Modest improvement in global GDP growth

The US economy should expand by 2.8% next year compared with 2.5% this year. The country must transition away from an era of zero interest rates, and from Barack Obama's presidency to that of his successor. Despite these uncertainties, the drag on US corporate earnings from a strong dollar and low energy prices should abate. Consumer spending should remain robust.

The Eurozone economy is likely to grow 1.8% next year compared to the current 1.5%. Growth in the UK should remain strong, repeating its 2.4% performance. Beset by a migration crisis, Europe faces questions about monetary stability, and the future of the likes of the UK in its political union. Nevertheless, improving growth and ultra-loose monetary policy should support profits in the Eurozone, where we remain overweight for equities.

Growth in emerging markets will remain subdued, but should improve to 4.3% compared with 4.1% this year. Emerging markets need to refocus on structural and political reform and less on investment, commodities, and cheap capital. They will be under pressure at a time of US interest rate hikes.

Stocks and high yield bonds should deliver positive total returns. Government bond prices are likely to fall while inflation, the oil price and US interest rates will all probably rise. Hedge funds are expected to deliver more favorable risk-adjusted returns in 2016 than in 2015, and for the asset class as a whole, returns of 4-6% are expected in 2016.

Asia is adjusting to the new normal - China is transforming, investors need to as well

Min Lan Tan, Head CIO APAC Investment Office at UBS Wealth Management, says: 'China's economic transition means that a further slowdown in its annual growth rate to 5.5-6% by 2020 is not unthinkable. This should keep the commodity cycle in check, and signal that it may be time for investors to turn their attention to 'new economy' sectors such as Asia internet and high growth services for 2016 and beyond. Looking into 2016, regional economic growth should continue to slow, mainly due to China. We overweight equities over credit, while currencies should remain under pressure against the dollar.'

Signs of China's long-awaited economic transition may be finally underway - away from a reliance on fixed-asset investment toward domestic consumption. Asia ex-Japan economic growth should slow to a near 15-year low of 5.8%, dragged mainly by China, whose growth should grind lower to 6.2% from 6.9% in 2015. Thanks to low or negative core inflation, regional monetary and fiscal policies should remain accommodative.

We think significant yuan devaluation is a key tail risk, though it is unlikely. As the US Federal Reserve swings into action, we expect a moderate depreciation of the yuan against the dollar over 12 months, taking USDCNY to 6.80. Investors should also hedge against a potential 5% decline in APAC currencies versus the greenback over the next six months. We overweight equities over credit in the region. In equities, we are overweight on China and Singapore, and underweight on Malaysia and Thailand. Globally, we also like Japan. In credit, we believe Chinese high yield property is attractive for buy-and-hold investors.

Long-term investment themes - for growing and protecting wealth

Beyond 2016, long-term themes will continue to shape the investment landscape. A key example is worsening demographics in the US, Japan, Europe and China, which may constrain the outlook for financial assets in coming years and decades. Savings rates are likely to decline as the elderly draw on funds, reducing the glut of money that has buoyed markets. A smaller population of young workers could demand higher wages, igniting inflation and pushing up interest rates.

An aging population will also create opportunities in the healthcare sector. CIO sees earlier-stage cancer research as particularly attractive for long-term investment. Due to cancer's wider social implications, research in this area is particularly suited to impact investment, which aims to produce a defined social benefit as well as a financial return.

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Further information on UBS Wealth Management's Chief Investment Office: www.ubs.com/cio

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UBS is committed to providing private, institutional and corporate clients worldwide, as well as retail clients in Switzerland, with superior financial advice and solutions while generating attractive and sustainable returns for shareholders. Its strategy centers on its Wealth Management and Wealth Management Americas businesses and its leading universal bank in Switzerland, complemented by its Asset Management business and its Investment Bank. These businesses share three key characteristics: they benefit from a strong competitive position in their targeted markets, are capital-efficient, and offer a superior structural growth and profitability outlook. UBS's strategy builds on the strengths of all of its businesses and focuses its efforts on areas in which it excels, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which it operates. Capital strength is the foundation of its success.

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