The top five asset classes to target in 2017
By Kristen McGachey, 22 Dec 16
As 2016 draws to a close, these are some of the key areas investors are pinning their hopes for the new year on.
Despite the threat from Trump’s tariffs and a US dollar that currently packs a powerful punch, many investors feel tempted by the relatively low valuations of emerging markets equities and improving fundamentals of several key countries.
“Consensus expectations are for EM GDP growth to improve from 4.2% in 2016 to 4.6% in 2017,” noted Schroders head of emerging markets Tom Wilson. “This improvement is led by a cyclical recovery in Brazil and Russia given low base effects and expected monetary policy easing.”
Heartwood Investment Management multi-asset manager Michael Stanes admitted he is maintaining a slight overweight to EM equities with a view to increasing exposure following more clarity around Trump’s policies.
“We already know that the US will issue a notice of intent to pull out of the Trans Pacific Partnership Agreement, but this move might not be all bad for China, acting as the regional pivot and reinforcing supply chains within Asia. If the US were to abandon the North American Free Trade Agreement, this would have a more meaningful impact on broader EM sentiment, not just Mexico. Away from US-exposed EM economies, there are diversification opportunities in Eastern Europe, which are positioned to benefit from recovering eurozone demand.”
He continued: “We believe that an allocation to EM assets represents a long-term opportunity due to structural economic improvements – low budget deficits relative to GDP, current account surpluses and the buffer of ample foreign exchange reserves – and opportunities through the development of banking systems, telecommunications and consumer services. Valuations are not expensive relative to developed markets and there is more scope for corporate earnings improvements, given cyclical improvements in late 2016.”
Tags: Investment Management
