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With only a couple more Trading Posts left in the year it is time to highlight some strategist calls for 2016.

Let’s start with the selection of one of our favourite analytical boutiques: Capital Economics.

Most topical is the prediction for US government bonds. The 10-year yield will rise to 3 per cent, “primarily because investors are underestimating — as they have tended to do at the outset of previous Fed tightening cycles — the amount by which the federal funds rate will be raised, as wage and core inflation pick up”.

In keeping with much of the market, CapEco reckons spreads with Bunds and JGB’s will widen as the European Central Bank and Bank of Japan ease monetary policy further.

In turn this will boost the buck versus the euro and yen. The year end forecasts are $0.95 and Y140.

Again, this likely means the eurozone and Japanese stock markets will outperform Wall Street, with the latter seeing in 2017 at 2,200 for the S&P 500.

Indeed, the best equity bet, says CapEco, are the emerging markets. The MSCI EM Index could gain 20 per cent from current levels as worries about China’s economy recede and the slump in commodity prices comes to an end. Fed tightening will not rattle the EM stocks “whose valuations are typically not stretched”.

The Russian rouble and Brazilian real may rally. But be careful on nations that rely on short-term capital inflows to fund large deficits: the Turkish lira and South Afican rand may struggle.


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