The investment clock

While Trump blazes blond in the political foreground, it’s easy to overlook the economic background to the new political dimension of 2017. Political risk will be a feature of the year: the unpredictable and untested Trump administration has already created uncertainty, which is unlikely to diminish, especially if protectionist rhetoric starts to outweigh promises of stimulus. Nevertheless, in the macroeconomic backdrop, global growth is picking up and monetary policy is likely to remain loose in most developed countries, despite a pick-up in inflation.

Bouts of volatility and market shocks are likely to occur during the year as a direct result of political risk, not only in the US but also in Continental Europe, with its string of leadership elections, and the UK, where Brexit negotiations wait in the wings.

Looking through an asset allocation lens, our ‘investment clock’ model is in its ‘overheat’ phase, as the global economy marches through what looks to be the strongest surge in nominal growth since the financial crisis. Our indicators show that a recovery in growth was already under way before the US election, and Trump’s election victory, with his promises of corporate tax cuts and fiscal stimulus, is likely to keep the model in its current position.

This environment is positive for equities and commodities, and the potential for deregulation and stimulus actions in the US could add further fuel to the fire. Few central banks are likely to respond to higher inflation by raising rates; the European Central Bank and the Bank of Japan are printing money, and the Bank of England will want to keep policy loose while Brexit negotiations unfold. This continuation of loose monetary policy in a number of core economies should provide further support for equity markets. With only the US Federal Reserve gradually tightening monetary policy, interest rate differentials will continue to rise, supporting the US dollar.

Meanwhile, data from China also demonstrate a strong upturn, providing further support for global growth, inflation and commodity prices. The US dollar often, however, proves to be a headwind for commodities; while we have overweight positions in both commodities and equities, we therefore prefer the latter.

Strong global growth is typically good for both Japanese and emerging market equities, but we remain wary of the potential for punitive ‘border taxes’ on the latter. Interestingly, Japan tends to outperform emerging market pretty consistently in a strong US dollar environment, such as the one we are seeing at the moment. Flashes of dollar weakness, perhaps linked to political events, could therefore provide buying opportunities.

Using our core asset class views to interpret the macroeconomic background enables us to take advantage of opportunities that arise from market volatility, of which we expect to see much this year on account of the global political environment.

Read our latest Investment Clock bulletin for our full views. 

For professional customers only. The views expressed are the author’s own and do not constitute investment advice.

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For more information concerning the risks of investing, please refer to the Prospectus and Key Investor Information Document (KIID).

Financial promotion issued by Royal London Asset Management February 2017. Information correct at that date unless otherwise stated.

Royal London Asset Management Limited, registered in England and Wales number 2244297; Royal London Unit Trust Managers Limited, registered in England and Wales number 2372439. RLUM Limited, registered in England and Wales number 2369965. All of these companies are authorised and regulated by the Financial Conduct Authority. Ref: AL RLAM P 0002



Aviva retirement boss to exit amid restructure

Clive Bolton, who heads up the savings and retirement division at Aviva UK, is to leave the firm after 25 years as part of a wider company restructure. The move follows recent changes at Aviva which is bringing all of its UK insurance businesses – life, general and health insurance – together under the guidance […]

Your Views

Will starter homes plan work – or have an unintended outcome? Regarding the news that mortgages will be standard on all new government starter homes… This is an interesting take on preventing cash buyers in the market. In fairness, if you’re earning £80K and have £400K in the bank, you’d be mad not to take […]


Pepper to sell specialist loans through The Mortgage Alliance

Pepper Homeloans will be selling its specialist mortgages through The Mortgage Alliance. TMA’s brokers will be able to access to Pepper Homeloans’ whole range of residential and buy-to-let mortgage products. Pepper Homeloans director of sales Rob Barnard says: “TMA is a leading mortgage club and an important new distribution partner for Pepper Homeloans. Their brokers […]

Editor’s Note: Let’s show our appreciation

The year is flying by and it’s hard to believe we’re already, technically, into ‘the spring’. The biggest news in the past week was the delivery of the long-awaited housing white paper, which many felt failed to deliver the promised solution to the “broken housing market”. On a more local level, last Thursday saw the […]


News and expert analysis straight to your inbox

Sign up

Why register with Mortgage Strategy?

Mortgage Strategy continues to be the market-leading B2B mortgage publication in the UK, and provides trusted, independent insight with the aim of helping, promoting and analysing the latest developments for mortgage professionals.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Mortgage Strategy Events
Be the first to hear about our industry leading conferences, awards, webinars and more.

Research and insight
Take part in and see the results of Mortgage Strategy's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now