According to Christoph Riniker, head of equity strategy research at the firm, 2016 might become a “rather challenging year” for equities investors. The year is already shaping up to deliver “only modest returns” from equities, he said.
Riniker pointed out that global equities have delivered only 2.6% in local currencies, remaining well below the long-term average of 8.5%. Moreover, the figure is below the return of the previous year for the third time in a row. Meanwhile, on a country and sector level the dispersion was quite high, with total returns in local currencies ranging from +14% in Italy to -12% in Singapore, and from +10% in consumer staples to -19% in energy.
Given the limited index potential on an aggregate level and the current position in the bull market investors need to become “more modest” going forward, in Riniker’s view.
However, even though the firm does not see much valuation expansion going forward, a comparison of valuation levels of the different asset classes still shows a decent advantage for equities. “Nevertheless, it has to be kept in mind that the current bull market substantially exceeds previous ones in duration and performance,” said Riniker.
“The reason for this can be found, among others, in the quantitative easing programme which has further boosted the equity market beyond levels seen previously. For the same reason we still stick to eurozone rather than US equities in the coming months,” he added.
