Guy Monson, chief investment officer and managing partner of Sarasin & Partners (Sarasin)
There are reasons to be more positive for 2016. OPEC’s sizeable current account surplus has been largely whittled away, with the result a potential for roughly $650 billion transferred from the oil producers to the consumer economies. Together with cheap currencies, we expect to see export markets rebound, trade accounts improve and (in time) rising disposable incomes. Today’s “emerging world curse” could become tomorrow’s opportunity. Emerging world consumers and small businesses are the likely winners.

The Chinese economy will continue to form a key part of the global trajectory ahead. As China develops its economy away from the world’s factory, the nation is broadly experiencing a pivot from an industrial to a consumer-led economy. The direction of travel is the right one, but suggests more short-term pain for Chinese (and Global) manufacturers. 2016 should also see value appearing in the less leveraged State Owned Enterprises, and China-related Hong Kong blue chips as corporate restructuring progresses.

Global banks, led by the US, will continue to strengthen balance sheets, simplify their business models and potentially, finally start to see an end to penalties and fines. This offers considerable dividend growth opportunities and the chance to add to the “value” content of portfolios.

A strong dollar, slowing Chinese growth and falling commodity prices have heightened world deflationary risks (though they have also kept interest rates at or close to zero). Crucially, the traumatic commodity and energy price collapse appears largely complete. While low food, oil and metals prices, coupled with near zero developed world interest rates certainly suggest deflationary risks, they also offer the potential foundation for recovery in Europe and energy-consuming Asia.

Michael Stanes, investment director at Heartwood Investment Management
Equity market sentiment remains cautious, following the heightened levels of volatility seen in the late summer. With the focus centring on Federal Reserve policy decisions and the theme of global central bank divergence, we expect financial markets to stay volatile in the short term. Nonetheless, the interest rate tightening cycles in both the US and UK are likely to proceed very gradually against a backdrop of modest growth. In this environment, we believe that global equity markets can continue to grind higher.

While our broader strategic asset allocation decision of maintaining an overweight equity exposure remains intact, what we are likely to change next year is the tactical orientation of our equity exposure across style, sector and market capitalisation, although we are sensitive to the increased volatility of financial assets in this low growth environment.

Since 2009, we have been in a prolonged period of growth stocks outperforming value stocks and this dispersion is now at extreme levels. In an environment of uncertain growth and low inflation, investors have been willing to pay the premium for the predictability of earnings and evidence of profitability.  We believe the extreme focus on growth at any price, most strikingly in the US, looks to be running its course.

 As a consequence, we expect to be reducing our US growth bias in favour of increasing exposure to more cyclical markets, namely Europe and Japan. We recognise that overweighting Europe and Japan has been a consensus trade in 2015- one in which we have participated  - but we continue to believe that these markets will retain the support of both the corporate earnings recovery cycle, which remains at an early stage versus the US, as well as ongoing central bank stimulus.

Our positioning in the UK equity market is expected to shift towards the two extremes of the market-cap spectrum: large-cap and micro-cap. UK small- and mid-caps have had a strong year relative to the FTSE 100. Interestingly, the US has seen a counter trend where small-caps have underperformed. Current valuations are looking more attractive and the domestic focus of US small-caps should provide more shelter from the headwinds of a strong US dollar.

Overall, we are expecting another eventful year for investors characterised by performance dispersion between markets, particularly as global central bank policy diverges. This differentiation should create a fertile environment for those investors who are able to take advantage of tactical opportunities.  We continue to believe that equities offer the best potential risk-adjusted returns versus other asset classes over the longer term, particularly in a low growth environment.

The demand for income remains global and structural, driven by low interest rates and by an ageing global population.

Despite this ongoing demand, the environment has been challenging for income strategies. First, the appreciation of the dollar is impacting liquidity and some interest rate sensitive assets. Second, the normalisation of real rates happened as inflation expectations dropped both in the US and Europe. Real yields are the discount rates of financial asset prices. If they increase, growth needs to be strong enough to offset this negative effect.

So what should we expect going forward? Investors will have to adapt to a fast changing environment as valuation may not be a sufficient guarantee of a successful investment strategy.

Regional divergences are more apparent
Global economic cycles are diverging across regions and are expected to continue to do so in 2016. Recent divergences have been mostly driven by exchange rates and central banks’ guidance.  As such, we favour regional asset classes in Europe and Japan, which are both supported by loose monetary policies. Europe is now accelerating thanks to a weaker euro.

Elsewhere, there are some signs of slowdown in the US manufacturing sectors whilst emerging economies remain under the stress of a strong dollar and decelerating Chinese growth. The Federal Reserve (Fed) is expected to raise its key rates. However, regardless of the timing of the first hike, this cycle is unique and the Fed may lack room for maneuver in the future and could reverse its course of action if imbalances grow. Typically, tighter monetary policy tends to generate lower expected returns and this requires investors not only to focus on total return but also on strategies which are dynamically managed.

For this reason, we expect volatility to normalise higher. Asset prices will be more dependent on the realisation of growth to deliver future returns, whilst fair-to-expensive long-term valuation levels may cap equity price appreciation.

High dividend stocks and high yield bonds look attractive
In this context, high dividend stocks could offer some defensive characteristics with more regular and robust cash flows. They have been underperforming for more than two years versus a standard global equity universe and now offer an attractive entry point.

We are also finding some value in high yielding bonds, although security selection matters. It is our preferred fixed income asset class given the attractive yield and high implied default rate.

Regarding emerging market assets, we are cautious despite attractive valuation because of a strong dollar and a low growth environment.

To conclude, central banks and real rates will remain key drivers in 2016

John Chatfeild-Roberts, head of strategy, Jupiter Independent Funds team
The year ahead looks promising for global growth, but the problem of rebalancing the Chinese economy and handling growing policy divergence on interest rates could create choppy waters.  Against this background, we believe equities remain the asset class of choice, with selective areas of the bond market offering positive returns.

The developed world is likely to drive much of the pick-up in economic growth we will see in 2016, boosted by cheaper commodities such as oil. The price of a barrel of oil is likely to stay lower for longer and there is a chance it could stay below $40, having just fallen again in the last few days.  Forecasting commodity prices is a perilous occupation, but cheap oil is really good news.

While lower commodity prices are supportive of global growth, the pace of growth among countries is uneven, leading to central banks around the world adopting increasingly divergent policies on interest rates.  In the US or UK, where growth is stronger, it is likely that rates will go up at some point.  We are agnostic about timing, but we have no reason to doubt Mark Carney when he says 2.5% should be the new norm for UK interest rates. In countries where economic growth is anaemic or running out of steam, we expect to see further rate falls.  China, for instance, has already cut rates six times in the last year and is likely to do so again in 2016. 

If and when interest rates in the US do start to rise, we remain sanguine about the effect on equities.  Since 1971, in the year leading up to an initial rise in US rates, the MSCI World Index has risen by an average of 10.8 per cent; in the year following a rate rise, it has posted an average increase of 12.9 per cent; two years after the first rise, the figure is an average 19.2 per cent.

Talk of interest rate rises might let us forget there are still some regions where central banks are still carrying out the bond purchasing programmes we know as quantitative easing (QE). In March this year the ECB launched its own €60bn a month QE programme to stimulate economic growth.  It has resulted in a modest pick-up in growth, but the overall rate has been lower than hoped, which in December prompted ECB President Mario Draghi to pledge to continue the programme until March 2017 “or beyond” in a bid to tackle weak growth and lift inflation. The question now remains whether these measures will achieve the desired result, when you consider the euro zone up to now has only been able to produce the weakest of growth despite enjoying what has essentially been ‘free’ money, subdued energy prices, low inflation and a massive injection of cash from its central bank.  It would be wrong to consider the euro zone a write-off; however, it is merely better in our view to approach it on a selective basis.

Coutts
Head of financial advice and investment solutions and his senior investment team: Alan Higgins, Chief Investment Officer UK, Terence Moll, Head of Investment Strategy and Mark McFarland, Asia-based chief economist.

Global equities: Europe at the fore - There’s upside for European equities after the past year’s wobbles. The case for Japan: Top-down and bottom-up Improvements in the corporate culture, a benign outlook for the domestic and global economies, and attractive valuations all bode well for Japan in the coming year.

China has hit some bumps and the fast-paced economy will inevitably continue to slow, but equity investors should enjoy a smoother ride next year. On UK equities, it says investors have shied away from the global exposure of the UK's biggest companies, but it thinks bigger is better for UK companies in 2016.

Clouds are lifting from the banks: Global banks have undergone a dramatic transformation and profitability is improving – they look like an increasingly attractive investment. The alternative to low returns:  We see opportunities in several trading strategies which can cushion portfolios when equities are falling, but have the potential to provide superior returns to low-yielding bonds

Nothing ventured, nothing gained: Corporate bond investors are getting paid well for the low risk of default. UK commercial property goes on reaching for the sky: After a strong run over several years, commercial property yields have been driven down but they still offer an attractive premium over bonds and we see strong rental growth supporting capital values.

Citi Private Bank
Risk and liquidity management – along with building durable portfolios and high-conviction investment themes – is one of the three pillars of our approach to managing clients’ wealth. While always essential, this pillar is especially relevant as we enter 2016. We believe that the balance between reward and risk is tipping in an unfavourable direction, even if markets continue to offer solid near-term returns.

We believe investors may underestimate the eventual role of the US in defining the world business cycle again, as in most cycles past. In common with all periods of tightening US labour markets, the mismatch between supply and demand is unsustainable in the long run. With US monetary policymakers only gradually recognizing the need to address the imbalance, and the strong US dollar playing a larger-than-usual role in slowing US growth, the expansion could be meaningfully at risk in 2017. We therefore recommend a strategy that mitigates portfolio risk during 2016, even if risk assets perform well for much of the coming year.

We have been gradually shifting our tactical asset allocation since late 2014, paring back our overweight to equities and lower-tier credit in fixed income. Going into 2016, our global equity overweight stands at +3.5 per cent, down from a peak of +6.8 per cent in 2014, having increased our fixed-income and cash positions comparably. Given high risk premiums and continued growth, investors may expect solid equity performance relative to fixed income in many markets in the first half of 2016.

We see selective tactical opportunities in global credit in 2016, despite rising corporate leverage and a slow or aging recovery in different regions of the world. It makes sense gradually to shift our equity overweight to higher-quality fixed income assets, where credit spreads have widened but the rise in corporate yields has not been driven by stronger economic growth. We are overweight US high-grade corporate debt and neutral-weight long-term US Treasuries, expecting the highest-quality bonds to offset portfolio volatility in equities and high-yield credit. Unusually, global real interest rates have fallen throughout the economic expansion to date. This makes it harder to find sustainable yield and build portfolios that can endure through both sides of a business cycle – see Enduring through cycles. Low sovereign bond yields have coexisted with strong private-credit quality outside of the energy sector for a long time. In the next few years, investors may see low sovereign bond yields coupled with weakening private credit quality.

Deutsche Asset and Wealth Management
We stay neutral on US equities from a tactical viewpoint. We believe that earnings growth will bottom out towards end-2015, since the strong headwinds caused by sliding oil prices and a strong US dollar this year should fade in 2016. However, current valuations and mixed quarterly data have failed so far to give new impetus.

We also stay neutral on Asia-ex-Japan equities. Intra-regional differences are enormous, however. Taiwan, India and the Philippines appear in better shape than China and Korea. Malaysia and Thailand currently do not appeal.

Consumer discretionary remains one of our favourite sectors. Medium-term drivers such as cheap oil, falling unemployment and rising wages in the advanced economies remain intact. The effects of the emissions scandal on the automotive sector are beginning to fade although the high share of its sales going to emerging markets remains a burden.

Information technology remains another of our favourites. IT companies regularly demonstrate their pricing power, particularly in the software segment (e.g. cloud computing, big data, mobile internet). Weaker segments such as hardware are partly supported by M&A activities.

In the short term, the backdrop for US Treasuries looks favourable, as markets have already anticipated the Fed’s first rate hike. After the expected initial hike in December, the Fed looks set to wait and see, as it gauges the impact of this on markets as well as inflation. The federal funds rate is likely to remain low for quite a while therefore.

Demographic factors continue to dampen trend growth. In the third quarter, Japan apparently slipped back into a mild recession. That is unlikely to prove sufficient on its own, however, to prompt immediate further monetary stimulus. We stick to our neutral weighting for 10-year government bonds.

We reduce our tactical euro vs dollar positioning to neutral. Markets have already priced in the more hawkish Fed and the more dovish ECB talk from mid-November to a great extent. Furthermore the euro is again being sought as a funding currency in a more risk-friendly trading environment.

We stick to our strong overweight for European buyout and growth funds. The last ten years have shown that if such funds are carefully picked, good returns can be generated with low volatility. This continues to be one of the positives of this asset class as a whole.