Shanti Kelemen, Portfolio Manager, Coutts reviews this week’s strong economic data, but notes there is lots of uncertainty ahead in 2017.

Our key messages this week are:

 

Certain Uncertainty

It was an eventful end to the year, with major equity indices hitting record highs and the Federal Reserve adopting a hawkish tone by forecasting three rates rises in the coming year.

But most of 2016 was littered with surprises. The biggest shocks were Donald Trump winning the race to the White House and the UK voting to leave the EU. The markets were fairly volatile as a result but, against expectations, risk assets climbed following robust economic data and upbeat sentiment on reflationary plans from the US President-elect.    

It is too early to say what sort of year awaits investors, but we expect more uncertainty, including the ultimate shape of the UK’s negotiation strategy for exiting the EU and Trump’s plans for the US economy.    
 

One week gone, indications strong

Based on just one week’s data, early indications are quite positive: strong consumer confidence numbers out of the US and compelling PMIs from the UK and Europe point to better fundamentals for the global economy. In this regard, we have maintained our preference for so-called risk assets like equities over low-yielding ‘safer’ investments such as government bonds.

 

Rising rates present short-dated opportunities

As we expect interest rates to increase gradually in the US, and inflation to pick up globally, we have a preference within fixed income for short-dated bonds, which are less sensitive to rising interest rates. Two of our seven investment themes for 2017 are high-yield (lower-quality) corporate bonds and debt issued by financial companies. The former are less sensitive to rate rises because of their higher yields and financial companies should benefit from rising rates, as this tends to increase their lending margins and profitability.

Supported by sound investment principles, performance has been consistently strong in the last 12 months, though past performance is not a guide to future returns.

 

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

 

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.

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