Goldman Sachs: THIS will drive markets in 2016

Rocky geopolitics are sure to drive global markets in 2016, Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said Wednesday.

"Political uncertainty at one level or another is one of the risks that we see of being quite high through the year, and that should be reflected quite high in risky premium and risky assets," Oppenheimer told CNBC's "Worldwide Exchange."

"The main view that we've had for this year is one of quite high volatility," he added.

He described his outlook for European equity markets as "fat and flat," with a broad trading range but relatively low returns.

Oppenheimer also pointed to China's pervasive effect on global markets, where wild swings in Chinese trading pushed markets in Asia lower this week.

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"I think at the bottom of this is a fundamental story about a slowdown in China," Oppenheimer said. "The focus at the moment is the ongoing weakness in the manufacturing sector but also the lack of evidence that traditional policy easing is really stabilizing the economy."

He underlined concerns about further weakness in exchange rates, and the possibility for that to flow through the broader markets.

China's relevance stems not only from size, Oppenheimer said, but its ripple effect on emerging markets and the euro zone. "You look at Germany, which has about 12 percent sales exposure directly to China. It matters a lot."

Countries are key, but Oppenheimer stressed the importance of diversifying across sectors. "Differentials across sectors were much more important than differentials across countries and I expect that to be the case to continue."

Commodities continue to be a top concern for Oppenheimer and his team at Goldman Sachs in London.

In their recent analyst note, favored sectors include media, insurance, and telecoms. Goldman is underweight on chemicals, tobacco and food & beverages.

Other bright spots include European banks, with stocks picks including Barclays, Credit Suisse, and Julius Baer. But Oppenheimer isn't abandoning U.S. banks.

"We do think leading U.S. banks will do quite well in a domestic economy is reasonable solid in the U.S.," he said. He added that rising interest rates will generate better margins and returns for American banks.