As the year draws to a close, investment bosses at private banks and wealth managers are setting out their predictions for 2015. Here is a roundup from some of them.

It is that time of the year when wealth management houses try and set a rewarding asset allocation stance for the coming 12 months. Here is a selection of views from some houses. Weill be running more selections in coming days.

ABN AMRO Private Banking
It has taken profit on listed property and further increased its overweight position in European equities. It recommends entering the New Year with an overweight stance in equities and hedge funds and an underweight position in bonds. Didier Duret, chief investment officer, says: “Low oil prices and a higher US dollar will be major tailwinds to the world recovery and earnings generation but we face a new normal for diversifying the risks. Opportunities have narrowed in the bond space and equities have become income- and return-generating assets by default."

The bank says it expects megatrends related to innovations and shareholder value to support stock returns in 2015. For portfolio diversification, it particularly favours direct investment in leading technology firms, such as Google, Kuka and Qualcomm, along with large, powerful consumer oriented companies, such as Amazon, Alibaba, Baidu and Tencent. It also prefers large conglomerates, such as GE, Philips, Siemens and DSM, as well as large pharmaceutical manufacturers, such as Amgen, Novartis, Gilead Sciences and Pfizer.

For the global economy, ABN AMRO Private Banking expects growth of 3.8 per cent in 2015. Clients should prepare for possible periods of volatility and market corrections due to coming political elections and international tensions, by broadly diversifying across sectors, bond issuers and geography. Bonds are underweighted but remain, despite low yields, as a buffer against large equity corrections. To deflect interest rate and liquidity risk, the bank recommends diversification across investment-grade, high-yield and European peripheral bonds.

Citi Private Bank
“We approach 2015 with the world’s major central banks’ monetary policies diverging. On the one hand, the US Federal Reserve has ended its Quantitative Easing asset-purchase program, and both the Fed and the Bank of England are expected to raise interest rates. On the other hand, the European Central Bank and the Bank of Japan are expected to implement more aggressive expansionary monetary policies in an effort to counteract deflationary forces and stimulate economic growth,” it says.

“Geopolitical risks are another focus of ours for 2015. The dynamics in the production and in the price of oil, the ongoing conflicts in the Middle East, Russia, Ukraine, and social unrest in various regions of the world should also contribute to increased uncertainty and market volatility,” it continues.

The US bank predicts a global gross domestic product growth rate of 3.1 per cent in 2015, and 3.4 per cent in 2016, with 2014 producing a 2.7 per cent growth rate. The US is expected to expand by 3.0 per cent next year, with the eurozone at just 1.1 per cent and China at 6.9 per cent.
 
Coutts
Views from Arne Hassel, head of Investments at Coutts and his senior team: Alan Higgins, chief investment officer for the UK; Norman Villamin, chief investment officer for Europe, Terence Moll, head of asset allocation and Mark McFarland, Asia-based global chief economist.

“Though equity markets wobbled during the autumn, the underlying economic fundamentals look solid. We believe the gradual mending of the world economy will continue in 2015, and against this backdrop we highlight a number of investment opportunities - some off the beaten track and some admittedly closer to the consensus,” Hassel said.

As far as opportunities go, Coutts remains bullish on equities because of favourable valuations compared to expensive investments and a positive view of global growth; it sees European and Japanese banks as offering good prospects.

With the US “shale revolution” in mind, Coutts says it sees hidden potential in structures such as Master Limited Partnerships, which are little-known, but an attractive source of high and rising income streams gained via exposure to the US energy sector. It also likes UK commercial property, Asia corporate bonds and a continuing case for emerging market debt.

Tilney Bestinvest
Gareth Lewis, CIO overseeing £9 billion of assets, argues that there is still a banking crisis issue. “While the initial casualties of banking sector insolvency have either recovered (in the US) or are recuperating (the UK), don’t be duped into thinking the banking crisis is over - far from it. Loan loss provisioning within the eurozone remains inadequate and capital remains scarce. We view the recent European Central Bank asset quality review as a missed opportunity to highlight this and believe that the weak capital position of the European banking sector will condemn the eurozone to deteriorating money supply as the banking sector continues to rebuild balance sheet through retained earnings.”

“The fragility of the banking sector isn’t just confined to the struggling economies of the eurozone. There are growing concerns that much of the capital allocated to the China growth story has been misallocated and that could spur a wave of loan losses, that will see the epicentre of crisis move from the west to the east.”  

As far as the US is concerned, Lewis said: “It is also clear that in maintaining its Quantitative Easing programme long after the US banks were effectively recapitalised, the US Federal Reserve has effectively trapped stimulus in the financial system. The major beneficiary of QE3 has been the corporate sector which has used cheap re-financing rates to boost share buy backs and special dividends. Low debt default rates have also prevented the expected increase in capital expenditure and investment that should normally drive economic activity. This suggests the corporate sector has become the main blockage in the monetary transmission mechanism.”

“The evidence that QE has benefitted the real economy is poor given the sheer scale of the endeavour. What it has done is inflated asset prices, driving both the S&P 500 Index of US equities and bond issues to record levels,” he added.

Bank of America Merrill Lynch
The firm’s global research group forecasts that the bull market in global equities will continue next year but returns will slow to single-digit rates. Strong fundamentals and healthy growth in the US economy support a case for investor optimism and opportunism; however, in the lower-return, higher-volatility environment projected ahead, selective allocation and defensive portfolio moves will be crucial for performance, it says.

“While our key measures suggest that the bull market in equities can continue, the sentiment is far from euphoric,” said Candace Browning, head of BofA Merrill Lynch Global Research. “The world appears to be under-allocated to stocks, and we believe we are still only a third of the way into the Great Rotation from bonds. In the U.S., we are maintaining our long-term sector weightings with no changes from 2014, as many of the macroeconomic expectations last year have been delayed. In the current environment, now is the time for investors to be highly selective and make tactical moves to position portfolios for more thematic investing in a transforming world,” Browning said.

JP Morgan Private Bank
César Pérez, EMEA chief investment strategist, focused recent comments about the outlook for France, a country that is pivotal to the eurozone and which has more than its fair share of economic woes.
“Overall, France has some significant competitive advantages and has no reason to fear a more flexible domestic environment or intense international competition. The country is still ranked among the top 25 by the World Economic Forum (out of 148), which highlights the quality of its infrastructure, the size of its market (a GDP of $2.75 trillion, the world’s fifth largest), its technological readiness, its innovation and its business sophistication. It enjoys strong agricultural and tourist industries - according to the World Tourism Organisation, France welcomed 85 million foreign tourists in 2013 and the industry employs 11 per cent of the workforce. We believe that, with more flexible working and regulatory practices, France has the potential to revive its economy by creating new jobs and business opportunities.”

Pérez said falling oil prices should be positive for net importers in parts of Europe and Japan, but less so for those emerging market countries which, for example, are net exporters. If OPEC and other oil producers lose any "discipline" over production then this could see weaker prices and be negative for certain markets, such as emerging market countries with oil exports. This could increase pressures on these countries' dollar-denominated sovereign/corp bonds. He said there is a risk of downgrades by rating agencies, he said.

BlackRock Investment Institute
The US-listed asset management titan said a likely rise in market volatility means investors must consider hedging against downside risk and avoid entering “me too” investments.

It expects that divergent monetary policies and growth trends will be key themes of 2015.  Financial conditions in the US and UK will likely tighten due to a pickup in growth and improving labor markets, and will loosen elsewhere, particularly Japan and Europe.  Nominal risk-free rates should stay "low for long." A low rate environment suggests that investors will continue to ‘stretch for yield’. For investors, caution will be key, as valuations in most markets are rich and investor faith in monetary policy underpinning asset prices is high, with many investors now embracing momentum investment strategies, it says.

Around the globe, the recovery from the 2008 financial crisis has been unusually tepid, the BII notes, with nominal growth in 2015 expected to be below the 15-year trend in most economies, except for the US and Japan.

Crossborder Capital
“Strategically, the world looks like it did in the late-1930s, dogged by debt, disinflation and slow growth, and only capable of being spurred forward by
currency devaluation. Now as then, forex market s are in a race to the bottom that will ultimately cause gold to move much higher and high street inflation to restart. Accelerating high street prices, we think, will first appear this time in Asia, and maybe only in a few year s time, but first the West must tackle near-term deflationary pressures which are tied up with the ebb and flow of funds into the US dollar.”

“The outlook is for no recession but slower growth in 2015. A weaker US dollar is unlikely to be a popular prediction for 2015 given today's solidly bullish consensus, but two preconditions are building meaning that the greenback could be within 10 per cent of its top. At the least, investors should understand these counter-trend forces. We largely see 2015 as a year of two parts: the first characterised by a continuation of this year's monetary deflation trend (i.e. falling global liquidity), and the second largely described by desperate policy actions to try and reverse the t rend with larger
doses of monetary inflation. We certainly see the early months as “Risk Off” featuring an initially stronger US dollar; a further flattening in yield curves and more pain across the emerging and frontier markets.”
 
Fidelity Worldwide Investment
According to Dominic Rossi, global chief investment officer, equities, the US bull run in equities will continue.

“Financial markets experienced a pick-up in volatility in the last quarter of 2014 and investors should expect further bouts in 2015given the prospect of interest rate rises in the US. However, I believe the US stock market will deal with these rises quite comfortably. With subdued inflation and weak commodity prices, I think the speed and extent of rate rises is likely to be slower and more contained than many commentators are predicting.”

“While volatility is likely to have bottomed in this cycle, the direction of travel will remain the same and, in my view, the US bull market will continue right up to the presidential elections in 2016. Growth prospects for the US economy remain robust, allowing investors to continue to focus on positive corporate earnings and dividend growth,” he said.

“I believe the US-led bull market is still intact and we will see new highs in 2015. It has ultimately been market confidence in the US recovery that has underpinned the bull market in equities and there is little reason to expect any change in that dynamic. Indeed, interest rates in the US will only move up because the recovery is felt to be strong and sustainable. The fact that inflation is low and likely to remain subdued due to weak commodity prices gives the Federal Reserve room for manoeuvre,” he said.

On the fixed income side, Andrew Wells, global chief investment officer, noted that the past 12 months will be remembered for when the paths of monetary policy diverged.

“Central bank policy is likely to dominate fixed income trends again in 2015 but we see three clear themes emanating: Aggregate expansion of central bank balance sheets to underpin fixed income assets globally; monetary policy divergence to give rise to greater divergence in credit markets and FX; and the return of diversification strategies.