Overall Assessment: 2017 Outlook
The low growth/low inflation scenario that has characterised the last few years is set to give way to a more scattered and economically heterogeneous phase with inflation moving modestly higher, particularly in Developed Markets. In this new dynamic scenario, we believe investors should embrace an active and risk aware mind-set based on 5 major investment themes.
Theme 1 - Reflation trends make a flexible and unconstrained approach to fixed income paramount. We believe that the “Trump effect” could offer opportunities for investors in corporate bonds, inflation-linked bonds, loans, floating rate and steepening strategies.
Theme 2 - Profiting from potentially stronger growth via equities. Global, US and Asian equities may benefit the most from a broad reflation environment and national initiatives, where earnings growth will tend to be supported.
Theme 3 - The search for income continues but will require an increasingly selective approach. In the search for income, investors could consider opportunities in credit and Emerging Market bonds. Investments linked to real asset dynamics could also benefit in a potentially higher inflation environment.
Theme 4 - Currencies: strong dollar, tactical opportunities.We think that the USD will stay supported on the back of the Fed’s interest rate normalisation process and the current phase of asynchrony of Central Bank policies.
Theme 5 - Hedging, protection strategies and diversification to deal with geopolitical risks. With multiple risks on the radar, we believe that broadening the source of diversification and incorporating efficient hedging strategies will continue to be extremely important to try to protect investors’ assets.