Russell Investments’ 2017 Global Market Outlook
Trumponomics & Brexit point to an investing roller coaster in 2017
- Two additional U.S. federal funds rate hikes forecast for next year
- New Zealand expected to deliver solid growth in 2017; China turning upward
The firm’s strategists anticipate a challenging investment environment in 2017. Near-term, the team believes global economic growth is likely to improve, spurred by fiscal stimulus as political leaders worldwide move away from austerity. Longer-term, however, they think the prospect of trade protectionism raised by Brexit and the U.S. presidential election result could mean slower growth and higher inflation.
“Buckle up for what could be a roller-coaster investing ride in 2017,” said Andrew Pease, global head of investment strategy at Russell Investments. “We will watch closely for evidence that markets have moved too far into fear or euphoria and look for downside protection when it is cheap.”
Mr Pease added that the team continues to favour Europe and Japan equities over the U.S. in global portfolios, and he expects expensive U.S. valuations to limit future market performance.
Regarding the U.S. specifically, the strategists see equity market valuations as already expensive, and they caution that euphoric anticipation of President-elect Donald Trump’s stimulus could lead to an extended overbought period. Corporate profit growth is likely to be in the mid-single digits at best, while currently high margins may feel pressure from rising labor costs and a stronger U.S. dollar.
“Trumponomics is directionally pro-growth, pro-inflation and our central scenario is a net addition of half a percentage point to real U.S. GDP growth,” said Paul Eitelman, investment strategist for North America at Russell Investments.
Inflation and a more hawkish U.S. Federal Reserve appear in the strategists’ outlook as headwinds for bonds, but uncertainty is the primary reason the team has upgraded the 10-year U.S. Treasury yield forecast. Trumponomics is untested and they believe too much stimulus could overheat the U.S. economy, resulting in more Fed tightening and an economic downturn in 2018.
For the Asia-Pacific region, the firm’s strategists expect the steady-growth story to continue triumphing as the risks remain subdued.
“Australia and New Zealand will likely deliver solid growth in 2017, with their economies underpinned by the stabilisation in commodity prices and with the housing cycles slowing in a controlled fashion,” said Graham Harman, senior investment strategist for Russell Investments in Sydney.
Mr Harman added that in Pacific-Rim Asia, while U.S. policy remains uncertain, recent trade developments are reasonably constructive. For Japan, specifically, he believes recent GDP developments are positive; the weakening in the Japanese yen following the U.S. election provides some headroom; and the Bank of Japan is displaying resolute commitment to stimulus.
Regarding China, Mr Harman points out that China’s leading indicators are now turning convincingly upwards for the first time in nearly four years. “The bounce in commodity prices through 2016 has stabilised China’s heavy manufacturing sectors and, while this favorable reversal is slowing the structural adjustment process, it is also providing some stability to the transition.”
Summarising their views for 2017 globally, the strategists believe the search for yield is not going to get any easier against a backdrop of record U.S. equity prices, narrow credit spreads and low bond yields. They suggest investors will need to venture further afield in search of returns, using the full range of tools available in a globally diversified, multi-asset portfolio.
For more information on the annual report, which also includes the strategists’ latest views on Europe, Asia-Pacific and currencies, please see the 2017 Global Market Outlook.
About Russell Investments
Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures— to help each achieve their desired investment outcomes.
Russell Investments has more than NZD$354 billion in assets under management (as of 30/9/2016) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has more than USD$2.2 trillion in assets under advisement (as of 31/12/2015). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than USD$1.7 trillion in 2014 through its implementation services business.
Headquartered in Seattle, Washington, Russell Investments operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago, and Edinburgh. For more information about how Russell Investments helps to improve financial security for people, visit russellinvestments.com/nz.