{"id":60192,"date":"2017-01-26T08:24:56","date_gmt":"2017-01-26T07:24:56","guid":{"rendered":"http:\/\/beta.next-finance.net\/strategie\/equities-continued-to-make-new-highs-but-many-risks-are-emerging-on-the-horizon\/"},"modified":"2017-01-26T08:24:56","modified_gmt":"2017-01-26T07:24:56","slug":"equities-continued-to-make-new-highs-but-many-risks-are-emerging-on-the-horizon","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/strategie\/equities-continued-to-make-new-highs-but-many-risks-are-emerging-on-the-horizon\/","title":{"rendered":"Equities continued to make new highs but many risks are emerging on the horizon"},"content":{"rendered":"

Economic and market commentary<\/strong><\/p>\n

Equities continued to make new highs as we moved into 2017, but
\nwe are mindful that the outlook is littered with macro-economic
\nand political risks \u2013 not least the forthcoming elections in France,
\nHolland and Germany, Article 50, and President Donald Trump.
\nUnlike late last year, when specific sectors such as financials and
\nenergy drove the bulk of global returns, the latest rally in stocks
\nhas been broader based.
\nA weaker sterling has driven UK equity
\nperformance, though a recent speech by Prime Minister Theresa
\nMay on Brexit negotiations saw sterling leap higher, knocking
\nback the FTSE 100 somewhat.<\/quote><\/p>\n

President Trump<\/strong><\/p>\n

Equity markets have of late focused on the growth aspect of
\n\u2018Trumponomics\u2019 with the belief that Trump is good for US and
\nglobal growth, as well as corporate profits, all of which is
\nsupportive for equities. In the US, earnings have been improving,
\nlargely on the back of a rising oil price and the US dollar, not to
\nmention a robust consumer growing in confidence causing the
\nmarket to rally. If President Trump can deliver his tax and fiscal
\npromises in full as well as finding a constructive approach to
\ninternational trade, then there is little reason why the current rally
\nshould not continue.<\/p>\n

Underemployment suggests there is still space in the labour
\nmarket and there is only moderate wage pressure coming through.
\nUntil inflation starts to pick up there will be no need for rate rises
\nand the market can continue its recent trajectory. Add to this
\nTrump\u2019s mooted tax cuts in all their guises and this will only
\nimprove the environment for businesses and consumers. If the
\nrecent spike in small business confidence numbers are anything
\nto go by Trump has improved corporate confidence and, as we
\nknow, markets continue to do well as long as their confidence
\ndoesn\u2019t wane.<\/p>\n

That said, alongside Trump\u2019s tax cuts are his potential tweaks to
\ntrade tariffs, while few have been able to unravel in full the
\ncomplexities of any amendments he makes to the US Border
\nAdjustment Tax that could see both manufacturers that assemble
\nparts from overseas as well as those importing manufactured
\ngoods into the US charged higher tax rates.<\/p>\n

It seems clear that these factors will be bad news for emerging market manufacturing and any
\nincrease in protectionism associated with Trump could be very damaging for companies with
\nglobal supply chains, as indeed could an increase in labour bargaining power.<\/quote>
\n Yet the risks we
\nsee may well be tempered by supportive fiscal policy in the US and monetary policy in Europe
\nand Japan. Global quantitative easing outside America will help keep a lid on rates, which
\nmakes for a reasonably benign, low-rate environment alongside decent growth.<\/p>\n

While corporate credit and equities appear to be pricing in better economic growth, core fixed
\nincome is moving oppositely. There are several plausible explanations for this divergence, not
\nleast of which is that inflation expectations have increased in core fixed income markets,
\nsuggesting they might also be pricing in the better growth suggested by equities. An end to the
\nglobal profits recession \u2013 with global earnings revisions at multi-year highs, is also a likely
\nexplanation for better equity performance.<\/p>\n

Portfolio positioning<\/strong><\/p>\n

In terms of portfolio positioning, we have been looking whether we are in a bubble in high yield
\ncorporate credit. Clearly it\u2019s not cheap, with yields at record lows and spreads tightening to latecycle
\nlevels; but interest cover is reasonable, while defaults have (at least temporarily) fallen on
\nthe back of recovering energy prices. For now, we are happy not to move more neutral but we
\nare keeping an eye on the risks to that view, not least if US growth begins to accelerate by more
\nthan we have anticipated.<\/p>\n

Last year was a difficult one, leaving many investors feeling bruised. Cash balances are still
\nhigh among equity investors, but we remain cautious (and sometimes reluctant) owners of risk
\nassets, a strategy that has served us well, particularly in our asset allocation portfolios.
\nWe
\nexpect volatility to be present throughout 2017 but, as active managers, we will continue to look
\nfor opportunities to add to our high-conviction positions.<\/quote><\/p>\n","protected":false},"excerpt":{"rendered":"

Equities continued to make new highs as we moved into 2017, but
\nwe are mindful that the outlook is littered with macro-economic
\nand political risks \u2013 not least the forthcoming elections in France,
\nHolland and Germany, Article 50, and President Donald Trump.<\/p>\n","protected":false},"author":1,"featured_media":60190,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1483],"tags":[1655,1651,1437,1807,2148,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/60192"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=60192"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/60192\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/60190"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=60192"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=60192"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=60192"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}