Here is another selection of views and predictions about the next 12 months in financial markets.

With a new year started, here is another roundup of opinions from wealth managers about what the following 12 months have in store.

Willem Sels, UK Head of Investment Strategy, HSBC Private Bank
Equities, select credit markets and alternative assets should continue to do well in 2015, while cash should remain unattractive. The impact of slow global growth is more than offset by generous central bank liquidity. Policy divergence should push up the dollar higher against the euro, sterling and Japanese yen. Although treasury yields are unlikely to spike, bond volatility may increase.

“If indeed the major economic blocks stay out of recession, this should be good for risk appetite. Companies should be able to grow their earnings by combining some sales growth with good cost control. Slow but positive growth tends to be good for high quality stocks and for investment-grade credit. As a general rule, we therefore like large cap stocks and companies that have a proven track record on dividend growth, while we focus our more cyclical bets on the US, where growth should be more promising and more sustainable. In Europe, where the growth outlook is more challenging, we are comforted by the subdued consensus earnings expectations, as it should be possible for CEOs to beat this low hurdle rate.”

Guy Monson, chief investment officer and managing partner at Sarasin & Partners.
Oil prices will be stuck in the minds of global investors in the first part of next year: “Financial markets will be dominated over the next six months by the ramifications of a near fifty dollar drop in oil prices.”

"Energy consuming economies in Asia will boom, but outright deflation risks in Europe and Japan will rise.” He also anticipates more generous liquidity from central banks and a continuing hunt for yield by investors and ultimately a rebound in global growth.

As for the possible bad news, Monson adds that deflationary risks for highly indebted countries are notoriously dangerous and accordingly takes a cautious and selective stance when it comes to sovereign issuers with the actual risk of deflation engulfing much of Europe. Ultimately he says financial markets should again still be the winners if central bankers are as good as their word. In particular he singles out potential winners being higher yielding global equities, REITs, selected infrastructure and, for a while longer, the US dollar. He says it is just possible that European growth might finally catch hold in H2 of next year and that the world could see synchronised global growth in 2015.

Rowan Dartington Signature’s Guy Stephens
“Another week and another rollercoaster ride has come and almost gone. Last Tuesday the FTSE-100 touched 6,158 twice intraday but is now 7 per cent higher at the time of writing. October saw something very similar but the sell-off and recovery spanned 2 months.  This time, it is looking like no more than three weeks between peak, trough and peak. The US market is actually threatening to move into new territory and appears oblivious once more to the latest concerns that caused the sell-off.”

In October, it was all about a slowdown in German GDP, a threat of recession, deflation in Europe and a global slowdown. That worry has now retreated as Germany narrowly avoided recession in Q3 and [European Central Bank head] Mario Draghi reiterated soothing words and appears to be ever more likely to deliver quantitative easing in 2015, although we doubt this will make much difference without economic and welfare reform.”

“This time it is all about the falling oil price and the effect this will have on exporting countries and the industry itself, not to mention exposed banks in Canada and Russia which could lead to another credit default crisis as many indebted exploration businesses fail and there has been a run on the rouble.”

“There is also the possibility of a Greek election if the parliament does not elect a new president by 29 December which could signal the end of their membership of the euro if the extreme left wing Syriza party is elected. These concerns now appear to have been replaced by the boost to consumer spending which will result from falling fuel prices and as over 75 per cent of Western economies depend on consumer spending, the bulls are now back in charge and the Santa rally is back on.”

“However, if the 29 December does trigger a Greek election, then we will undoubtedly suffer another sell-off as the threat of a euro exit emerges once more. In addition to this, Janet Yellen, the Fed chair, has signalled that a rise in US interest rates may come as soon as the second quarter of 2015 due to the strength of the economy, but the markets have taken this in their stride seeing it as a good move to prevent overheating. With all this volatility and flipping from one worry to another, it is quite possible that we will see a sell-off on this issue in the New Year as today’s irrelevance turns into tomorrow’s crisis.”

Legg Mason Global Asset Management – and its subsidiaries pick a number of assets expected to fare well in 2015.
Long-dated US Treasuries. These are expected to rack up solid gains, despite some yield compression seen in 2014. Yields have come in from above 4 per cent on the 30-year Treasury to 2.75 per cent, but Western Asset says this is the area of the yield curve offering investors the best value as we head into the New Year.

“Long-dated US Treasury bonds will benefit from the dis-inflationary environment that we expect in 2015.”

“The combination of a stronger US dollar, lower oil price, and muted wage growth will continue to put downward pressure on inflation. The prospect of muted inflation, with the risks tilted towards inflation moving even further below the Fed’s target, will continue to keep bond yields low.”

Emerging market debt:  “Emerging markets have been one of the most volatile areas for investors to negotiate this year, but also one of the most successful trades, outstripping many other bonds.”

“Both US dollar-denominated and local currency debt have enjoyed a positive 2014, although sharp falls in the last month have taken the edge off the overall return.”

Japanese equities: Legg Mason subsidiary ClearBridge expects more gains in 2015 after the Nikkei had risen 10 per cent in 2014 (as at the time of writing).
“While scepticism about the efficacy of the country’s aggressive stimulus program is well deserved, we believe it ignores real change in company governance toward creating shareholder value. This fundamental improvement has yet to be discounted in share prices, with valuations remaining among the lowest in the world. We believe low expectations for improvements in profitability and growth set the scene for continued upside surprises.”

European equities: Martin Currie, Legg Mason’s recently acquired subsidiary, expects European equities to bounce back in 2015, with the impact of quantitative easing on the region’s potential under-estimated.

“The disadvantages, pain and political impact of Europe’s struggle to reform its economies and cost structure are well known. What’s less appreciated — and likely not yet reflected in share prices — is the potential advantages that may accrue to companies doing business in that same environment.”

“The combination of rampant unemployment and the mobility of labour within the EU have had the effect of driving labour costs down in parts of peripheral Europe, to the dismay of many, but to the advantage of employers trying to compete in a difficult global economy. If you then include the potential benefit of a more open-handed European Central Bank, as well as the heavily promoted €300 billion ($374 billion) infrastructure fund and the declining euro, it could add up to a solid year for select European companies.”

US small caps: While the largest US companies enjoyed a purple patch in 2014, small caps have had a much more mixed ride. A recent sharp sell-off has created opportunities for investors, according to Legg Mason subsidiary Royce & Associates. “A closer look inside the small-cap index reveals that 49 per cent of its constituents were down at least 20 per cent from their respective 52-week highs as of the end of September.”

“Meanwhile, more than one in ten are off more than 30 per cent over the last 12 months. To us, this shows the correction has been rotational — it has been going on, quietly, for a long time. Our examination of the index suggested that the rotation has left many high-quality small-cap stocks undervalued.”