First the Brexit referendum, then Donald Trump. In 2016, investors were surprised by events that pollsters and other experts said wouldn’t happen, although on both occasions stock markets swiftly recovered before reaching new highs.
Uncertainty and political risk remain key themes for financial markets in 2017.
After his inauguration, President-elect Trump’s policies will become clearer; the UK is expected to trigger article 50 sometime in 2017; and the euro zone faces important elections in the Netherlands, France and Germany. Italy could also go to the polls if the government appointed following Matteo Renzi’s referendum defeat and subsequent resignation doesn’t last. Any of these events could cause investors to become less relaxed about the outlook for their investments.
There are many sources of political uncertainty — in the UK and US of course, but also in Europe and throughout the emerging economies. We suggest that the risk premia demanded by investors are not commensurate with this uncertainty, which causes us to start the year cautiously. Over the past 12 months, global equities have risen by more than 20% in sterling terms and many portfolio strategies have delivered over and above investors’ required rates of return. To be clear, our base case does not include a recession in 2017, and equity bear markets do not occur without one. So we at Private Fund Management recommend staying invested, adopting a cautious, proactively managed strategy during this period of uncertainty.
For more advice and information please contact Alan Belcher, Senior Partner at Private Fund Management. Call +351 289 392 484, or email alan@privatefund.management.
