2016 started badly for investors with worries about global growth and deflation. But global growth turned out okay &, despite political events, rising bond yields & disappointing Australian growth, the end result has been a constrained but okay year for diversified investors.
2017 is likely to see another year of okay & maybe even slightly higher global growth, higher inflation, higher bond yields after a pause and divergent monetary conditions as the Fed tightens but other countries stay easy. The RBA is likely to cut rates to 1.25%.
Most growth assets, including shares are likely to trend higher, resulting in reasonable returns in 2017.
The main things to keep an eye on are US policy under Trump (stimulus v trade wars), the Fed and the $US, bond yields, various European elections, China and the impact of the rising supply of apartments in Australia.
The smoothest outcome for investors from next Tuesday’s US election would be a Clinton victory but with the Republicans continuing to control the House of Representatives, ie, “more of the same”.
However, news of the FBI’s renewed examination of Clinton’s emails means the election outcome is back to being close. While some of Trump’s economic policies could provide a fiscal and supply side stimulus to the US economy, a Trump victory is likely to be initially negative for shares and favour safe havens like bonds and the US dollar as investors would fear his policies on trade in particular. This would be negative for Australian and Asian shares and for the growth sensitive $A.
Historically election campaigns result in a period of uncertainty which have seen weak gains on average for the Australian share market followed by a bounce once the election is out of the way.
The starker choice at this election between smaller government, lower taxes and mild economic reform under the Coalition, and larger government, higher taxes and more intervention in the economy under Labor suggest greater uncertainty this time around.
To maintain decent growth in living standards Australia needs to see a return to a productivity enhancing reform agenda. It’s unclear this election will deliver that.
2015 has been a messy year for investors as worries about China, emerging countries and the Fed caused volatility and uneven returns across asset classes. Australian shares continued to underperform.
2016 is likely to see continued okay but uneven global growth, low inflation & easy monetary conditions. While the US is likely to raise rates gradually, other countries including Australia remain biased to further easing.
Most growth assets, including shares are likely to trend higher, resulting in reasonable returns. But volatility is likely to remain high as the easy gains are well and truly behind us.
The main things to keep an eye on are the Fed, China and the ongoing rebalancing of the Australian economy.