The second half of 2016 will bring further geopolitical uncertainty and market volatility, a report from State Street Global Advisors predicts.
The money manager's Global Market Outlook for the second half of the year advises investors to think differently about their strategic approaches following the referendum in the U.K. to leave the European Union. That vote, along with other geopolitical concerns, such as ongoing conflicts in the Middle East, will add volatility, the report said.
“We expect that spikes in volatility triggered by a range of geopolitical factors will continue to characterize markets for the remainder of the year,” said Richard F. Lacaille, SSgA's executive vice president and global chief investment officer, in a news release about the report. “The Brexit vote outcome will be a primary source of volatility, particularly in the short term, but also in the coming months as the process unfolds. Longer term, volatility is likely to remain a feature of markets as they contend with broader global growth concerns, the capacity of central banks to stimulate economies, and other geopolitical events, including elections in the U.S. and across Europe.”
Overall, the report said, global equities look favorable for the rest of the year, while global government fixed income will perform the worst of all asset classes. Compared to its beginning-of-year forecast for 2016, SSgA downgraded its assessment of European and Japanese equities, which was originally positive, given the “likely limits to (monetary) policy support in a negative rate environment.”
The second-half outlook also revised the firm's forecast for U.S. growth, to 2% from 2.5%, and Japan, to 0.7% and 1.2%. The revised projection for the U.S. is due primarily to the projected path of interest rates in the U.S. SSgA now projects just one rate hike later this year, as opposed to the multiple hikes it originally projected.
The Japanese economy, meanwhile, remained stagnant in the final nine months of 2015, leading to the revision.
SSgA said its original 1.6% growth projection for the eurozone would remain the same.
