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Each year for the past three decades Blackstone's Vice Chairman of Multi-Asset Investing Byron R. Wien presents his top 10 "surprises" for the upcoming 12 months.

What constitutes a "surprise", you ask? A surprise is "an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is 'probable,' having a better than 50% likelihood of happening." Last year's list included a few predictions that didn't exactly pan out including:

• The year-end 2014 rally in United States equities continues as the market rises for a strong performance in 2015
• The year-end 2014 meltdown in the high yield market, as a result of the collapse in the price of oil, creates a huge buying opportunity.
• Brazil provides an emerging market favorable surprise.
• Hillary Clinton decides not to run for President

Byron’s Ten Surprises for 2016 are as follows:

1. Riding on the coattails of Hillary Clinton, the winner of the presidential race against Ted Cruz, the Democrats gain control of the Senate in November. The extreme positions of the Republican presidential candidate on key issues are cited as factors contributing to this outcome. Turnout is below expectations for both political parties.

2. The United States equity market has a down year. Stocks suffer from weak earnings, margin pressure (higher wages and no pricing power) and a price- earnings ratio contraction. Investors keeping large cash balances because of global instability is another reason for the disappointing performance.

3. After the December rate increase, the Federal Reserve raises short-term interest rates by 25 basis points only once during 2016 in spite of having indicated on December 16 that they would do more. A weak economy, poor corporate performance and struggling emerging markets are behind the cautious policy. Reversing course and actually reducing rates is actively considered later in the year. Real gross domestic product in the U.S. is below 2% for 2016.

4. The weak American economy and the soft equity market cause overseas investors to reduce their holdings of American stocks. An uncertain policy agenda as a result of a heated presidential campaign further confuses the outlook. The dollar declines to 1.20 against the euro.

5. China barely avoids a hard landing and its soft economy fails to produce enough new jobs to satisfy its young people. Chinese banks get in trouble because of non-performing loans. Debt to GDP is now 250%. Growth drops below 5% even though retail and auto sales are good and industrial production is up. The yuan is adjusted to seven against the dollar to stimulate exports.

6. The refugee crisis proves divisive for the European Union and breaking it up is again on the table. The political shift toward the nationalist policies of the extreme right is behind the change in mood. No decision is made, but the long-term outlook for the euro and its supporters darkens.

7. Oil languishes in the $30s. Slow growth around the world is the major factor, but additional production from Iran and the unwillingness of Saudi Arabia to limit shipments also play a role. Diminished exploration and development may result in higher prices at some point, but supply/demand strains do not appear in 2016.

8. High-end residential real estate in New York and London has a sharp downturn. Russian and Chinese buyers disappear from the market in both places. Low oil prices cause caution among Middle East buyers. Many expensive condominiums remain unsold, putting developers under financial stress.

9. The soft U.S. economy and the weakness in the equity market keep the yield on the 10-year U.S. Treasury below 2.5%. Investors continue to show a preference for bonds as a safe haven.

10. Burdened by heavy debt and weak demand, global growth falls to 2%. Softer GNP in the United States as well as China and other emerging markets is behind the weaker than expected performance.

Added Mr. Wien, “Every year there are always a few Surprises that do not make the Ten either because I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are ‘probable.’”

Also rans:

11. As a result of enhanced security efforts, terrorist groups associated with ISIS and al Qaeda do NOT mount a major strike involving 100 or more casualties against targets in the U.S. or Europe in 2016. Even so, the United States accepts only a very limited number of asylum seekers from the Middle East during the year.

12. Japan pulls out of its 2015 second half recession as Abenomics starts working. The economy grows 1%, but the yen weakens further to 130 to the dollar. The Nikkei rallies to 22,000.

13. Investors get tough on financial engineering. They realize that share buybacks, mergers and acquisitions, and inversions may give a boost to earnings per share in the short term, but they would rather see investment in capital equipment and research that would improve long-term growth. Multiples suffer.

14. 2016 turns out to be the year of breakthroughs in pharmaceuticals. Several new drugs are approved to treat cancer, heart disease, diabetes, Parkinson’s and memory loss. The cost of developing the breakthrough drugs and their efficacy encourage the political candidates to soften their criticism of pill pricing. Life expectancy will continue to increase, resulting in financial pressure on entitlement programs.

15. Commodity prices stabilize as agricultural and industrial material manufacturers cut production. Emerging market economies come out of their recessions and their equity markets astonish everyone by becoming positive performers in 2016.

Earlier today, in “Mid-East Melee: Sectarian Showdown Looms As Bahrain Cuts Ties With Iran, UAE Recalls Ambassador,” we brought you the latest from the war-torn Mid-East where a worsening spat between Saudi Arabia and Iran threatens to plunge the region into chaos.

Make no mistake, things were already out of control. The conflict in Syria has mushroomed into a global proxy war, Iraq is struggling to drive Islamic State from key cities, and Yemen remains mired in war nine months after the Saudis entered the fray to drive back the Houthis and restore the Hadi government.

Against that backdrop, the region could have done without the events that unfolded over the weekend. By executing prominent Shiite cleric Nimr al-Nimr, Riyadh has infuriated the Shiite community which took to the streets in protest, even going so far as to firebomb the Saudi embassy in Tehran.

In order to understand the upcoming sectarian strife and in order to fully grasp who belongs to Iran’s sphere of influence and who is loyal to the Saudis, one needs to have a working knowledge of what the Sunni-Shiite split looks like across the region. Because this is set to become the key geopolitical issue in the weeks and months ahead, we thought it an opportune time to present the following map from Goldman which does a nice job of delineating the sectarian split. Note the asterisks which indicate the affiliation of a country’s leadership.

From Goldman

Where are the main sectarian and ethnic divides in the Middle East today? Saudi Arabia and Iran, with their large respective Sunni and Shiite majorities, are generally viewed as two major opposing forces in the Middle East. They lie on opposite sides of an abstract and somewhat contentious demarcation known as the Shiite crescent, an area of Shiite influence stretching from Iran through southern Iraq and into parts of Syria and Lebanon. 

The region’s geopolitical, religious, and sectarian relationships are in reality more dynamic and complex. The conflict in Syria continues to pit anti-government insurgents, including Sunni Islamists, against the Alawite (Shiite) government’s forces and Shiite militias supported by Iran. In Iraq, some Sunnis have felt increasingly disenfranchised under the Shiite-majority government in Baghdad (a relatively new development given Iraq’s long history of Sunni rule). The Islamic State (IS) militant group has exploited this sentiment, particularly in the Sunni-majority areas of northern Iraq. 

How are the different branches of Islam represented in politics? In some countries, such as Saudi Arabia, the rulers adhere to the same branch of Islam as the majority of their citizens. However, this is not always the case. Despite being predominantly Shiite, Iraqis lived under Sunni rulers for much of history, including under the Ottoman Empire and the Ba’thist regime of Saddam Hussein. (Ba’thists are members of the Arab Socialist Ba’th Party, a political party founded in Syria in the 1940s on platforms of Arab nationalism and anti- colonialism. In Iraq, the Ba’thists governed from 1958 until the fall of Saddam Hussein in 2003.) The Iraqi Ba’thist regime was secular in name but reserved political influence for the Sunni elite. In a break from its long history of Sunni political dominance, Iraq is currently ruled by a Shiite-majority government centered in Baghdad. Conversely, in Sunni-majority Syria, members of the Shiite Alawite sect have controlled the government since 1970. 

What is the composition of Sunnis and Shiites in the Muslim world today? Sunnis make up the majority of Muslims worldwide – an estimated 85-90%. Sunnis comprise 85% or more of the Muslim populations in Saudi Arabia, Qatar, Jordan, Syria, and the United Arab Emirates, and 70-85% in Kuwait, Pakistan, and Afghanistan. Shiites comprise the majority in Bahrain, Iraq, and Azerbaijan (all 60-65% Shiite), as well as in Iran (90-95%), home of the largest Shiite population. Although the Middle East and North Africa region is overwhelmingly Muslim (93%), it is home to only around 20% of Muslims worldwide. The majority – over 60% – lives in the Asia-Pacific region.