Will 2016 be a happy new year for investors?

No bull market can last forever. The US equity surge is now in its seventh year, making it the longest bull run since World War II uninterrupted by a fall of more than 20 percent. Fears mounted through 2015 that the post-crisis upswing in risk assets is finally running out of steam. Confidence was shaken in August and September by worries over China's growth, despite the fact that, at least according to official data, growth is meeting expectations.

With that in mind, we see six key questions for investors in 2016:

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.
  1. Did 2015 mark the peak for risky assets?
  2. Can China control its slowdown?
  3. Are we close to the bottom of the downturn in emerging markets and commodity prices?
  4. If so, is 2016 the year inflation returns?
  5. How will central banks respond?
  6. How will the type of political volatility witnessed this year affect financial markets in 2016?

In answer to the first question, we expect equities to rise around 7 percent in 2016, supported by a moderate acceleration in global growth, rising earnings, healthy corporate balance sheets, and continued central bank stimulus. A strengthening U.S. dollar and falling oil prices are less likely to drag on U.S. earnings in 2016. The MSCI All-Country World Index is priced at only a slightly above-average multiple of past earnings, far short of the levels usually associated with a valuation-driven selloff.

Of course, markets face risks entering 2016. One of the most serious is the Chinese slowdown. China needs to find new drivers for economic growth. Yanking the old levers of increased property and industrial development will only lead to ever-greater debts — credit has risen to around 250 percent of GDP from about 150 percent in 2008. However, as it manages its economic transition, China has considerable resources to backstop its financial system, including $3.5 trillion in currency reserves. Ultimately, we expect China to slow, but not disrupt the wider picture for risky assets.

If China avoids a hard landing, and the commodities that it consumes starts to stabilize in price, the picture for emerging markets should also improve. We expect emerging market corporate profits to grow 2-6 percent. The U.S. Federal Reserve is likely to remain cautious in its approach to raising interest rates. For emerging markets, the cost of servicing U.S. dollar debts is likely to remain contained. Although the exuberance of the mid 2000s is unlikely to return, the worst for emerging markets has probably passed.

As commodities stabilize, inflation will also probably return to more normal levels. However, wage inflation specifically is unlikely to spiral. Central banks also care about avoiding deflation. Partly as a result, authorities are not compelled to raise rates aggressively while wage inflation is low. Furthermore, two major developed world central banks, the European Central Bank and the Bank of Japan, remain in easing mode. Overall, monetary policy makers are unlikely to spoil the outlook for risky assets in 2016.

The final question is whether political noise will significantly disrupt markets in 2016. Here again the answer is encouraging. Although terrorism appears to be on the rise, with all its terrible human implications, major economies have historically shown remarkable resilience in the face of terrorist threats. In the U.S., although the presidential election campaigns have thrown up some extreme rhetoric, centrists are still likely to prevail in the final contest next year. Finally, in emerging markets, Argentina's shift away from populism is a sign that economic hardship can propel voters towards pro-market policies.

In short, we base our investment view for next year on several predictions. Global growth will accelerate modestly in 2016. This year did not mark the peak for risky assets. China can both slow quickly and avoid a hard landing. We might be close to the bottom of the emerging markets and commodity downturn. Inflation will return, but not with destructive force. And politics will cause lots of drama but hopefully less tragedy than in 2015.

We enter 2016 with a positive stance on equities relative to government bonds, a preference for stocks in regions where central banks are easing — the euro zone and Japan — and an overweight position in European high yield credit.

Commentary by Mark Haefele, global chief investment officer at UBS Wealth Management, overseeing the investment strategy for $2 trillion in invested assets. Follow UBS on Twitter @UBSamericas.