We forecast US Treasury yields to rise only gradually amid the onset of tighter Fed policy, while the yields of governments bonds in many other developed economies should remain very low against the backdrop of exceptionally loose monetary conditions. A strengthening labour market and dollar are likely to cap the upside for equities in the US as they put margins under pressure. We see more scope for gains in equities in Japan, given our view that the yen is likely to depreciate sharply once more. Finally, while the lower oil price is good news for some emerging market (EM) countries and bad for others, we think the overall outlook for EM equities remains quite bright.
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