Investment Thoughts for 2017
    Category: Column By : Rainer Michael Preis Read : 656 Date : Wednesday, February 08, 2017 - 12:05:40

    As we contemplate the investment outlook for 2017, it pays to look back and remember that the media and financial markets have an incredible capacity for reacting to news and economic developments in a way that confounds market professionals and private investors alike. The only difference being the latter will admit to being confused, while the former will quickly come up with a few dusty realizations.  What I learnt in 20 years in the investment business is that nobody really knows.

    With that caveat, expect increasing volatility in the context of newly rising social, political, economic and market themes in 2017. This year will reward more macro strategy oriented investors. Sector calls and tactical asset allocation could outperform passive index investing. The Trump reflation trade seems stretched in both sentiment and price action. Hope and momentum is fuelling the rally but “execution risk” and negative side effects of “governing by Twitter” could spook markets in the first half of 2017.

    A multi-week correction in risk assets could start in the first quarter. Traders bought the Trump election but might turn to sellers on the inauguration. The U.S. stock market correction could happen soon, and last into a late first quarter, with an early second quarter bottom, followed by a bounce in risk assets and a reflationary move into the summer months.

    The U.S. dollar will remain an important driver in 2017. On an index basis, (i.e. DXY) the USD should reassert its inverse correlation with most risk assets in a risk-off move in the first quarter. Thus I expect the USD to top out in the first quarter in tandem with a bottom in risk assets, followed by a weaker USD phase.

    Within emerging markets, Indonesian stocks are increasingly expected to offer most attractive returns in 2017.  While I’m fundamentally positive long-term for Indonesian equities, recent news that some in the Indonesian government wanted to punish JP Morgan for a “negative” rating is truly worrying, and sends the wrong signal.

    Indonesia has strong consumer confidence, with a stimulus program introduced in 2015 that continues to make progress, a tax amnesty proving more successful than initial expectations, and President Joko Widodo having a 90% approval rating.  Why mess with success, especially when IDX plans to encourage 52 companies with stocks trading abroad to consider a secondary listing on the IDX? 



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