Despite the impact of last year’s market headwinds spilling over into 2017, managers among Investec’s multi-asset team believe there are a number of opportunities for growth this year.
Philip Saunders, co-head of multi asset growth at Investec Asset Management, points out that markets have been positive about the election of Donald Trump as US president.
“Markets have been relatively sanguine about [Trump’s] arrival,” he said, adding that Trump had been viewed as a more pro-growth candidate than Hillary Clinton.
“The debate seems to be more about globalisation,” said Saunders. “I think that’s the wrong issue: [it should] probably have been about the end of multilateralism.”
The fund manager says the end of multilateralism has given rise, and a return, to bilateralism over world affairs.
“We’re actually quite constructive, I don’t think it is the end of globalisation, but I think [the landscape] is changing,” he added.
UK and US inflation over the past year
Source: FE Analytics
The election of Trump, as well as coming in of a new British government following the result of the EU referendum, has seen the abandonment of austerity policies and tentative moves towards looser monetary policy and new fiscal policies.
Saunders says there has been a big move in how people view inflation over the past year, with many having “shifted camps” to expectations of a reflationary environment in 2017.
John Stopford, Investec’s head of multi-asset income, says the monetary policy of recent years has encouraged investors to move up the risk spectrum in search of growth, but has recently been reversed.
He said: “The era of very easy monetary policy is over at a broad level.
“We’re managing risk expectations, in particular we think we are going to have issues in terms of duration.”
However, Stopford says his approach to managing money provides “a massive breadth of choice and the flexibility that comes with that”.
The manager says there is an “optimistic case for growth”, but remains cautious about some areas of the market.
“We tend look more at areas with cyclicality and room for growth,” he said, adding that the approach also encourages balance.
Stopford says there are a number of opportunities outside of developed economies and in emerging markets for income growth.
He adds while Trump’s policies could signal some pain for certain emerging market economies, others could stand to benefit.
Performance of MSCI Emerging Markets over 1yr
Source: FE Analytics
The manager says countries like Brazil, which has recently undergone a change in government, and Russia may see stronger growth in 2017.
“Russia is a clear winner of Trump,” he said. “There is talk of [whether it] seems the right time to remove sanctions on Russia. Some of the ‘bad boys’ look like interesting opportunities.”
However, other economies may look less attractive to investors.
“Korea looks like Japan in slow motion,” he said, noting its ageing population and dependence on industrial and manufacturing.
Japan faces its own challenges, says Stopford, with a change in the monetary policies elsewhere in the world, the Bank of Japan could find itself left behind.
Performance of Japanese yen vs Us dollar over 1yr
Source: FE Analytics
“The Bank of Japan is in a bit of a muddle. It’s in a bit of a bind about US [rates rising], and I think that’s going to put pressure on the yen,” he said.
Closer to home, opportunities could lie in the European markets where investors have been more pessimistic about growth since the election of Trump.
“People have probably been too pessimistic on Europe and short-term growth,” he said.
The impact of a Trump presidency and the shift away from multilateralism has made people more bearish about future prospects, but Stopford believes that trade barriers could backfire.
“Maybe other countries will do the same to the US?” he said.