Image of the Coutts logo

In this week’s film, Sven Balzer, Senior Investment Strategist, reviews a year of the unexpected and how central bank announcements added some intrigue to what was otherwise a predictable week.

Looking back at 2016 - the year of unexpected

It has been a year of the unexpected, with the election of Donald Trump to the White House and the UK vote to leave the European Union having the most notable impact on financial markets.  

We witnessed global interest rates hitting record lows and, at one point in the year, the global stock of negatively yielding bonds surging to $13tn.

Central banks continued their bond purchasing programmes, though visible limits to these ‘quantitative easing’ measures meant a shift to fiscal stimulus more recently.   

Economic activity picked up in the second half of the year after a shaky start, and inflation expectations rose as a consequence.

The surprise US presidential election victory of Donald Trump, an advocate of fiscal expansion, helped reshape the markets during the final months of the year. There was a large scale selling of bonds and rotation into major equity markets. This investment trend has helped support our preference for equities over bonds within our portfolios.

 

Market update for the week - tales of the expected

While the US Federal Reserve’s (Fed’s) quarter point increase in interest rates to 0.75% was widely expected,  the Fed’s increased rate-hike projections for 2017 (from two to three)  surprised investors. The markets interpreted this as a slightly more hawkish bias, with interest-rate sensitive bonds and gold falling and the dollar rising accordingly.

The Bank of England meanwhile left rates on hold at 0.25% and said its bond purchases would continue as expected. Both the Fed and Bank of England’s announcements were in line with our expectations. Our views of the markets, and how we invest in our portfolios remain unaltered. –We maintain a preference for equities over bonds, especially lower-yielding government debt, as shares could benefit from reflationary US fiscal policies.

 

What lies ahead for 2017?

We believe global economic activity will continue to rebound, though political events are likely to influence market moves in the year ahead. These include a busy schedule of elections across Europe, and the UK triggering Article 50 to start negotiations for leaving the EU.

We believe fiscal stimulus and rising inflation expectations are likely to be a focus for investors, while the ‘hunt for yield’ may fade as a major investment theme in the next 12 months. As well as having a continued preference for equities over bonds, within fixed income we still prefer the better yields and lower interest-rate sensitivity of corporate over government debt for 2017.

Sven Balzer

Sven Balzer

Senior Investment Strategist

Sven joined Coutts in 2013 and works in the investment strategy team with a focus on asset allocation and investment themes in particular.

Sven has extensive experience in wealth management and capital markets. Prior to Coutts he was the head of Structured Products and Derivatives of Barclays Wealth EMEA. He also worked at UBS Wealth in London and Societe Generale in Paris and Singapore.

IMPORTANT INFORMATION

This webpage is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Past performance should not be taken as a guide to future performance.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

The information in this webpage is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by Financial Advice & Investment Solutions at Coutts and does not constitute investment research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

Wealth division of Royal Bank of Scotland Group.

Coutts & Co. Registered in England No. 36695. Registered office 440 Strand, London WC2R 0QS. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Become a client

When you become a client of Coutts, you will be part of an exclusive network.

BAC_link_mobile
Read more »
  • Trump's Trillion-Dollar Promise

    • Investments
    • Insight
    • Coutts Investments
    22 Mar 2017
    Trump's Trillion-Dollar Promise Coutts examines President Trump’s $1 trillion infrastructure plans and doubts over whether the funding will materialise.
  • Finding Unique Investment Opportunities

    • Investments
    • Insight
    • Coutts Investments
    16 Mar 2017
    Finding Unique Investment Opportunities Backing the next generation of innovative entrepreneurs takes more than just money. It takes courage and commitment to stick with a great idea and help foster it to fruition. Coutts unique entrepreneurial client base and network means that we are able to bring together innovative and exciting small private businesses looking for equity funding with investors looking for high-growth potential investment opportunities.
  • Stronger banks and the bonds opportunity

    • Investments
    • Insight
    • Coutts Investments
    03 Mar 2017
    STRONGER BANKS AND THE BONDS OPPORTUNITY Coutts examines how subordinated bank debt offers resilience and an ongoing opportunity to capture attractive yields in the current low rate environment.