as the global economic recovery broadens while commodities from oil to gold will stay low after recently tumbling, the analysts predicted.
The forecasts reflect expectations that the US economic recovery will continue at a rate similar to 2014 while expansions in Europe and Japan benefit from lower energy costs and "some relaxation in lending conditions", the analysts wrote. Increases in US gross domestic product will probably outstrip Europe.
"While we also think there is a real downside risk scenario in the euro area, we are not convinced that the market is adequately reflecting the prospect for US growth over the next few months," analysts led by Mr Wilson wrote in a report on Wednesday. US stocks are beating global equities this year as the economy strengthens in the face of slowdowns from China to Europe. The S&P 500 has jumped 11 per cent, compared with 7.4 per cent in the Topix and 3.2 per cent in the Stoxx Europe 600 Index.
As the US Federal Reserve prepares to raise interest rates and central banks from Japan and Europe add stimulus, the growth gap between the US and the rest of the world will narrow, helping global stocks to catch up with American equities, according to Goldman Sachs. Mr Wilson's team forecast the European benchmark index to rise 9 per cent in 2015.
"From an equity market perspective, we tend to place a great deal of emphasis not only on economic growth, but also on its rate of change," the analysts wrote. "The forecast pick-up in growth could be meaningful for non-US markets, particularly after a year of lagging significantly."
The team forecast that US 10-year Treasury yield will reach 3 per cent by the end of 2015, up from 2.35 per cent now. German Bund yields will rise to 1.25 per cent from 0.8 per cent while Japanese 10-year rates will increase to 0.8 per cent from 0.5 per cent, they predicted.
The US dollar will continue to strengthen against other currencies, reaching US$1.15 per euro and 130 yen by the end of 2015, the forecasts showed.
The dollar reached a seven-year high against the Japanese currency on Wednesday, touching 117.94 yen. The 18-nation euro recently traded at US$1.25.
"We have high conviction that dollar strength is likely to be most pronounced against the euro and yen," Mr Wilson's team wrote. "We expect the weakness in both currencies against the dollar to be prolonged past the end of 2015, and expect EUR/USD to trade at parity in 2017 and USD/JPY at 140."
In the commodities market, Goldman Sachs expected Brent crude to stay near US$80 a barrel next year and a stronger dollar will push gold prices to US$1,050 an ounce, down from US$1,190 recently. Gold fell 9 per cent last quarter and oil entered a bear-market decline of 20 per cent.
Commodities with below-trend supply growth, such as nickel, zinc and aluminium, will outperform, while copper will continue to lag behind other metals because of rising supply and sluggish demand in China, the analysts said.
"Our market outlook overall is quite benign," they wrote in a section titled Living in a Low-Return World. "But, under the surface, it is striking that many asset prices are priced to offer low absolute rates of return over the coming years." BLOOMBERG
GLOBAL markets from stocks to bonds are "priced to offer low absolute rates of return" in coming years, with equities, particularly in Japan, poised for the biggest gains, according to Goldman Sachs Group Inc. Japan's Topix index will rise 18 per cent by the end of 2015, while the S&P 500 Index will increase about 3 per cent, according to analysts including Dominic Wilson who focus on translating Goldman Sachs' economic views into market forecasts. Yields on sovereign bonds from the US to Japan and Germany will climb as the global economic recovery broadens while commodities from oil to gold will stay low after recently tumbling, the analysts predicted.
The forecasts reflect expectations that the US economic recovery will continue at a rate similar to 2014 while expansions in Europe and Japan benefit from lower energy costs and "some relaxation in lending conditions", the analysts wrote. Increases in US gross domestic product will probably outstrip Europe.
"While we also think there is a real downside risk scenario in the euro area, we are not convinced that the market is adequately reflecting the prospect for US growth over the next few months," analysts led by Mr Wilson wrote in a report on Wednesday. US stocks are beating global equities this year as the economy strengthens in the face of slowdowns from China to Europe. The S&P 500 has jumped 11 per cent, compared with 7.4 per cent in the Topix and 3.2 per cent in the Stoxx Europe 600 Index.
As the US Federal Reserve prepares to raise interest rates and central banks from Japan and Europe add stimulus, the growth gap between the US and the rest of the world will narrow, helping global stocks to catch up with American equities, according to Goldman Sachs. Mr Wilson's team forecast the European benchmark index to rise 9 per cent in 2015.
"From an equity market perspective, we tend to place a great deal of emphasis not only on economic growth, but also on its rate of change," the analysts wrote. "The forecast pick-up in growth could be meaningful for non-US markets, particularly after a year of lagging significantly."
The team forecast that US 10-year Treasury yield will reach 3 per cent by the end of 2015, up from 2.35 per cent now. German Bund yields will rise to 1.25 per cent from 0.8 per cent while Japanese 10-year rates will increase to 0.8 per cent from 0.5 per cent, they predicted.
The US dollar will continue to strengthen against other currencies, reaching US$1.15 per euro and 130 yen by the end of 2015, the forecasts showed.
The dollar reached a seven-year high against the Japanese currency on Wednesday, touching 117.94 yen. The 18-nation euro recently traded at US$1.25.
"We have high conviction that dollar strength is likely to be most pronounced against the euro and yen," Mr Wilson's team wrote. "We expect the weakness in both currencies against the dollar to be prolonged past the end of 2015, and expect EUR/USD to trade at parity in 2017 and USD/JPY at 140."
In the commodities market, Goldman Sachs expected Brent crude to stay near US$80 a barrel next year and a stronger dollar will push gold prices to US$1,050 an ounce, down from US$1,190 recently. Gold fell 9 per cent last quarter and oil entered a bear-market decline of 20 per cent.
Commodities with below-trend supply growth, such as nickel, zinc and aluminium, will outperform, while copper will continue to lag behind other metals because of rising supply and sluggish demand in China, the analysts said.
"Our market outlook overall is quite benign," they wrote in a section titled Living in a Low-Return World. "But, under the surface, it is striking that many asset prices are priced to offer low absolute rates of return over the coming years." BLOOMBERG
