Next year looks set to be a challenging one, with investors facing divergent economic conditions and monetary policies, says BNP Paribas.
In its investment outlook for 2016 – Investing in a Desynchronised World – BNP Paribas said the "desynchronisation" of economic conditions, growth and monetary policy will place pressure on investors throughout next year.
"When it comes to the picture of fragmented economic growth, there appears to be no prospect of a robust global expansion," said BNP Paribas Investment Partners chief executive Frédéric Janbon.
"The monetary policy of the world's two most influential central banks is likely to take opposite courses as the US Federal Reserve pursues the normalisation of its policy, while the European Central Bank stands ready to expand its large-scale asset purchase programme in an attempt to engender a lasting boost to eurozone growth and inflation."
Mr Janbon said this trend is certain to influence asset prices and the global investment environment.
According to the outlook, the stabilisation of the US dollar, the loosening of monetary policy in the eurozone, China and Japan, and low commodity prices will be "significant forces" dictating the returns of asset classes throughout next year.
As a result, investors should consider multi-asset strategies to navigate the environment.
BNP Paribas chief investment officer, head of tactical asset allocation and research, Colin Graham, said investors need to balance the objectives of income generation and volatility management.
"For example, our income strategies hold low-yielding government bonds along with high-yielding riskier assets such as equities and emerging market debt to generate the overall income target," he said.
"Looking ahead we could see an increasing preference for holding cash, firstly as a hedge against excessive volatility, and secondly for active managers to provide the firepower to invest during extreme market turbulence that is not driven by fundamentals."
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