Take these into account when investing. Here are the 10 most important trends for global markets in 2017.

Global economic trends shape the world we live in. New economic trends such as rising economies and progress in innovation constantly emerge, gain steam, and shape our lives. As we enter 2017, we believe the following ten trends will be the most important issues facing global equity markets that global investors should consider when investing in overseas markets.

1. Investing in the Trump Age

The surprise election of Donald Trump to the U.S. presidency will remain the most dominant feature of markets in 2017. So far U.S. stocks are hitting record highs and other global markets are rallying off their lows as investors have been buying stocks and selling bonds, believing that the pro-business Trump administration will usher in tax cuts, deregulation and fiscal stimulus rekindling economic growth and inflation in the world’s largest economy. Headwinds will exist in 2017, not the least of which are the very elevated political expectations (this remains the biggest risk facing stocks) but also higher yields (which inhibit multiple expansion) and USD strength (which could weigh on corporate earnings/guidance). Expect a bit more market and stock volatility, assuming that President Trump is still using his Twitter account!

2. Global Growth Outlook Positive

Global growth, while a bit sluggish, is estimated to steady with real GDP growth of 2.5% in 2016 and 2.8% in 2017. Analysts expect advanced economy growth to be relatively stable (1.6% in 2016 and 1.8% in 2017) and Emerging Market (EM) growth to pick up (3.7% in 2016 and 4.3% in 2017), as recessions in some major EMs are fading. For global investors the message is clear- consider a selective overweight in EM equities going into 2017.

3. The EU Will Continue To Struggle

The EU continues to face a number of real and perceived headwinds both financial and political. Despite domestically-oriented data, especially those tracking consumer spending, still point to a recovery, industry and trade-related signposts show sharp declines. Purchasing manager surveys are plumbing the lows of two years ago. Economists see just 0.3% Q/Q GDP growth in Q3 (same as in Q2), and see risks of an economic slowdown ahead. This is all against a background of an ongoing and aggressive Q.E. campaign with the ECB intending to purchase €80 billion of assets per month until the end of March 2017 or beyond. Brexit will remain an issue for the EU although the direct economic impact may be less than expected due to the protracted nature of the split. Elections in France and Germany will have to deal with a resurgence in isolationist anti-immigration right wing political parties. Not surprisingly European equity markets are down YTD.

4. Chinese Economy Looks For A Boost

The direction of the Chinese economy will continue to be a focal point as we go into 2017. Recent economic statistics show China’s economy picked up a bit of steam in August, boosted by government infrastructure spending and property sales that are helping to stabilise growth. China has also vowed to cut red tape and ease rules for foreign investors in a bid to boost the economy and counter a decline in private investment. Foreign direct investment in China during the first eight months of 2016 increased 4.5% year-over-year to $85.9 billion well below the double-digit levels seen in the past.

5. Brexit Will Remain Centre Stage

Brexit will also remain a defining feature for the U.K., its markets and economy. The pound is now down over 16% since the decision to leave the EU. Surprisingly, there are few tangible signs of economic distress in Britain: employment is steady, the stock market has held up in local currency terms, and government bonds are up in price. The U.K.’s largest companies, such as British American Tobacco PLC, GlaxoSmithKline PLC, Diageo, and AstraZeneca PLC, make most of their income abroad. Their shares have surged because with a weaker pound. Longer term however, it is possible that economic malaise from Britain’s leaving the world’s largest free-trade bloc will hit later, when Brexit actually occurs. Many economists are sceptical the pound can ever offset the trade impact of withdrawing from the EU.

6. Monetary Policy Inflection Point

Monetary policy in advanced economies may be at an inflection point. Since 2008, large-scale asset purchases have become the instrument of choice for many central banks to implement monetary policy (easing). These policies often referred to as ‘QE’ or “quantitative easing” –  fixed pre-determined quantities of asset purchases and increases in the monetary base have failed to ignite growth or inflation. In response, central banks are likely to pursue a variety of approaches, including yield targeting, more negative rate policies, and changes to central bank targets. What is needed, argue many economists is expansionary fiscal policies.

7. Chinese Housing Market Heads For Bubble Territory

Investors also need to consider the state of China’s booming property market. Spurred on by easy credit, a home-buying frenzy is sweeping through China’s major cities and spreading to smaller ones. It is stoking fears of a debt-fuelled investment bubble as household debt soars to unprecedented levels. Beijing seems wary of abruptly halting credit-fuelled housing market as home sales have buoyed a slowing economy as other growth engines like manufacturing and business investment remain sluggish. Property and related sectors, like construction and building materials, account for almost 25% of China’s GDP. Due to these uncertainties (the economy and the property bubble) Chinese equities have not participated in the recent global equity rally and remain down sharply YTD.

8. The Japanese Economy Looks For Growth

Japan’s equity markets have rallied strongly the last three months with the Nikkei 225 up some 11%. Unfortunately it’s down about the same amount year to date. A lack of growth in the Japanese economy (GDP estimated to expand only 0.5% in 2016 and 0.6% in 2017), ongoing deflationary pressures and the Bank of Japan’s inability to stem the yen’s rise have pressured the market from the start of the year. The recent market rally was precipitated by the BOJ last month surprisingly switching its policy target to interest rates from money printing, after years of massive asset purchases failed to jolt the economy out of stagnation. Under a new “yield curve control” framework, the BOJ pledged to keep the 10-year bond yield around zero percent. Whether this drags a stagnant economy out of the doldrums and engenders higher inflation only time will tell. What is also necessary, argue most observers, is a forceful application of the other two legs of Premier Shinzo Abe’s “Abenomics” stimulus policies – flexible fiscal policy and structural reforms – to achieve sustainable and balanced economic growth.

9. The Rise Of Protectionism

A relatively new but potentially negative trend is a nativist political environment that is reviving protectionism, thus reversing over a half-century of global trade integration. The International Monetary Fund (IMF) has flagged a dangerous cycle could develop: weak growth engendered by protectionism could fuel a stronger backlash against trade that would further depress output. The IMF calculates a sharp rise in tariffs and other trade barriers could raise import prices globally by 10%. That would translate into a 15% fall in exports over the next five years. Consumption would drop by 2%, and global economic growth would take a nearly 2-percentage-point downgrade, it said. This bears watching.

protectionism

10. Rising U.S Interest Rates Unlikely To Derail Market

It is likely U.S. interest rates will be going up starting in December 2016 but they have a long way to go before they affect U.S. equity prices. See chart below:

US-interest-rates

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Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.