November 2016

Politics as usual … whoever wins the election

No matter who wins the US presidential race, it is expected that the outcome will not bring much change to the political gridlock. What about its impact on the global market and coming investment trends? Let’s check out what experts say.


The following article is provided by PineBridge Investments:

It seems the No. 1 issue on the minds of investors these days is the US presidential election. What will not likely change is the congressional gridlock. Neither party is expected to gain sufficient control over both Houses of Congress to enact significant legislation. Whoever wins in November, major changes in tax rates or spending levels will require compromise, something neither party has shown to be particularly good at.

Politics could have a more serious impact on global trade. Both presidential candidates support greater trade protectionism, reflecting the growing national populism in global politics. Increasing political risks further cloud the uncertain economic picture. This, along with many global equity markets priced at near all-time highs, is unsettling for fundamental investors. Despite signs of improved bank lending in the US and Europe, we continue to see greater incremental opportunities in the East, where valuations are more supportive.

Investments Global Macro Forecasts

 

2016

2017

Global GDP Growth

2.9%

3.4%

US

1.6%

2.5%

China

6.6%

6.4%

Eurozone

1.6%

1.6%

Japan

0.7%

1.4%

Emerging Markets

3.9%

4.5%

Source: PineBridge Investments forecasts*, as of 20 September 2016.

Any opinions, projections, forecasts, and forward-looking statements are based on certain assumptions (which may differ materially from actual events and conditions) and are valid only as of the date presented and are subject to change. These could not be construed as recommendations for individual stocks or market sectors, but as illustrations of broader themes.

China shows signs of stabilisation

Confirming anecdotal company commentary on signs of economic stability in China, the actual six-month 2016 earnings are tracking 50% of full-year estimates, matching historical averages (Bloomberg consensus); the reported calendar year 2016 second-quarter profits declined 3% year-over-year but increased 9% quarter-over-quarter.

In China, the actions of the authorities to control liquidity, which drives property prices in various city tiers, should produce results in the coming quarters. This is key for investor sentiment and for asset quality in the banking system. The massive credit impulse earlier in the year appears to have stabilised growth prospects in the near term. For Asia in general, a stabilising China and the prospect of increased fiscal spending in the US following the presidential election should help increase risk appetite.

Asset class performance is something to cheer about

One of the defining characteristics of this year is that almost all asset classes performed positively, but somehow investors aren’t cheering. Oil prices have been more volatile in recent months but rebounded strongly in August. This is the catalyst that has stabilised the energy recession in the US, helped turn around emerging market sentiment and is driving the normalisation in global inflation trends.

The turnaround in commodity prices is, simultaneously, evidence of an improving global growth outlook, as well as one of its major drivers. The improving global demand is one key element of the commodity price rebound, but equally important is the supply adjustment. The price volatility in recent months showed producers may not have sufficiently reduced commodity output. Yet, the broader uptrend in prices, which includes expectations of future demand and supply balances, indicates we are on the right track.

About PineBridge Investments: 

PineBridge Investments is a global asset manager with offerings that span the asset class and capital structure spectrum.

  • US $80.7 billion in assets under management (as of 30 June 2016)
  • Investment capabilities in multi-asset, fixed income, equities and alternatives
  • Global client base that includes institutions, insurance companies, intermediaries and individuals

Disclaimer:

  • The article above is provided for general information purposes only. It does not constitute a recommendation to pursue any investment strategy or take any other action.
  • All investments involve risk. Past performance is not indicative of future results. In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved.
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