The most dominant of these is the expectation that the US dollar will continue its ascent next year, on the back of sustained US growth, that should see US equities and credit rise as well.
Linked to this is the view that monetary policy is going to begin to diverge as the US and UK start raising rates, while the Bank of Japan continues its liquidity experiment and, it would seem, the eurozone is likely to embark on its own version of full quantitative easing.
The third of the major consensus views seems to be around the prospects for Japanese equities, which a number of commentators believe are going to benefit from the sea change that has taken place in terms of corporate attitudes toward shareholder returns and, in particular, return on equity.
The last of the major views is on Europe, where most expect the region to continue to muddle through and, perhaps, even surprise slightly on the upside in terms of economic growth.
The question is though, are these views prevalent because of the weight of evidence for them, or is there a strong possibility that the consensus is wrong.
Investec Asset Management’s Max King (and it is a feeling held by a fair few of those providing the outlook statements as well) told Portfolio Adviser, whenever he sees a strong consensus, his impulse is to look for reasons to go the other way.
But, he added: “Sometimes there are short term reasons to be contrarian that can pay off from a trading perspective, sometimes there are very good long term reasons why the market has got it wrong, but also, sometimes the consensus is actually on the money.”
With regards the current consensus, King has mixed feelings. On the US dollar, he said that, while there are reasons to be positive, there might actually be a little bit too much enthusiasm in the current price.
“The last time this sort of dollar strength occurred was in the 1990s and it had a significant impact on emerging markets. I don’t think the Federal Reserve will be quite as indifferent to the plight of emerging markets this time around. Thus, while we believe the dollar is still a little undervalued, we are not getting too enthusiastic,” he said.
On Japan, King said the firm has been positive for some time and remains so, while in Europe, he pointed out that a muddle through scenario would mean at best around 1% growth, which, he said, is not much.
“I think in Europe, you are really going to have to be a stock picker,” he said.
Contrarian calls
So what is King’s highest conviction call at the moment?
Small and mid-cap outperformance globally, was his answer.
“This year you have seen the prices of small and mid-caps fall, but many of the earnings have continued to grow. Valuations have begun once more to look good. And, he adds, over and above the valuation argument, there is a tendency outside the US for many of the megacap names to behave like dinosaurs.”
King’s other main call is the significant investor bias toward value companies over growth stocks.
“I don’t remember another time when people have been so infatuated with value over growth. There is nothing wrong with value stocks, but often people mistake a cheap company for a value one.
“You have made very good money in recent years paying up for growth, which makes sense in a rapidly changing world,” he added.
On the credit side, King does not believe yet that it is yet the time to sell sovereign bonds, despite the asset class surprising investors significantly over the course of 2014.
“There will be time to sell bonds next year, but not just yet,” he said.
