Australia faces a challenging domestic environment this year but the economy should prove resilient, Morningstar senior credit analyst John Likos said.
The transition away from the mining to the non-mining economy should continue to play out, albeit slowly.
A lower Australian dollar should provide some support to trade-exposed industries such as tourism, agriculture, education and manufacturing.
"We anticipate a continued shift from a capital-intensive, goods-based economy to a labour-intensive, services-based economy. This should continue to support employment at the expense of capital expenditure.''
A low interest rate environment with capacity for further cuts, a lower Australian dollar compared with previous years, a stable inflation environment and improving employment should provide some support to the domestic economy in the event of any negative news, he said.
As far as the economic/interest rate outlook was concerned, Morningstar anticipated a continuation of below-trend economic growth of about 2.5% during 2016, supported by a steady unemployment rate of about 6% and benign inflation of about 2%.
Investors would continue their "search for yield'', amid a backdrop of a continued low cash rate, which was expected to remain at 2% this year, Mr Likos said.
Key downside risks included a hard landing in China and a housing market crash in Australia.
Upside risks included a rebound in China and a faster-than-anticipated domestic transition away from the mining economy.
Morningstar equity research director Carolyn Holmes said the global economic backdrop was likely to be similar to last year.
The US economy was expected to continue strengthening but the Federal Reserve was likely to increase interest rates this year by less than the 1% forecast.
China would start to transform from an infrastructure asset spend phase to a more consumer spending phase and the euro zone would continue to struggle.
No clear end to the European Central Bank's negative rate cycle appeared to be in sight.
Morningstar expected an ASX 200 index trading range of between 5000 and 5800, similar to last year, she said.
"In our view, the commodities drag on the equity markets will not be so dominant in 2016 and the market direction may be more influenced by the Fed commentaries around further US interest rate rises and the release of indicators on the underlying strength of the Australian economy,'' she said.
Market volatility would again feature this year, noticeable around unexpected bond yield movements, Ms Holmes said.
All eyes would be on minutes from the December meeting of the Federal Reserve when they were released this week for clues on why interest rates were lifted for the first time in almost a decade.
US employment figures would also be carefully scrutinised this weekend. Strong growth would be a likely sign of another interest rate hike on the horizon.
