View
5
Download
0
Category
Preview:
Citation preview
\\\\\\
Personal Finance Society2017 – A year of living dangerously?
Market Insights Team
This presentation is for Professional Clients only and is not for consumer use.
2017 – A year of livingdangerously?
What we said at start of 2016
Growth and US interest policy key variables for 2016
Political and geo-political risks
Low yields weigh on fixed income markets
Better opportunities in equities than fixed income
3
2017 – A year of living dangerously?
2016 review
Political uncertainty
Macro economics
Markets and strategies
4
Learning objectives
Following this presentation, you will:
Understand what will influence the prospects for the global economy in 2017.
Outline the key fundamental drivers likely to drive asset class performance.
5
Logo demonstrates the quality of an event and that it meets CII member CPD scheme requirements. The Chartered Institute for Securities & Investment has a policy of formally recognising those organisations who meet the Chartered Institute for Securities & Investment’s stringent quality assurance requirements for the provision of CPD.
2017 – A year of living dangerously?
2016 review
6
-5
0
5
10
15
20
25
30
35
40
Global Equities Global Govt.Bonds
Global IG Global HY Global Cash Commodities
Local £
Global – 2016 Performance overviewAn excellent year for £ denominated investors
Total returns (%)
Source: Datastream as at 3 January 2017. Indices used: Global Equities – MSCI AC World, Global Govt. - JPM GBI Global All Mats., Global IG – BofA ML Global Corporate, Global HY – BofA ML Global High Yield, Cash – JPM Global Cash 1m, Commodities – Thomson Reuters Equal Weight Continuous Commodity Index.
7
0
5
10
15
20
25
30
35
40
Equities Gilts IL IG HY Cash Property
UK – 2016 Performance overviewA good year for most asset classes too
Total returns (%)
Source: Datastream as at 17 January 2017. Indices used: Equities – FTSE All Share, Gilts – BofA ML UK Gilt, IL - BofA ML Inflation – Linked Gilt, IG - BofA ML Sterling Corporate, HY – BofA ML Sterling High Yield, Cash – JPM UK Cash 1m, Property – IPD Total Return Index.
8
2017 – A year of living dangerously?
2016 review
Political uncertainty
9
2017 – A year of living dangerously?
2016 review
Political uncertainty
– Trump
10
The Trump policy conundrum
11
Reward Risk
Tax cuts
Fiscal stimulus Immigration
Trade
Source: Invesco Perpetual. For illustrative purposes only.
De-regulation
Geo-politics
2017 – A year of living dangerously?
2016 review
Political uncertainty
– Trump
– European politics
12
Euro zone upcoming political events2017-2018
13
Source: Invesco Perpetual as at end December 2016. For illustrative purposes only.
Mar2017
Apr2017
May2017
Jun2017
Jul2017
Aug2017
Sep 2017 2018
NetherlandsParliamentary election
FrancePresidential election
GermanyFederal elections
AustriaGeneral election by spring 2018
ItalyGeneral election by May 2018
FranceNational Assembly elections
How vulnerable is Europe to political upheaval in 2017?
14
Stephanie ButcherFund Manager, European Equities
How vulnerable is Europe to political upheaval in 2017?
15
Stephanie ButcherFund Manager, European Equities
2017 – A year of living dangerously?
2016 review
Political uncertainty
– Trump
– European politics
– Brexit
16
The Brexit rollercoasterA lengthy and uncertain process
17
Source: Invesco Perpetual and Global Counsel as at 5 January 2017.
2025?
May 2020
Mar 2019
Mar 2017
Jan2017
June2016
Article 50 activated
Two years to negotiate terms of withdrawal – hard or soft Brexit?
The UK formally exits the EU at earliest
Referendum
Supreme Court decision on Article 50
UK General Election at latest.
Negotiations with EU and Rest of World to replace treaties that no longer apply.
2017 – A year of living dangerously?
2016 review
Political uncertainty
Macro economics
– Overview
18
What is the economic growth outlook for developed markets in 2017?
19
John GreenwoodChief Economist, Invesco Ltd.
What is the economic growth outlook for developed markets in 2017?
20
John GreenwoodChief Economist, Invesco Ltd.
-60
-40
-20
0
20
40
60
2011 2012 2013 2014 2015 2016
Economic growth news flowBetter than expected currently
21
G10 Citi Economic Surprise Index
Source: Datastream as at 1 February 2017.
Data worse than expected
Data betterthan expected
0
20
40
60
80
100
120
140
1945 1949 1954 1958 1961 1970 1975 1980 1982 1991 2001 2009
to date
Mo
nth
s
Year started
US recessions concernsCurrent expansion looks long in the tooth…
22
Duration of US economic expansions (months)
Source: NBER (National Bureau of Economic Research) and Invesco Perpetual as at 1 February 2017.
Avg. = 58 months
Can Trump double the rate of growth?
23
John GreenwoodChief Economist, Invesco Ltd.
Can Trump double the rate of growth?
24
John GreenwoodChief Economist, Invesco Ltd.
-4
-2
0
2
4
6
8
59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
US long-term GDPDoubling growth may be ambitious
25
US annual real GDP (%)
Source: Datastream as at 1 February 2017.
Trump target growth rate
How is the UK economy coping post the referendum?
26
John GreenwoodChief Economist, Invesco Ltd.
How is the UK economy coping post the referendum?
27
John GreenwoodChief Economist, Invesco Ltd.
The UK economy post referendumLittle change
28
Indicator Q4 2015 Current
GDP
Unemployment rate
Real wage growth
House prices
Consumer confidence
Retail sales
CPI
£ Trade Weighted Index
Broad money growth
Public and private debt/GDP
Trade balance
Composite PMI
Source: Invesco Perpetual for illustrative purposes. Red = negative; Amber = neutral; Green = positive.
Is fiscal stimulus the right policy to reinvigorate the global economy?
29
John GreenwoodChief Economist, Invesco Ltd.
Is fiscal stimulus the right policy to reinvigorate the global economy?
30
John GreenwoodChief Economist, Invesco Ltd.
Fiscal stimulusMore, but still limited
31
Source: OECD as at 23 November 2016.
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f
Change in OECD underlying fiscal balance as % of potential GDP
Looser fiscal policy
Tighter fiscal policy
-50
-40
-30
-20
-10
0
10
20
30
40
50
1999 2001 2003 2005 2007 2009 2011 2013 2015
Inflation expectationsDeflationary impulse waning
32
G10 Citi Inflation Surprise Index
Source: Datastream as at 1 February 2017.
Inflation lower than expected
Inflation higherthan expected
0.0
0.5
1.0
1.5
2.0
2.5
3.0
US UK Eurozone Japan
Current
2017f
Rising inflation expectations for 2017
Major developed economies – Consumer Price Inflation outlook (%)
Source: Datastream and Consensus Economics as at 1 February 2017. All annual inflation numbers are based on the average of the monthly year on year inflation numbers.
33
2017 – A year of living dangerously?
2016 review
Political uncertainty
Macro economics
– Overview
– Monetary policy
34
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20
US rate hike expectationsMarket expectations more in sync with the Fed’s
35
US rate hikes – Fed and market expectations (%)
Source: Datastream as at 1 February 2017. Fed based on median Fed dots forecast.
FuturesStart 17
Fed Start 17
FedStart 16
FuturesStart 16
FedStart 16
FuturesStart 16
-30
-20
-10
0
10
20
30
40
50
US Equities 10Yr UST IG Credit HY Credit US$
What happens when the Fed hikes rates? Historic performance – full rate hike cycle
36
Source: Datastream as at 3 January 2017. Looks at 4 periods since 1986 with exception of HY credit, which looks at 3 periods from 1994. US Equities – US DS Market (1986 cycle) and S&P500 (remainder), IG – BofA ML US Corp. Mstr., HY – BofA ML US High Yield.
Asset Class – Total Returns (%)
Average Max/Min
Is the current monetary policy stance in the UK appropriate?
37
John GreenwoodChief Economist, Invesco Ltd.
Is the current monetary policy stance in the UK appropriate?
38
John GreenwoodChief Economist, Invesco Ltd.
0
10
20
30
40
50
60
70
80
Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17
UK base rates No hike for a while?
39
Source: Datastream as at 1 February 2017.
Morgan Stanley Months to First Rate Hike Index
2017 – A year of living dangerously?
2016 review
Political uncertainty
Macro economics
Financial markets
40
Is the 30 years + bull market in bonds finally over?
41
Paul ReadCo-Head of Fixed Interest
Is the 30 years + bull market in bonds finally over?
42
Paul ReadCo-Head of Fixed Interest
0%
2%
4%
6%
8%
10%
12%
14%
16%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
TR
CA
GR
(%
)
YTM (%)
UK bond marketsLow returns likely
43
BofA Merrill Lynch Gilt Index Yield to Maturity (YTM) and 10 Year total return CAGR (%) since 1985
Source: Datastream as at 1 February 2017. TR = Total Return. CAGR = Compound Annual Growth Rate.
Current 1.28%
R squared89%
Do you still prefer equities?
44
Nick MustoeCIO and Fund Manager, Global Equities
Do you still prefer equities?
45
Nick MustoeCIO and Fund Manager, Global Equities
-5
-4
-3
-2
-1
0
1
2
3
4
-50
-40
-30
-20
-10
0
10
20
30
40
50
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Equities outperform when growth outlook improves
46
OECD Composite Leading Indicator and equity relative to bond performance (yoy%)
Source: Datastream as at 1 February 2017.
Equity relative to bond performance (%)
OECD CLI (6m mav, RHS)
What are the main issues facing equities in 2017?
47
Nick MustoeCIO and Fund Manager, Global Equities
What are the main issues facing equities in 2017?
48
Nick MustoeCIO and Fund Manager, Global Equities
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Global equity market valuations above long-term average
MSCI World index Trailing PE (x)
Source: Datastream as at 1 February 2017.
Long-term average
49
A 24% premium to long-term average
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
06 07 08 09 10 11 12 13 14 15 16 17 18
Potential for a large rotation
50
Cumulative fund flows (global) since 2006 (US$tn)
Source: BofA Merrill Lynch using EPFR data as at 22 December 2016.
1.5
0.0
Bond funds
Equity funds
£ has been weak post the referendum. How do you see the currency’s prospects now?
51
Stuart EdwardsFund Manager, Fixed Interest
£ has been weak post the referendum. How do you see the currency’s prospects now?
52
Stuart EdwardsFund Manager, Fixed Interest
70
75
80
85
90
95
100
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17
Sterling’s decline has been material
53
Sterling Trade Weighted Index
Source: Datastream as at 1 February 2017.
-22%
2017 – A year of living dangerously?Key takeaways
A potential shift in economic momentum - Reflation not low growth, lowflation?
Political and geo-political risks remain material
Reflation better for real assets
Bond bull market over, but no bear market?
Better opportunities in equities than fixed income
54
Learning objectives
Following this presentation, you will:
Understand what will influence the prospects for the global economy in 2017.
Outline the key fundamental drivers likely to drive asset class performance.
55
Logo demonstrates the quality of an event and that it meets CII member CPD scheme requirements. The Chartered Institute for Securities & Investment has a policy of formally recognising those organisations who meet the Chartered Institute for Securities & Investment’s stringent quality assurance requirements for the provision of CPD.
Important information
This presentation is for Professional Clients only and is not for consumer use.
All information as at 1 February 2017 sourced from Invesco Perpetual unless otherwise stated.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Past performance is not a guide to future returns.
Where the fund managers and John Greenwood have expressed views and opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual/Invesco investment professionals.
Where Neal Bailey or Neil Dobson have expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of Invesco Perpetual investment professionals.
Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase, hold or sell.
For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the Annual or Interim Short Reports and the Prospectus, which are available using the contact details shown.
Information on our products is available at www.invescoperpetual.co.uk.
Invesco Perpetual is a business name of Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
56
\\\\\\
Personal Finance Society2017 – A year of living dangerously?
Market Insights Team
This presentation is for Professional Clients only and is not for consumer use.
Recommended