HONG KONG, Dec. 1, 2015 /PRNewswire/ -- As the world's major non-U.S. economies are expected to see the pace of growth improve somewhat in 2016, investors should remain optimistic about investing in the global market even though market volatility is likely to persist, according to Jeffrey Kleintop, Senior Vice President, Chief Global Investment Strategist of Charles Schwab & Co., Inc. at a press conference today in Hong Kong.
"Despite European Central Bank (ECB)'s quantitative easing (QE) campaign, China's stock market volatility, and the expected interest rate hike by the Federal Reserve in December, global growth seems to be perking up," said Kleintop.
According to Kleintop, most forecasters, including the IMF, World Bank, the OECD, foresee global growth of 3.5%, a stronger world economy in 2016 than in 2015 or 2014 that would mark a return to the average pace of growth over the past 50 years.
"Faster global economic growth should translate into better sales for companies and drive faster earnings growth than in 2015, potentially supporting the stock markets around the world," said Kleintop.
Kleintop said that in Europe, Greece's debt crisis is a continuing risk to the global economy, but the prospect of Greece leaving the Eurozone has been shelved, the political risks surrounding Spanish elections are overstated, economic growth is on the mend, and reforms are underway to improve Italy's growth potential.
"The increasing expectations for the European Central Bank (ECB) to step up the pace of QE program asset purchases is tied to weaker inflation readings, not weaker economic growth. The combination of solid growth and the potential for greater central bank stimulus is likely to result in a bullish combination for European stocks," said Kleintop. "The Eurozone is likely to accelerate to the fastest growth pace since 2010 driven by the European Central Bank's quantitative easing program, credit growth, a weaker euro, falling oil prices, less drag from fiscal spending."
Kleintop noted that while US equity markets have rallied sharply over the past month, overall 2015 has been a disappointing year so far for U.S. stocks, especially with the 3rd quarter suffering one of the worst quarterly losses in almost 40 years. "However, we believe a bear market is not likely because there is no U.S. economic recession in sight," he elaborated. "We believe developed international stock markets will modestly outperform the U.S. stock market over the next six to 12 months driven by stronger earnings growth, more attractive valuations, and improving indicators of economic/revenue growth."
In addition, while Kleintop sees December in play for the first hike since 2006, he believes it's the second rate hike that is most important as it sets the pace for Fed tightening. The sooner the second hike comes the greater the risk to stocks, he noted.
"China's growth is very likely to slow down again in 2016, but we don't think China will experience a 'hard landing' and we believe China's economy will slow only modestly in 2016 as consumer spending, growth in services, and policy stimulus work together to help offset the manufacturing sector slowdown. China's mainland stock market, measured by the Shanghai Composite, has had no discernible relationship with China's economic growth. We believe Chinese stock market volatility is very likely to persist but it is unlikely to drag down the global economy," said Kleintop.
Economic stimulus applied in the third quarter included lower interest rates, a small devaluation in the yuan, along with tax incentives for car and home buyers which provide support for stronger loan growth and acceleration in the growth of the services sector which lays the foundation for stable growth in the coming quarters. However, Kleintop notes that stabilization in growth can have a dark side if it ends up being driven by borrowing that is too rapid, undoing reforms put in place in the past year or two to curb debt growth that soared from 125% to 200% of GDP from the end of 2008 through 2014.
Kleintop said, "Hong Kong investors who typically invest heavily on the China stock market should understand the importance of diversification to reduce risk and maintain returns on their investment portfolio."
Kleintop is positive on Europe and Japan for the coming year, and suggests that long-term investors may find value in the growing emerging economies of India, Mexico, Taiwan, and South Korea. While these markets may not have rallied as much as others since the September lows, they fell far less, reflecting their better fundamentals of solid economic growth, central bank rate cuts, relatively tame inflation and more stable currencies.
"In contrast to worries over a global recession, global growth may actually be on the upswing in the coming year. We believe a global perspective that incorporates portfolio allocations to U.S. and international stock markets along with global benchmarks for performance are vital to successful long-term investing," concluded Kleintop.
Important Disclosure
Investment involves risk. Past performance is no indication of future results, and values fluctuate. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or geopolitical conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
This material is issued by Charles Schwab, Hong Kong, Ltd. and has not been reviewed by the Securities and Futures Commission in Hong Kong.
(1115-A81C/ CSHK-1410)
About Charles Schwab
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 325 offices, 9.7 million client brokerage accounts, and USD2.54 trillion in client assets as of October 31, 2015. More information is available at www.aboutschwab.com.
About Charles Schwab Hong Kong
Charles Schwab, Hong Kong, Ltd., a subsidiary of the Charles Schwab Corporation, is registered with the Securities & Futures Commission ("SFC") to carry out the regulated activities in dealing in securities, advising on securities, and advising on futures contracts under CE number ADV256. Through a multi-channel combination, the company currently provides services via its Hong Kong office, its telephone system (+852 2101-0511) and web site (www.schwab.com.hk). Charles Schwab, Hong Kong, Ltd. is an affiliate of Charles Schwab & Co., Inc.
Photo - http://photos.prnasia.com/prnvar/20151201/8521508211
