Investment Outlook (Q4/2017)

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

“What I fear is complacency. When things always become better, people tend to want more for less.”
Lee Kuan Yew

Macro Environment

Inflation pressure in developed markets remain subdued, despite rising oil prices and lower unemployment
European recovery maintains momentum – Election results in Germany make substantial progress less likely
US sentiment & confidence remain robust while hard data is catching up slowly
Emerging markets growth remains robust

Risks for equity markets increase as valuations becomes stretched, mainly in the US
Increased volatility across asset classes and regions ahead
Fed still on track to tighten further – balance sheet adjustments are set to start soon
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

Remain cautious and keep a neutral position of the return and income portion of the model portfolio
Equities over Sovereign Bonds
Emerging over Developed Equities
EMD and Investment Grade Credit over Sovereign Bonds
TIPS as an (unexpected) inflation hedge

Global trade war initiated by erratic and extreme protectionist measures by the Trump administration
Risks
of missteps as China continues the attempt to rebalance its economy
from an unsustainable export-oriented one to a more domestically
supported one
Lower than expected growth in the US, coupled with
disappointments with respect to tax reform & reductions and
substantially increased spending lead to more than expected rate hikes
in the US and a possible recession within the next 18 months
The
global economy is “driving without a spare tire” ahead of the next
recession, whenever it happens, as most central banks are not far
removed from the zero lower bound
The potential for the long-held geopolitical equilibria in the Korean Peninsula and Middle East to be shaken up

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