Market Update - January

Upgrades to global growth

Expectations for global growth in 2017 have been upgraded, led by the US, where fiscal loosening is anticipated to provide a boost this year and next and also a more optimistic view on the UK, where the Brexit effect has been smaller than originally expected. Inflationary pressure is rising globally, with the UK particularly exposed to increasing inflation through sterling weakness. Despite this, we expect interest rates to remain on hold in the UK, due to the uncertainty of negotiating an exit from the EU. In contrast, we predict a continued upward trajectory for US interest rates.

Policies and politics

It is a strange environment when a 140 character tweet can determine the short-term direction of equity markets. The decisions and progress of the Trump administration will be critical for markets this year. We are expecting fiscal packages to generate a boost to US GDP, but assume a scaling back of the plans currently articulated by the president elect, as Congress attempts to create deficit neutral tax reform. Politics also continue to loom large in Europe. Notwithstanding the Brexit negotiations, general elections in the Netherlands, France and Germany all feature this year, and we may also see a vote in Italy. Our outlook for the European economy is one of steady growth, but this forecast does not incorporate any major electoral upsets.

Investment implications

We expect the impact of central bank policy to diminish over the coming years, with fiscal stimulus favoured to support growth. The ‘reflation’ trade has taken equity markets higher, and bond markets lower. In this environment we have seen market rotation away from bond-proxies, where valuations of ‘quality’ stocks had become extended. Conversely ‘value’ approaches have benefitted, as investors refocus on fundamentals. Our charity portfolios tend to be biased towards this value style, and we retain our underweight to bond markets. We believe that diversification remains attractive, as political risk and sentiment oscillations are likely to cause volatility and will continue actively managing our client portfolios to benefit from the opportunities that any such market fluctuations may present.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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Achieving your charity's investment objectives takes time and thought. To find out how we can help you please contact:

James Brennan

James Brennan

Portfolio Director