BlackRock’s global investment outlook for 2017 has identified elevated political uncertainty as one of the key risks expected to dominate the market environment next year, and might have a significant impact on the long-standing economic and security arrangements.
According to Blackrock, the biggest question mark was Donald Trump and his administration and the details of its policy, in particular in relation to trade and foreign policy.
Although the US president-elect had pledged earlier to cut taxes and boost infrastructure spending — something which could lift gross domestic product (GDP) between three and 23 per cent over the next decade, there would still be a lot of uncertainty as “nobody knows how Trump will govern”.
Additionally, Europe would also be exposed to increased political tension due to elections next year in many countries, such as France, Germany and the Netherlands.
As far as the global market was concerned, Blackrock forecast US-led reflation to accelerate and, at the same time, the fiscal expansion would be gradually replacing monetary policy.
As a result, Blackrock preferred equities over fixed income and credit over government bonds and expected to see higher yields and steeper curves that would favour short-over long-duration bonds.
The next year would also see low returns as a consequence of the structural changes to the global economy and reduced economic growth potential due to ageing populations and weak productivity.
The investors were encouraged to keep “a global mindset and consider moving further out on the risk spectrum”.
BlackRock’s chief investment officer, based in Hong Kong, Belinda Boa said that 2017 would see further a strong US dollar.
“We expect the US dollar to be strong, but we don’t expect it to be significantly stronger,” she said.
According to BlackRock’s head of fixed income, Steve Miller, the Australian dollar would trade next year within the 0.70 and 0.75 range.
In terms of developed markets, Blackrock expected equities to move higher in 2017 and preferred “dividend growers”, across the financial and health sectors. According to the company, Japanese and emerging market equities presented well but potential trade tensions might be seen as a risk.
Boa said that the view on European stocks remained neutral, however European financials should be viewed with great caution. Although the weaker euro and global reflation were positive for exporters, Europe would continue to face political, policy and trade risks.
China’s stabilising growth had eased some of the anxiety from early 2016, however a stronger US dollar would pose further challenges.
BlackRock expected further gradual decline in China’s currency in 2017, although not a large devaluation.
