(Yicai Global) Feb. 24 -- The global economic outlook for this year is going to be better than what people were expecting just a few months ago, but investors should not be too optimistic as there are still various potential risks, according to Peter Oppenheimer, Goldman Sachs chief global equity strategist.

In an interview with Yicai Global, Oppenheimer also said that returns across global equity markets will be relatively low on aggregate this year.

Firstly, as opposed to the consensus a few months ago, we did not believe the United States would have a recession this year, he said. The surge in energy prices has moderated in Europe, also reducing the risk of a recession there, and the opening-up of China is improving the prospects for the Chinese and the global economy.

But Oppenheimer said returns in financial markets will be less positive moving forward for “we are in a situation now where rising interest rates have increased the attraction of putting money in cash rather than government bonds or equities.”

He warned that though there is a lot of good news now priced into markets, there is a risk that in the next quarter or two, investors may start to question the likelihood of a good outcome, resulting in some tension in financial markets. He also mentioned the risk of a temporary closure of the US government, as happened in 2011.

Speaking on investment strategy, Oppenheimer emphasized the importance of valuation. Over the last year, as interest rates around the world have started to rise, the cheapest industries have begun to see better returns and more interest from investors, and the ones with the highest valuations have generally under-performed, he said.

His suggested investors focus on areas where there is relative value, cash and pockets of credit within the equity market, such as banks, energy firms, and commodity-related stocks.

According to Oppenheimer, there will be more opportunities in some non-US markets as they have lower valuations. The highest returns Goldman Sachs has forecast are across Asia in places like China, South Korea and Japan.

Europe also looks quite attractive from the evaluation perspective, he added. It benefits more than the US does from a recovery in China because it has more exposure there and also more exposure to value sectors like banking, energy, and commodities, which are now seeing better fundamental growth, he said.

Editor: Peter Thomas