A drop in oil prices, worries about the health of the Chinese economy and a collapse in the stocks and bonds of commodity-producing emerging markets may worry many investors, but not Xavier Denis, the global strategist of SociÃ©tÃ© GÃ©nÃ©rale’s private banking arm.
Low oil prices will continue to give a boost to US consumers, China has enough policy tools in its arsenal to avoid a hard landing and the woes of the developing world are unlikely to infect the rest of the world, according to Mr Denis.
Among the investment ideas he likes, Japanese and Indian stocks are two of his favourite for this year as both are net energy importers and will benefit from the spell of cheaper oil and, to differing degrees, trade at attractive valuations.
“We still keep reasonable optimism about not only the macro outlook but also in terms of investments,” Mr Denis, who is based in Hong Kong, said on Wednesday in Dubai.
“We are not those who tend to recommend to their clients shed all of your positions and get back to cash. We do not think 2016 is a repetition or may be a repetition, could be a repetition, of 2008. Most of the legacy of the financial crisis has been addressed by policymaking, by cleaning up banks’ balance sheets, household balance sheets.”
The US Federal Reserve seemed as though it shared Mr Denis’s view when it raised rates in December for the first time in nine years after it deemed that the world’s largest economy had healed enough since 2008 to withstand higher interest rates.
Investors, however, seem to be disagreeing with the notion.
The first month of the year typically involves buying as the so-called January effect takes hold with some US investors selling stocks in December to incur losses for tax reasons on losers. But last month there was a massive global sell-off as a trifecta of worries, from slowing growth in China, lower oil prices and the consequent fears of slower global growth gripped market participants.
The benchmark MSCI All World Index, a measure of global stocks, has dropped 7.5 per cent so far this year. Chinese stocks and oil futures have fared far worse, plummeting about 23 per cent and 13 per cent, respectively.
Mr Denis said that oil prices are likely to remain at low levels, between $30 and $40 a barrel in the first half of the year and between $40 and $50 in the second half, with any big bounce likely to remain short-lived as the oversupply in the market – currently at about 1.4 million barrels per day – will probably remain all year.
That should give a boost to consumers and outweigh the damage done to the overall global economy from falling commodity prices while fears over a slowdown in economic growth is unlikely to be an obstacle to global economic growth, he said.
Fears about the fortunes of China accelerated in January, when the government of the world’s second-largest economy said that 2015 economic growth slowed to 6.9 per cent from 7.3 per cent in the previous year.
“China’s slowdown is unlikely to derail global growth, thanks to fine-tuned measures, fiscal and monetary policy,” Mr Denis said.
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