2017 Investment Outlook
Looking ahead to this year, gradual repair of the global economy and greater political clarity in the USA should allow investors to take advantage of opportunities in 2017. However, political events could again trigger further turbulence this year, but central banks will probably continue to suppress market risk. In such an environment, market corrections can offer opportunities for appropriate investors. Investors will remain concerned with world tension – current tension in the Middle East, including Syria, has the capacity to rapidly escalate and cause significant volatility in financial markets. In addition, China is increasingly having an impact on markets, and any further slowdown there could certainly be negative this year.
Whether stock markets move significantly higher in 2017 will in part depend on the strength of the global economic recovery, and the value of shares will need to be supported by significant sales growth and companies maintaining current profit margins.
Global growth should improve somewhat in 2017 but remain well below pre-crisis levels. The differentials between countries are likely to stay pronounced, not least as high debt limits the leeway for fiscal expansion in the weaker economies. Commodity price stabilization in 2016 suggested that inflation should edge up. With the inflation upturn more advanced, the US Federal Reserve is likely to raise rates further, albeit cautiously. Other central banks should maintain a more accommodative stance, but shift away from mechanical balance sheet expansion.
Interest will be given to watching US policy and investment plans to see how these are going to be delivered following the seismic US election. Areas of greatest impact for the US economy are increased fiscal spending, an issue with clear bipartisan support and the more negative uncertainty associated with Mr Trump’s trade policy.
Within Europe, there will be continued key Brexit negotiations that will impact on economies and corporate profitability. Overriding that, in 2016 there was a very strong US dollar so it will be interesting to see how this plays out for international companies.
The price of oil will again be very important. It recovered gently in 2016, and it will be interesting to see whether supply contracts and whether we see a rise in the price – both of which tend to dent global growth. Undoubtedly, there will be a lot of important factors that will have a bearing in 2017, and trying to judge how they all interact will be the key to making investment decisions.
Some analysts expect global growth to improve in 2017, though any acceleration is likely to be limited. Due to stabilizing commodity prices and the advanced US business cycle, inflation should edge higher but not pose a threat.