Developed Markets Will Post Modest Gains in 2016

US, UK and European equities all had a lacklustre year - and the prospects for 2016 are not much better. Japan stocks had a great 2015, but expect muted gains next year

Andy Brunner 21 December, 2015 | 11:53AM
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Looking at the strategists S&P 500 target levels, a better but not an especially good year is generally anticipated for US equities. With a mean value of 2245 index upside would be around 7% and, with yield and buybacks, this would produce a 10% total return. Such a capital gain appears somewhat optimistic, however, and would likely require higher than expected earnings growth to be achieved. Even then, there are numerous signs, other than generally high valuation metrics, that US equities may struggle again this year.

The UK faces a number of domestic challenges; economic slowdown, rising wage pressures and “Brexit” to navigate

Late cycle characteristics are becoming increasingly obvious, economic forecasts have eased back to a 2-2.5% range from 3% or year ago, the Fed is about to start a tightening cycle, credit spreads have widened, bond yields are expected to rise, profit margins are contracting and buybacks will become less attractive.

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Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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