Where to invest? It is a low growth, low interest rate world - Buy equities that are cash cows, stable USD cashflows, high dividend yielders.

Investing is about forming your views on expected risk and returns of various asset classes. Amidst this volatility - you need to form views on where the world is headed. I present my views on how I think would pan out, and based on that what I view to be interesting asset classes to take exposure in now.

My view is that:

1) World growth will remain slow. The world is facing an aggregate demand issue.  Chinese growth is definitely slowing (please see my views on china - https://www.dhirubhai.net/pulse/china-another-20-downside-disconnect-between-economy-jamwal?trk=pulse_spock-articles). As the FAI - fixed asset investment in China is slowing down - it is putting pressure on commodity prices and commodity producing countries across the globe. On top of that there is an increased supply from shale oil and gas - that is leading to a drop in energy prices, and hence a drop in investment. Commodities and energy sectors are facing declining capex and hence an effect on gdp growth. 

2) Increased leverage across the world - The leverage across countries has increased across the world, but the growth has not picked up.  Please see - https://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

Following 2 charts show the debt buildup in China, and the rise in the US dollar debt, as US dollar becomes stronger, the debt burden on these economies increase. 

Increased debt burdens in face of a slowing world growth, coupled with stronger US dollar puts pressure on corporates to slow down spending and be conservative. 

3) Interest rates - I believe fed will not be able to increase interest rates too much. The first round of tightening has already been delivered to the US economy via a stronger US dollar. US manufacturing PMI is slowing down, the stronger US dollar partly to blame. Hence - in the face of weaker global growth and a slower economy back home - the fed may try to increase the interest rates, but they may not go beyond couple of increases in my view. That implies just 50-75 bps of tightening.

Hence I think - we are in a Slow growth, low interest rate environment. 

What should do well in such an environment? 

Fixed income - with yields already so low, I dont think fixed income is an attractive asset class - the yields in the developed world are already signalling a slow growth environment, hence it is inline with our view as well. You do not make money if your view is the same as the market, and is already priced in. 

Equity - I like equities, in particular cash cows. I like high dividend yield equities, with underlying cashflows in US dollars. High Div yield equities have been sold down in the expectations of a rising interest rate environment, however bonds have not. Hence this is the opportunity to get into equities, USD cashflows, high dividend yielders at attractive valuations. 

Commodities - this is a long term cycle, I would'nt dabble right now. 

Conclusion: Buy equities, cash cows, underlying USD cashflows, high dividend yielders. 

Caution: Dont overypay for growth, growth equities could have a challenging time forward. 

These views are on a 3 year time horizon.