Global Investment Outlook 2017

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글로벌 자산배분: Julius Baer sees higher investment flows into developed markets on Trump

An expected fiscal stimulus under Donald Trump's administration in the United States will spur more inflows into developed economies from emerging markets and into equities from bonds, Julius Baer's Asia chief investment officer said.

Singapore-based Bhaskar Laxminarayan told the Reuters Global Investment Outlook Summit on Tuesday that while Trump's anti-globalization rhetoric might weigh on trade-reliant emerging markets, the developed world might get a boost from an improving outlook for the U.S. economy.

At the same time, the brighter U.S. outlook may trigger several Federal Reserve interest rate hikes - he expects three by the end of next year - which could weigh more on emerging market borrowing costs as most inflows into developing countries have been in fixed income markets.

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"We've achieved peak globalization ... that's not the best time to be in emerging markets," said Laxminarayan, who helps manage a fifth of Julius Baer's 311 billion Swiss Francs ($312 billion) global assets under management.

"While the picture on emerging markets, especially with the presidency in the U.S. and the policy making behind that remains unclear ... it's also true that emerging markets aren't cheap."

The MSCI Emerging Markets index is trading at 12.34 times forward earnings, compared with its historical average of 10.52, according to Thomson Reuters DataStream.

One way to hedge emerging market exposure against uncertainty over Washington's trade and security policies was to focus on companies geared towards domestic consumption.

In Asia, he said, his portfolios were made of 70 percent bonds and 30 percent equities, but there has been a 3 percent shift into equities already after the U.S. election. He expected the move into equities to continue in the near term, along with increased inflows into developed markets.

In the fixed income space he envisaged a shift towards high-yield products, as an improving economic outlook may limit the number of defaults, especially in the United States.

CLEAR WINNER

In Europe, Germany stood out as an improving growth story, Laxminarayan said.

Investors watching the interest rate hike cycle in the United States kicking into gear may re-allocate investments across the Atlantic to take advantage of the last stages of a loose monetary policy environment there, he said.

Political risks in Europe, where far-right politicians are gaining traction in countries such as France and Germany, would affect the euro currency "more than anything else", the CIO said.

Laxminarayan tells his clients the U.S. dollar will be a clear winner, predicting a 3-4 percent strengthening against emerging market currencies, as well as further gains against the Japanese Yen and the Brexit-hit British pound.

Within emerging markets, India was moving in the right direction and could emulate China's growth of the late 1990s and the beginning of the new millennium.

In China - where markets have taken a hit for much of this year - economic data seems to be improving and the most recent earnings cycle has shown signs of revival, Laxminarayan said.

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유럽투자 & 자산배분: Political agenda makes Pioneer Investments wary of Europe

A fraught political calendar starting with next month's referendum in Italy is keeping Pioneer Investments wary of all European assets, the firm's head of global asset allocation research said.

Milan-based Monica Defend told the Reuters Global Investment Outlook Summit on Monday that European allocations were at a minimum in Pioneer's multi-asset strategy, with some holdings of investment-grade credit and inflation-linked bonds, the latter used to position for a rise in global inflation.

"The idea is that the weight of the political agenda on the financial markets in Europe won't be negligible ... we don't want to be involved in European markets for the time being," Defend said at the Reuters office in London.

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Pioneer Investments has 225 billion euros ($241.61 billion) under management.

Following Britain's shock vote in June to leave the European Union and Republican Donald Trump's victory in U.S presidential race, 2017 elections in France, Germany and The Netherlands are likely to see populist, right-wing candidates gain ground.

Italians will also vote on Dec. 4 in a constitutional reform referendum being pushed by Prime Minister Matteo Renzi, who has said he will resign if he loses. If passed, the reform will potentially speed up the passage of new laws.

Reforms are crucial for Italy, which is struggling with an ailing banking system.

Defend said a No vote would represent "an anti-everything expression‎... it will slow down the reform progress, it will slow down all progress the country has done over the past 1,000 days, it will be bad because we will see the old politics back."

Politics, and the potential for more volatility stemming from the recent Trump election, makes her cautious on the usual "risk-on/risk-off" bets for 2017, Defend said.

"The traditional equity versus bond overweight stance is just too risky because of the volatility. I'd remain with a more balanced stance," she said.

Having bought some healthcare and pharma stocks after Trump's win, Defend added: "It would be premature to add more risk at this stage."

The U.S. dollar and gold were her chosen safe-haven trades. She is also moderately overweight on Japanese stocks, which she thinks will benefit from yen weakness as well as domestic economic momentum.

TRUMP RENEWS REFLATION

The U.S. election outcome has given a shot in the arm to so-called reflation trades, with expectations that fiscal stimulus will boost inflation and bond yields.

Investors had already started to position for this but since Trump's win, U.S. 10-year Treasury yields have jumped 40 basis points and U.S. stocks have risen 4 percent.

"We thought that we were at the end of the reflation trade, but Trump renewed it," Defend said.

The fund is long on inflation-linked bonds from the United States, Europe and Japan, Defend said. It is also positioning for a steeper U.S. bond yield curve - the gap between short- and long-dated yields.

Steeper curves suggest a healthier growth and inflation outlook, and the gap between U.S. two- and 10-year yields has blown out to the widest in almost a year.

"This was way before the election, this is something that's playing out very nicely ... We thought there was a chance the U.S. curve would steepen as both candidates had fiscal expansion plans," Defend added.

The jump in developed bond yields and the election of Trump with his promises to impose curbs on trade and immigration has pummeled emerging markets.

Mexico has borne the brunt, with its peso plunging 12 percent against the dollar in the past week due to Trump's pledge to scrap the NAFTA trade deal and build a wall on the border between the countries.

Defend said that for the long-term Pioneer favored emerging markets but had reduced exposure before the election to bonds, stocks and currencies. But she said Mexican assets could well be "underpriced".

"I'm not sure the U.S. corporate sector will shut up should he go too harsh in the position with Mexico," she added.

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미국 주식: Omega's Einhorn sees Trump's policies boosting stocks

U.S. stocks are poised to climb more in 2017 as the policies of Republican President-elect Donald Trump are likely to boost earnings, Steven Einhorn, vice chairman of Hedge fund Omega Advisors, said on Monday.

"The outlook for the equity market for next year should be as good or a bit better than this year," Einhorn said at the Reuters Global Investment Outlook Summit in New York.

He cited Trump's positions on repatriation of earnings and lower taxes as brightening his market view.

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"I would reiterate and repeat a total return of 6 percent to 8 percent growth" including dividend yields of 2 percent, Einhorn said.

The biggest danger to his outlook, he said, is that gains would be even stronger. "The odds favor exceeding it rather than missing it."

Einhorn said many of Trump's plans, including cutting the corporate tax rate and allowing companies to bring earnings home more easily, would help them deliver higher profits in the years ahead, keeping stocks on their bull market path.

While the effective tax rate may not fall to Trump's proposed 15 percent from 27 percent today, it may come in around 20 percent, Einhorn said. The cash that companies bring back to the United States could help fuel more stock buybacks, which also would boost the market.

Einhorn made a similarly optimistic call one year ago when he also expected the market to gain between 6 percent and 8 percent. The Standard & Poor's 500 index has risen 5.7 percent since January, even after a sharp drop early in the year, when fears of slower growth in the United States and in China weighed on sentiment.

Omega Advisors, a hedge fund founded in 1990, oversees roughly $4 billion in assets and has long been considered one of the industry's best stock pickers. This year it has gained roughly 4 percent.

Even though Einhorn expects the U.S. Federal Reserve to keep raising interest rates beginning in December, he said the benefits of Trump's expected policies were likely to outweigh any effects that a tighter monetary policy might have on companies.

"There have been molehills that the markets made into mountains," he said, adding that the factors that typically herald the end of a bull market are still nowhere in sight.

Healthcare companies especially stand to benefit from new policies, Einhorn said, noting that many of those stocks have suffered from fears that Democrat Hillary Clinton could win the White House and impose stricter regulations.

Einhorn said many healthcare stocks now have attractive valuations and "significant repatriation potential." Omega made bigger bets on pharmaceutical company Shire Plc in the third quarter, raising its investment by nearly 75 percent, a regulatory filing shows. The filing also said Omega trimmed its holdings of Allergan Plc by 19 percent.

With a positive outlook for the stock market, Einhorn said many active money managers could now better show their mettle. He said he expected some reversal in the tide of money that has been flowing into passively managed funds that largely mirror their indexes' moves.

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신흥국 채권: BlackRock's Rieder not backing down from emerging market bet

Top BlackRock Inc bond investor Rick Rieder said on Monday he was not ready to completely back down from his bet on emerging markets despite a recent rout.

"We think emerging markets is going to represent a great opportunity going into next year," he said at the Reuters Global Investment Outlook Summit in New York.

Rieder, who is chief investment officer of global fixed income for the world's largest asset manager, has been a big proponent of several emerging market bets that have paid off this year.

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But bonds have been under pressure as interest rates have risen and the dollar has strengthened, making repayment harder in other currencies.

Moreover, U.S. President-elect Donald Trump has promoted policies seen as potentially hurting U.S. trading partners, including Mexico and China.

But Brazil and Argentina are opportunities, Rieder said, noting that emerging markets generally are not heavily indebted, have ample reserves and their central banks would cut rates if U.S. trade policies start to squeeze their economies.

He said Trump's proposed policies, including for $1 trillion worth of infrastructure spending, were likely better for stocks than bonds but unlikely to derail investors' appetite for fixed income.

Earlier this month, Rieder said that long-term government debt was particularly risky. That slice of the market has sold off massively in recent days.

The yield on the benchmark 10-year Treasury note could rise to between 2.50 percent and 2.75 percent, Rieder said.

He also said the odds of a U.S. recession are low as banks emboldened by looser regulations and higher long-term interest rates take more risks and lend to small businesses and consumers. The rally in bank stocks since the Nov. 8 U.S. presidential election is likely to continue, he said.

Low-cost shares of the $27.7 billion BlackRock Strategic Income Opportunities Fund, which Rieder manages, are down 0.87 percent this year, but remain in the top 34 percent among peers ranked by Thomson Reuters Lipper.

BlackRock manages more than $5.1 trillion in assets.

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ETF 등: Wealth manager Indosuez says expansion of ETFs a 'crisis waiting to happen'

A trading crunch stemming from the mushrooming of index-tracking exchange traded funds (ETFs) is a "crisis waiting to happen" in world markets, according to wealth manager Indosuez.

However, Frederic Lamotte, who oversees 110 billion euros ($118 billion) as chief investment officer at Indosuez, told the Reuters Global Investment Outlook Summit he was sanguine about the impact of the U.S. election and higher inflation.

Speaking at the Reuters office in London, he said gold, equities and retail property in parts of Europe were his favorite plays for 2017, along with emerging markets, especially in Asia.

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Lamotte was worried, though, about the boom in ETFs - vehicles listed on stock exchanges that invest by closely tracking an index of shares or bonds or commodities.

Charging low fees, ETFs have become increasingly popular, a shift that was underscored by record trading volumes in several ETFs immediately following the U.S. election.

Lamotte has banned bond ETFs from his portfolio and allows equity ETFs only for short-term tactical trades, highlighting the danger of a liquidity crunch should a market shock trigger retail investors to flee.

While ETFs themselves are highly liquid, he noted tougher regulations after the 2008 crisis had compressed trading volumes on underlying assets, especially bonds because it is much costlier for banks to hold them on their own balance sheets and act as market makers.

"A lot of the selling points of ETFs such as simplicity, transparency, cost, efficiency liquidity – a lot of it is a lie," Lamotte said.

"Today, you have a lot of ETFs in high yield (bonds). The size of the high-yield market is huge. High-yield is attractive to investors. The problem (with ETFs) is that the underlying is not liquid."

Lamotte said at the time of the 2008 crisis, the value of bond ETF holdings were roughly equal to what global market-making banks were holding on their books.

"So if the ETFs were selling everything they had, it was the size of what the banks could buy as market makers. Today, world fixed income ETFs hold 38 times the size of what globally investment banks are allowed to hold. So that's a crisis waiting to happen."

An extra risk for the active stock-picking manager was the correlation effect, he said, noting that as ETF managers bought and sold en masse to reflect index moves, "a stock picker or sector picker is wiped out like a tsunami".

INFLATION AND TRUMP

While acknowledging "inflation is back", Lamotte saw gold as an adequate hedge at present given his view that annual price increases in the West were unlikely to exceed two percent a year.

"Also to fight inflation, equity is a good hedge," he said.

Lamotte currently holds 42 percent of his portfolio in equities, with fixed income and gold accounting for 36 percent and 10 percent respectively. However he owns no government bonds at all, preferring to be "overweight" in U.S. investment grade and European high-yield corporate debt instead.

Lamotte remains unfazed also by the shock U.S. presidential election win for Donald Trump whose views on taxation, immigration and trade have unnerved many. Emerging stocks have fallen more than 7 percent since election day while U.S. 10-year bond yields have jumped about 40 basis points.

"I was not surprised. We ... bought a lot of cement companies in the United States because whatever happens, they will do infrastructure," Lamotte said.

He predicted Trump would struggle to carry out threats to impose punitive trade tariffs with many emerging markets, adding: "If he cut all trade ties with China, U.S. women would have no lingerie ... they don't make it in the U.S. any more!"

One market which has been pummeled especially hard after the election is Mexico, which could suffer from the president-elect's threats of immigration and trade curbs. The peso has slid about 12 percent from Nov. 8 to record lows.

"The Mexican peso is probably a buy at this level," Lamotte said.

BREXIT AND POPULISM

The investment world has been rocked in 2016 by Britain's vote to leave the European Union and Trump's election, both seen as expressions of popular rage against income inequality and globalization.

Elections in France, Germany and The Netherlands next year are expected to see populist right-wing candidates gain ground across the euro zone as well.

Investing in the stocks and bonds of the right private sector companies was a good way of bracing for volatile politics, Lamotte said, but added he was "quite significantly underweight" on British assets after the Brexit vote.

He also likes certain real estate segments, such as retail property in Austrian and German cities, which he said scored highly when measured for metrics such as employment, yield, valuations and supply.

He said that while London relatively scored well on these metrics, Indian and other Asian buyers had become less keen on British property investments since the Brexit vote.

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Vanguard

2017 Economic and Market Outlook (Vanguard).pdf

Russell Investments

2017 Global Market Outlook (Russell Investments).pdf

JP Morgan

The Investment Outlook for 2017 (JPMorgan).pdf

Credit Suisse

Investment Outlook 2017 (Credit Suisse).pdf