Five key themes
Confidence testers
There is still considerable economic uncertainty. The impact of Trump’s victory on the global economy over the coming quarter and in the longer term is still fairly unclear. We think investor confidence is likely to be tested in the coming months, as the uncertainties of Brexit, European elections and Trump’s policy implementation become apparent.
Financial fortitude
One of the main sectors we think will continue to do well is financials, specifically banks. They usually benefit from an increase in investor confidence, as we have seen recently due to the government’s planned increase to infrastructure spending. They should also benefit from higher interest rates in the US, because this will lead to better profit margins on their lending.
Asia positive
We are positive on Asia Pacific. The recovering oil price should benefit exporters. While Trump threatens greater protectionism, he may struggle to implement his policies and the impact
may be less than feared.
Also, markets seem to be priced attractively, with a potential for growth.
Currency shifts
Perhaps the most important factor to consider as we enter 2017 will be the prospects for global currencies. We have already seen the potential impact of currency moves here in the UK, with share indices moving sharply higher after the Brexit vote led to a plunge in the value of the pound. The dollar is currently at multi-year highs against many currencies. A reversal of this strengthening could have a profound effect on almost all asset classes.
Brexit puts the brakes on
In the UK, economic signs are promising, while inflation expectations are increasing, driven by sterling’s weakness. The positive outlook for the oil industry should also benefit UK markets. However, Brexit uncertainty persists, with potential for a pull-back
after the strong rally. As a result, we are underweight the UK at the moment.
