January 12, 2017: CAMRADATA, a leading provider of data and analysis for institutional investors, has collated the top 10 global investment trends for 2017 from a range of its asset management clients.

Sean Thompson, Managing Director, CAMRADATA says, “Our asset management clients have predicted that 2017 will be an extremely interesting year for investors. We are in a midst of a sea change in the global environment that will create both opportunities and risks.”

The top investment trends for 2017 from asset management firms:

A year of volatility in global markets

The political uncertainty in both the USA and Europe following the election of Donald Trump, Brexit negotiations and the forthcoming French and German elections are all going to have a big influence on the markets and continued volatility.

According to Mark Burgess, Chief Investment Officer EMEA and Global Head of Equities at Columbia Threadneedle Investments, “2017 will be a year of volatility as markets make sense of the promises and policies that politicians have promoted, and that volatility in markets provides the perfect opportunity for active management.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, believes that Trump’s victory will be the ‘key driver of change’ and that the global economy is starting to heal. “A number of key indicators suggest that the world’s economy has been healing for some time. Monetary policy has played an effective role in this healing process but seems to have reached its limits with negative rates having disappointing effects in Europe and Japan. The baton should be passed to the fiscal authorities and Trump looks set to run ahead with it. Whether other countries will follow suit remains to be seen.”

Interest rate rises and falls

Most companies are predicting interest rate rises in the USA, but a fall in emerging markets.

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Over the next year, global interest rates will likely move in different directions. As the US economy continues to gain steam, rates will likely increase while Europe and Japan appear on track to continue their accommodative policies. On the whole, EM local interest rates continue to fall as inflation remains healthy and growth remains tepid.”

Global inflation on the rise

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Global inflation may rise but will likely remain relatively subdued over the next several years. Due to the lower inflationary pressures, we expect to see lower overall interest rates for EM local bonds where nominal yields offer significant compensation for risk.”

Bonds poised for solid performance

Robert Tipp, Managing Director, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, says, “Between the Brexit vote and the Trump sweep, 2016 was a year of surprises and bumps, but it was a generally productive year for the bond market. And, when we look at 2017, our best guess is that the opportunity in the bond market will once again outweigh the risks and that bonds are poised for solid performance.”

Embracing credit risk

Jan Straatman, Global CIO at Lombard Odier Investment Managers (LOIM), and Salman Ahmed, Chief Investment Strategist at LOIM, point out that in the world of largely low or negative rates, investors should consider increasing their exposure to credit risk through an allocation to corporate credit in 2017.

However, they say investors need to look beyond the higher-rated, investment-grade segment of this market where duration risk is a dominant force.

They comment: “We believe that to increase yield sufficiently, investors should move further down the credit spectrum. In our view, the so-called ‘crossover’ universe, which spans the lower quality investment-grade (BBB) and higher-quality high-yield (BB) rated issuers, provides significant return enhancement relative to investment-grade issuers while not exposing investors to the excessive default risk that is a feature of high-yield debt (rated B and below).”

Growth of global equities

The move into equities is another key trend.

Mark Burgess, CIO EMEA and Global Head of Equities of Columbia Threadneedle Investments, says, “Compared to their longer-term history, equities still offer better value than bonds – though this might change, should the ‘bond bubble’ burst in 2017.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, says, “Higher US rates and a strong US dollar will see markets struggle to make much headway and although equities are our favoured asset class, stronger economic data could see bonds rally and shares fall at some point. In terms of sectors, recent trends look set to continue with cyclically orientated areas outperforming and bond proxies struggling. The prospects for emerging markets remain difficult as dollar strength and rising rates outweigh the benefits of better growth. But 2017 might be the year in which European equities finally outperform, ending half a decade of disappointment.”

Impact of technology

Technology will also have a significant impact in 2017.

According to Richard Turnill, Global Chief Investment Strategist at BlackRock Investment Institute, “Technological change is sweeping through industries, overhauling business models, reducing traditional jobs and limiting inflation. The rapid pace of technological change is causing disruption across industries and displacing jobs − and is arguably fuelling populist politics.”

Advances in artificial intelligence could have an even bigger impact on better-paying white-collar jobs in services industries such as finance. And fossil fuel companies risk being upended by renewables once energy-storage technologies improve.

Tony Kim, Portfolio Manager at BlackRock’s Global Opportunities Group says, “Artificial intelligence (AI) is the new electricity. The big bang is upon us. We have all this data, but we can’t do anything with it. AI is the solution.”

Opportunities for active investors to increase

Mark Burgess, CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments, predicts that 2017 will be an active time for investors, and expects opportunities for discerning investors to increase. “Amid rising political uncertainty, fundamental analysis and expert asset allocation will be critical in order to achieve long term returns. The tide of global QE that had previously lifted all boats will begin to ebb in some regions and flow in others, and in that environment it will make sense to differentiate within and across asset classes.”

Challenges in Asia and Emerging Markets

Burgess predicts challenges for Asia and the Emerging Markets (EMs) that are exposed to the threat that Trump poses with protectionist policies. These include China, Mexico, Colombia, Malaysia, Korea and Thailand.

BlackRock Investment Institute also highlights China and the worries around China’s capital outflows and falling yuan. However, they also say China’s stabilising growth has eased some of the anxiety that rattled investors in early 2016. Nevertheless, there are still challenges ahead as ‘China is attempting a difficult balancing act: prioritising near-term economic growth while tackling debt issues for the longer-term good’.

Emiel van den Heiligenberg, Head of Asset Allocation at Legal & General Investment Management (LGIM), points out one of the key risks for 2017 is a significantly weaker Chinese currency driven by capital leaving the country. “Our base case is that the Chinese will manage a 5% real currency fall at the cost of lower foreign currency reserves and tighter capital controls, particularly given the Communist Party’s power transition in late 2017. We do not expect a sharp slowdown in growth. However, the risk of a faster devaluation is not immaterial and, as we saw in 2016, that would likely lead to weaker global equity markets.”

Major challenges in Europe

John Greenwood, Chief Economist at Invesco Ltd, predicts the challenges in Europe will lead to poor economic growth. The slow progress of bank resolution, the weakness of the European Central Bank’s (ECB) QE programme and the consequent descent into negative interest rates are among the headwinds holding back economic recovery.

He also highlights double-digit unemployment levels, leading to disruptive populist and xenophobic political movements, and referenda or elections in Italy, Holland, France and Germany. “At some stage, one or more of these electorates could overwhelm the governing elites, posing an existential threat to the established order – the European Union (EU) or even the Eurozone. Real GDP growth is likely to remain around 1.5% at best, with inflation falling far short of the ECB’s target of ‘close to but below 2%’.”

The post ‘2017 will be a year of volatility, and that offer opportunities’ appeared first on International Finance.

IFM Correspondent

November 2, 2016: Carnegie Investment Bank AB, which manages $17.2 billion for clients, sold all of its UK holdings as opinion polls narrowed ahead of the June vote to exit from the European Union.

Chief strategist Henrik Drusebjerg explained that the bank held equities as well as corporate bonds before Britain’s exit from the European Union, but started selling UK assets a month before the vote. However, the value of assets sold was not revealed.

The after-effects of Brexit was the main reason behind the bank’s move. The possible threat of the EU breaking up was considered a dangerous threat to investors. The UK’s momentous decision to leave the EU has brought in long-lasting political and economic consequences. This could potentially cause the Euro to weaken over time, decline global share and other risk assets.

The post Investment bank sold all its UK assets before Brexit appeared first on International Finance.

Suparna Goswami Bhattacharya

February 19, 2015: If one were to describe India’s growth story in one line, it would read something like this– A nation of unrealised potential. The tag unfortunately has stuck with the country for a long time. And now, two decades after India started is liberalisation policy, the country finally seems all set to unleash its full potential – at least this is what most economists around the globe have to say.

Acting as a catalyst to this growth story is US President Barack Obama’s recent visit to India which may instill confidence in investors to pile up Indian stocks throughout 2015.

“Obama has put the seal of approval on the Modi administration, because his reforms are pro-growth and Modi appears more pro-US than previous Indian governments,” says Tom Elliott, international investment strategist, deVere Group. And there is an ideological aspect as well to US support. “Modi wants to cut the subsidies and licenses cultures, which are objects of scorn for the US,” remarks Elliott.

Interestingly, US has its own reasons to pitch for India’s growth story. A stronger and more vibrant economy will help India act as a counterweight to growing Chinese influence in Asia, which will be a relief to the US, which worries that it will be over-stretched in Asia should China become belligerent over territorial claims, amongst other factors.

On the heels of China posting its lowest GDP growth rate in 25 years, the International Monetary Fund (IMF) released an update to its World Economic Outlook report predicting that India’s economy will overtake China’s in terms of annual growth rate by 2016. It predicts India’s growth rate at 6.3% and 6.5% for 2015 and 2016, respectively. For the same period, China is expected to grow at 6.8% and 6.3%, respectively. This puts India’s projected growth in 2016 ahead of its estimates for China.

And though economies like Bangladesh, Sri Lanka, and Philippines might grow more than China, but from a global perspective, they will hardly make any major impact. “There is, bluntly, only one other economy which could eventually equal China’s punch: India. In terms of size and per capita income, the Indian economy stands where China’s did in the early 2000s – a time where the country started making its impact felt globally,” says Frederic Neumann, economist HSBC, in his report.

If a comparison is made of the date from which officials in both countries adopted reforms in an earnest way (China in early 80s and India in early 90s), then India is actually a little ahead of China at the same stage of development process.

The main factor why India could not match up China’s growth is the share of manufacturing in GDP. In China, the sector contributes 22% to GDP while for India the figure stands at 15%, according to data released in 2014 by United Nation. “The flip side is that services are much more important in India than in China (57% of GDP vs. 46%). Since efficiency gains are easier to attain in manufacturing than in services, the difference in productivity growth between the two countries is thus not too surprising,” says Rupali Sarkar, economist at HSBC.

This also means that if India wants to match China’s development trajectory, it will need to increase the share of manufacturing in the economy. Thus, the ‘Make-in-India’ campaign launched by the central government to tap into the large manufacturing potential of the country comes at the right time.

Devashish Mitra, Professor of Economics & Gerald B. and Daphna Cramer Professor of Global Affairs, The Maxwell School of Citizenship and Public Affairs, Syracuse University, said India’s success heavily depends on how fast the government is able to bring about further reforms, most importantly labour reforms (getting rid of outdated laws) and reforms in land acquisition laws. “Tax laws need to be simplified and the legal system needs to improve so that contracts can be enforced,” says Mitra.

Recovery of rupee, general positiveness about the economy post elections are other factors generating interest among investors. In 2013, the rupee experienced a sharp depreciation in reaction to the anticipated tapering by the US Federal Reserve. However, India has now won back the confidence of the international financial markets and depreciation has been halted.

Also, GDP rose to 6% in 2014 and there has been a fall in inflation. Thanks to these factors, marked improvements in the economy are anticipated.

In Asia, China and India are the two major economies. Elliott feels that India has an edge over China since it is a more vibrant society and is a democracy (the economy is expected to be more stable in the long run). “Although India is often perceived as a difficult place to do business, it is manageable. Bureaucracy is also expected to reduce under the new government,” says Elliott.

“China is expected to slow down and if the Indian government uses its mandate to push through the next generation of reforms, India can easily overtake China in the next couple of years,” remarks Mitra.

Many feel that for India, a growth rate of 8-10% per annum in the next five years is manageable, provided it utilises its cheap, unskilled labour, which will help in the growth of the manufacturing sector.  Also, India happens to have excellent soft skills and English is widely spoken.

The sooner it does away with its long bureaucratic process, the better it stands a chance to win the battle against China.

Also Read:

Amid unrest, Egypt’s entrepreneurs fueling revolution of their own

‘The debt problem in China is not hype’

Decoding China’s debt

The post Betting big on India appeared first on International Finance.