An investment outlook for 2017
UK news headlines in 2016 were dominated by Brexit and Trump and it is fair to say that 2016 went down as a year of political shocks. The investment environment was not only mixed but characterised by uneven global growth and political events such as Brexit, the US election and the resignation of the Italian Prime Minister.
Looking ahead, gradual repair of the global economy and greater political clarity in the USA should allow investors to take advantage of opportunities in 2017.
Global growth should improve in 2017 although remain well below pre-crisis levels. The differentials between countries are likely to remain pronounced, not least as high debt limits the scope for fiscal expansion in the weaker economies. Commodity price stabilisation in 2016 suggested that inflation should edge up. With the inflation upturn more advanced, the US Federal Reserve is likely to raise rates further, albeit cautiously. Other central banks should maintain a more accommodative stance but shift away from mechanical balance sheet expansion.
US policy and investment plans will be keenly watched to see how they are going to be delivered and within Europe there will be key Brexit negotiations that will impact on economies and corporate profitability. In 2016 there was a very strong US dollar and it will be interesting to note how this plays out for international companies.
There will be a lot of important factors that will have an influence in 2017, and trying to judge how they all interact will be key to making investment decisions. The price of oil will again be very important. It recovered gently in 2016, and it will be interesting to observe the situation regarding supply contracts and whether we see a rise in the price – both of which tend to dent global growth.
Some analysts expect global growth to improve in 2017, though any acceleration is likely to be limited. Due to stabilising commodity prices and the advanced US business cycle, inflation is likely to head higher but shouldn’t pose a threat.
Longer Term Growth
The Eurozone, the USA and Japan should see continued moderate economic growth. The longer term growth outlook for the UK is clouded, as Brexit could depress investment. The path to Brexit will continue to dominate the headlines and how expertly our politicians negotiate our way through the exit process and how successfully it establishes new arrangements and agreements will have a significant impact on how our economy performs.
An important consideration for the markets is how and when the European Central Bank chooses to normalise its monetary policy. It also promises to be an eventful year in the broader Europe, Middle East and Africa regions.
The EURO is unlikely to make gains against the USD whilst the GBP is expected to stabilise given it’s drop below fair value in 2016.
US earnings growth is required to sustain higher equity valuations and the Standard & Poor’s total returns are expected to be in the region of 3 – 5% in 2017. Non US investors will need to look out for further bouts of dollar weakness to offer opportunities to accumulate the US currency and add asset exposure for yield and potential currency gains through 2017.
Asia should look forward to stable growth in 2017, underpinned by a structural transition from manufactured exports to services based consumption. A supportive confluence of firming economic growth, reasonable valuations and improving profitability have led many commentators to suggest that emerging Asian equities should perform well in 2017, even outperforming their global counterparts.
After a prolonged period of weakness there are signs of a moderate growth improvement in Latin America, while inflation is retreating. Central banks should be able to ease policy, albeit cautiously. Still fairly high real interest rates bode well for continued gains in Latin American fixed income. The outlook for Latin America looks more muted than in other emerging markets given fairly high valuations.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.