Investment Outlook (Q3/2017)

The Investment Outlook for the third quarter of 2017 has been published.

“Denial ain’t just a river in Egypt.”
-- Mark Twain


Macro Environment

  • Inflation pressure in developed markets subsides for the time being as oil prices fall
  • European recovery maintains momentum – Election results in France bolster confidence
  • US sentiment & confidence is well ahead of hard economic data
  • Emerging markets growth remains robust

Outlook and Markets

  • Risks for equity markets increase as hard data fails to catch up with overly optimistic sentiment data, mainly in the US
  • Increased volatility across asset classes and regions ahead
  • Fed still on track to tighten further – balance sheet adjustments will become market focus
  • ECB and BoE continue to change wording to prepare markets for an exit of their loose monetary stance
  • Productivity growth continues to be located in emerging markets rather than in developed economies

Main Investment Calls

  • Reducing risk further – lowering the overall weight of the return portion to neutral
  • Equities over Sovereign Bonds
  • Emerging over Developed Equities
  • High Yield, EMD and Investment Grade Credit over Sovereign Bonds
  • TIPS as an (unexpected) inflation hedge

Main Risks

  • Global trade war initiated by erratic and extreme protectionist measures by the Trump administration
  • Substantial growth slowdown in China puts further pressure on commodities and export oriented countries predominantly in Asia but also elsewhere
  • Lower than expected growth in the US, coupled with tax reductions and substantially increased spending lead to more than expected rate hikes in the US and a possible recession within the next 18 months
  • Middle east conflict(s) in Syria, Qatar etc. escalate further and send oil prices sharply higher – leading to substantially higher inflation in the US, but also in the Eurozone and in the UK
  • Tensions between the US and North Korea increase and escalate further to send shock waves throughout financial markets


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