After a year in which nearly every predication made was shattered, what will 2017 bring? As well as the ongoing plans for Brexit and the realities of a Trump presidency, there are elections in the Netherlands, France and Germany this year. These could have serious implications for the stability of the euro, the EU and financial markets in general, which will ensure further potential political risk events for investors to navigate.
But if we can take anything away from 2016, it is that political risk is not all bad for markets and that predictions should not be taken too seriously.
Many economists remain gloomy about 2017, citing lists of challenges that need to be faced which include inflation, borrowing, hike in interest rates, loss of consumer confidence, changes to the rules governing pensions etc. which they predict will make for a sluggish economy. But with the UK stock market ending the year on a high, (whether this was due to the expectation of a Trump stimulus programme, rather than the reality, we will have to wait and see), and of course there are some positives on the horizon for 2017.
- Low unemployment
- Increase in wages across the board
- Weaker sterling continues to increase the value of overseas earnings and helps to boost exports
- Increased merger and acquisition activity as UK companies appear cheaper to foreign buyers
- Bond yields are rising from a very low base – at these levels, share prices and bond yields tend to be positively correlated
- Earnings per share are set to grow for the first time in five years
- OPEC and non-OPEC restrictions on production means that oil prices are unlikely to drift much below the $50 threshold
- Infrastructure spending and taxation cuts in the US could drive up growth to above 2%
- House prices continue to rise
- Interest rates remain low with many people sitting on cash waiting for a market fall to put their money to work, this is positive for shares
- Low interest rates, the weaker pound, increased Government spending and higher oil prices will help stocks to keep rising
Richard Stone, chief executive of The Share Centre, added: “With the overseas earnings of FTSE 100 companies supported by weak sterling, with fiscal loosening in the US and the UK following the respective votes in 2016, and with low interest rates, there are a number of reasons why investors may look optimistically into 2017.”
But with uncertainty still a permanent feature across world markets, we advise our clients to be cool headed, pay down debt, save where relevant and invest wisely in stuff you understand. Essentially having a mixed long term portfolio is key; as is not getting too hung up on predictions.