As global portfolio managers weigh up their investment options for the second half of 2017, most analysts and economists believe global growth will remain solid, despite political and geopolitical uncertainties. And as they were in the first half of the year, the macro economic situation and corporate earnings’ performance will be the main drivers for the markets.
In its Q3 2017 investment outlook, Union Bancaire Privée (UBP) team of experts higlight that “the combination of French reforms and increased German spending gives the European political project a new lease of life,” helping to support improving prospects for the Eurozone. With regard to the outlook for the US, UBP says:
“US growth should stay on a 2-2.5% trend, and there is no recession in sight. Deflation is not a threat for next year, as inflation is expected to stabilise at around 2% in developed countries, after temporarily slowing in Q2.”
According to UBP, a key factor which will influence the global economy’s performance in the next few years is the central banks putting an end to their “ultra-accomodative strategies.” The Federal Reserve is widely expected to fire the starting gun for monetary normalisation as early as September with its balance sheet adjustment.
Against this backdrop, UBP’s asset allocation remains in favour of equities.
“Sustained global earnings growth should support equities in the second half of the year, but elevated valuations suggest that returns will probably be more modest than in the first half.”
“Given the particularly high valuations in the US, we prefer non-US equities in Europe, Japan, and Asian emerging markets. Technology and banking are our preferred sectors.”
The experts flagged that “global bonds should adjust to the tighter monetary regime and the end of cheap money.”
As regards potential political risks in the second half of 2017, UBP says these include German federal elections, possible Italian elections, Brexit negotiations and the national party congress in China.
“But just as in the first half, we expect economics and earnings to be the key drivers for markets,” UBP says.