Speaking at an event in Sydney, State Street Global Advisors (SSGA) chief economist Chris Probyn said conditions are unlikely to see much improvement over this year, with the major advanced economies suffering from a loss of momentum.
“My theme for 2016 is more of the same; lacklustre growth, low inflation and very limited policy tightening,” he said.
Mr Probyn said that while the domestically focused sectors are limiting any downside, the weakness of manufacturing in the major economies seems to be limiting any upside in returns.
“Moreover, we continue to see the risks skewed to the downside, likely fuelling bouts of investor uncertainty and market volatility,” he said.
However, in its 2016 Global Market Outlook report, SSGA said it believed European and Japanese equities were showing some life.
“Pan-European trade is picking up, and German business sentiment surveys point to solid cyclical growth,” said the report.
“Europe is a large net importer of commodities, and therefore lower input costs will improve European corporate profits.”
However, it still has a lower forecast for returns, due to the previous relative outperformance of Europe compared with its peers, and the fact the UK has a higher exposure to energy stock.
“In Japan, the Abenomics fiscal and reform program appear to finally be generating a pickup in growth and inflation,” SSGA said.