There is no shortage of fund managers who make public predictions about the share market. One of the more insightful is John Abernethy, the veteran fund manager and Clime chief investment officer.
Abernethy recently published five predictions for the next three to five years in a research note. His longer-term analysis stands out in a market littered with short-term predictions that often confuse rather than help investors.
His most controversial prediction is for bond markets, and the United States bond market in particular, to correct heavily in the next three years. "It appears overwhelmingly logical to suggest that a 3 per cent yield on a 30-year US government bond represents irrational stupidity," he says.
He says bond markets are in a bubble. "US bond rates will correct. So will Australian bonds and thus investment portfolios should be positioned to withstand this risk."
Investors should minimise bond exposure, keep it to short duration and only buy floating-rate debt securities, he adds.
His second prediction is for the Australian dollar to stay "stronger for longer", mainly because the US, European Union, United Kingdom and Japan are engaging in quantitative easing (a form of monetary policy).
"If they print currency and (Australia) does not, then it is likely our currency remains strong," he says.
He believes the Australian dollar will rise further against the US dollar, and go much higher against the euro, pound and particularly the yen.
Currency intervention by the Reserve Bank of Australia may reduce some upward pressure on the Australian dollar against the greenback, but investors should prepare for a sustained higher local currency.
His third prediction is that China will revalue the yuan more aggressively after the US election and global inflation will become a bigger problem.
He says: "To maintain growth of the internal economy (in China), inflation must be checked on imported goods, services and inputs. A rising yuan will achieve this."
This, and a higher oil price, will have medium-term implications for inflation in the US.
The fourth predication is that Japan is in terminal decline because of its falling population, aging profile and high government debt, and the yen will devalue at an extraordinary rate.
"A declining yen in the next five years will have ramifications for Japanese inflation. As a large energy importer, the effect on the yield of Japanese bonds will be significant," Abernethy says.
Devaluation may induce Japanese investors to repatriate funds and investments from overseas markets.
From an Australian perspective, it suggests the Japanese will be continual sellers of Australian property in coming years. The question is whether Chinese investors will replace them.
Abernethy's fifth prediction - sustained growth in China - is the most important for Australian investors.
He believes China's growth is secure for the next five years because of its ability to stimulate growth through fiscal measures if required.
Continued strong growth in urbanisation in China and the need to encourage higher domestic consumption also underpin its medium-term economic growth prospects.
"Unlike most other countries, China has the policy space to contain the negative spillover should such risks (a so-called hard landing for its economy) materialise," Abernethy says.
"A fiscal stimulus package in the order of 3 per cent of gross domestic product could hold growth up above 7 per cent, much as China's pre-emptive policy action in 2008 eased domestic vulnerabilities.
"China could use any significant slowdown in the coming year or two as an opportunity to boost consumption ... strengthen household income and social services.
"This would also help reduce China's reliance on investment and support a more sustainable internally-balanced economy."
Taken together, these five predications show how delicately poised investment markets are for even medium-term investors.
A stronger China will help the Australian share market and a move away from bonds, if it happens, could help equities generally. But a higher Australian dollar and the threat of higher global inflation are significant threats for the local economy and share investors.
