Investment Perspectives 2017

Executive Summary

Political upsets and a major reversal of bond yields took place in 2016

The markets had a very poor start in 2016 due to concerns about China’s economy and weak commodity prices, before moving slightly higher until early summer. The June 23rd UK referendum, resulting in Brexit, was an unexpected shock which triggered another correction of equities and a collapse of Sterling. However, equity markets erased their losses within weeks before entering into a period of stability. Surprisingly the unexpected victory of Donald Trump triggered only a very short- lived bid for safe-haven assets, as risk assets recovered almost instantly and ended the year on a bullish note.

2016 will most likely also be remembered as the year when a 35-year bond rally finally came to an end.

 

2016 was about avoiding significant losses vs chasing binary performances

During 2016, we were positioned very defensively for three extended periods as we protected portfolios against a Chinese hard landing scenario and the threats of two unpredictable but major political events. We also took profits on gold and increased our exposure to emerging markets at opportune moments. Our long exposure to the US dollar proved rewarding while our exposures to long/short equity and global macro strategies failed to match return expectations.

 

An improving economic outlook for 2017

The economic outlook for 2017 appears more promising as global growth will be more balanced and concerns about China and emerging markets have receded. The main risks for 2017 are of a political nature, with important elections taking place in key European countries and the ability of Donald Trump to introduce new policies, as expectations are rather elevated. The main central banks remain accommodative, even if they have started to imply that their interventions have limits and cannot go on forever.

 

We have a clear preference for equities over fixed- income

For 2017, we have a positive outlook on equities and remain cautious on high-grade bonds. Our equity exposure will be balanced across the different regions and we maintain our confidence in emerging market equities. European equities should benefit from reasonable valuations and the continued support of the European Central Bank’s policies. Our search for yield will continue to focus on European loans and high-yield and we will be looking for a good entry point to gain exposure to emerging market debt. The US dollar should initially remain well supported but we do not expect this trend to last all through the year ahead. Gold is facing significant headwinds, but its role as a safe-haven asset could benefit if the high expectations related to Trump’s policies were not matched.

All of the above are likely to be affected severely by any major geopolitical event – something we will be monitoring closely.

 

Table 0f contents

  • EXECUTIVE SUMMARY
  • 2016: REVIEW OF OUR INVESTMENT THEMES
  • 2016: ECONOMIC & POLITICAL DEVELOPMENT
  • 2016: THE FINANCIAL MARKETS
  • 2017 : ECONOMIC OUTLOOK
  • 2017: FINANCIAL MARKETS’ OUTLOOK
  • 2017: ASSET ALLOCATION

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