Which Assets And Markets Will Fare Best in 2015?

For mere mortals accurately predicting the future of investments is probably as successful as consulting Mystic Meg with her crystal ball or the Oracle in BBC’s Saturday night drama Atlantis. For example I wonder who guessed the oil price would collapse to the extent it did in 2014? In the absence of Meg and Juliet Stevenson, their fees are too high for a personal consultation, I have turned to the raft of fund managers and other financial experts who have offered their predictions for 2015. In this blog I attempt to summarise briefly the consensus view from the disparate sources.

Top of the picks are US assets including the dollar. With strong momentum, the best performing economy in the developed world and the likelihood of rising interest rates, this would appear to be a no brainer. One commentator tipped the consumer and domestic economy in the US to do well. This is again logical as exporters face headwinds from a strong dollar. If this assessment is correct US smaller and mid-caps stocks should benefit.

Surprisingly perhaps quite a few pundits predicted European assets to do well, though not all for the same reasons. One thought Europe would emerge from its deflationary pressures. Although the fall in the oil price has been a recent major contributor to deflation, there are many economic benefits for consumers and businesses with low energy costs. It was noted that liquidity is improving in the EuroZone and the ECB asset purchase programme will trigger a rally in asset backed securities. Moreover if full blown QE is undertaken there will be an additional tailwind for European equities and bonds. A weaker Euro is also expected and this will benefit exporters.

At least one expert suggested political risk in the UK from the General Election could impact adversely on UK stockmarket returns. Interestingly the FTSE 100 index has significantly underperformed the US S&P 500 index over the last four years. Arguably the FTSE 100 index is not a great proxy for the UK economy with a high weighting to commodities and global focus.

Views on Japan were mixed but as in Indonesia and India Japan has a very business friendly government. Whether these administrations can push through economic reforms will a key determinant of stock returns in these markets although it should be noted that India was best performing equity market in 2014.

The consensus view on bonds is not positive although it was suggested US high yield and emerging market debt have their attractions. In recent years there has been an expectation of a collapse in bond prices and a great rotation from bonds to equities. So far the rumours of the death of the bond has been greatly exaggerated and 2014 was no exception. Government bonds were surprisingly resilient and rallied. My view is that bonds, especially high yielding debts remain good investments for income investors whilst index linked bonds will benefit from rising inflation. Given the current deflationary pressures the latter is a longer term strategy than one for 2015.

Finally one commentator thought the oil price could fall to as low as $20 per barrel. Whatever happens interesting times are ahead for investors and their advisers.

This blog is intended as a general investment commentary. It is not an invitation to invest in the areas highlighted as these may not be suitable for you. You should seek individual advice before making investment decisions.