Available now, BNP Paribas Investment Partners’ 2017 investment outlook covers the global macroeconomic landscape and the prevailing influences on the major asset classes.
The 2017 Investment Outlook – entitled ‘Beyond the shadow of quantitative easing’ – also carries articles on three diverse investment solutions that the company believes should be well worth investors considering in the year to come, namely: multi-factor investing, alternative debt strategies, and environmental social and governance (ESG).
In this, the first of a series of extracts over the coming weeks from this informative publication, we summarise the main convictions and conclusions in the macroeconomic and investment outlook from Joost van Leenders, chief economist with the Multi Asset Solutions team, and Daniel Morris, senior investment strategist.
Structural factors in the global economy are likely to inhibit growth
Structural factors – weak global trade, low productivity and excessive debt burdens – that have become apparent in recent years are likely to continue to inhibit the pace of global economic growth in 2017. As a result, we do not expect the global economy to expand much faster than the distinctly pedestrian rate achieved in 2016.
Political fall-out set to shift focus from central bank policy towards fundamentals
Negotiating the side-effects of slow growth on the social contract is now a significant issue in many advanced democracies, given the rise in populism, the challenges to globalisation and the growing disquiet over inequality. Geopolitical threats and the possibility of increased protectionism reflect the rising uncertainty. In addition to those developments, the election of Donald Trump as US president has the potential to bring major changes in the direction of US interest rates, inflation, equity markets and growth that look likely to reverberate around the world and shift the focus of financial markets dramatically away from central bank policy and more towards economic and corporate fundamentals.
A bigger role for fiscal policy
Increasingly, unconventional monetary policy measures such as quantitative easing, having served their initial purpose, are becoming burdensome to the financial system. In 2017 we expect major central banks to continue to prepare markets for the eventual end of their unconventional approach to tackling the post-crisis challenges of slow growth and low or non-existent inflation. Fiscal policy would seem to be next up in countering structural weaknesses, first and foremost in the US where the new administration is considering a broad and extensive stimulus package. Fiscal largesse could pave the way for faster growth and higher inflation, although there is much uncertainty among investors about the durability of such a boost.
Continuing search for alternative sources of yield
BNP Paribas Investment Partners’ central scenario is based on a continuation of the global low-growth, low-inflation environment of recent years. We do not expect the deflationary force that China exerts in the global economy – an important element of the low-inflation paradigm – to change dramatically in 2017. But the long downward march in core bond yields looks likely to be ending as the yields of developed market government bonds rise from the exceptionally low levels seen in 2016. In this constellation, the search for alternative sources of investment yield continues.
2017 investment outlook: the likely winners and losers among asset classes
As bond yields and inflation nudge higher in 2017, equities should outperform fixed income. Inflation-linked bonds should outperform sovereign bonds, although more so in the US and the UK than in the eurozone. Investment-grade and high-yield credit looks attractive, particularly in Europe. Emerging market equities offer investors opportunities as more countries pursue reforms and corporate margins recover. The outlook for emerging market debt is likely to get worse before it gets better.
This executive summary was written by Joost van Leenders and Daniel Morris.
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