Investment Outlook and Review Autumn 2017

31 October 2017

“Getting rich is easy. Staying rich is harder” – Donald Trump. It does feel odd to be quoting President Trump to illustrate a sound point in investment practice; however, this particular comment rings true.

We have enjoyed extraordinary investment returns as UK investors since February 2016 and the trajectory of these returns has continued upwards, however, the quantum of the returns has slowed considerably. We have been moving into an environment of increasing uncertainty over the third quarter of this year as markets continue to hit highs and investors continue their search for ever more elusive capital returns. That said, global investment conditions remain stable - with the outlook for global growth from the International Monetary Fund (IMF) unchanged at 3% in 2017. This, combined with a stabilisation in global energy prices appears to have subdued official measures of inflation and allowed for economic activity to progress.

The clear political risk that markets have been facing over the last few years appears to be waning. Whilst markets may have got the election outcome that they desired from the German elections in September when Angela Merkel returned as Chancellor, this was not the emphatic victory that the EU needed from Germany. The right wing AfD’s strong showing in the German polls, particularly in the former East Germany, has brought renewed attention to the shifting political sands of Europe, reinforcing the sentiment that we must not take the current political framework for granted. Political concern this quarter focussed on the Pacific Rim with North Korea rattling cages – particularly trying to involve the US in armed conflict and intimidate South Korea as well as Japan with the potential that the North Koreans may have developed the technology to utilise nuclear weapons.

In terms of central bank activity, markets have priced in a December interest rate rise in the US albeit qualified by the concern some market participants have that rate rises may be pushed back to later in 2018. The Federal Reserve (Fed) is expected to be cautious with their rate rising program as the consequences for progressing too quickly and tightening monetary conditions too much would destroy a vast amount of the careful work that they have done over the last few years to recover the US economy. Within the UK the Monetary Policy Committee (MPC) is also sounding keen on interest rate rises with Governor Mark Carney pushing for a quarter percent rise in November this year. This has lead to a challenging market environment for UK Government Bonds. The European Central Bank (ECB) has also begun to make noises regarding the potential tapering of Quantitative Easing (QE), however, Japan remains committed to supporting the market with this type of liquidity.

This edition covers: Fixed Income | U.S.A | United Kingdom | Continental Europe | Japan | Asia ex Japan / Emerging Markets | Conclusion

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