15 December 2016: New Year’s questions on our minds
–The effects of the US election and Brexit negotiations will continue to unfold next year. Elections in Europe will also reveal whether populism is gaining ground. We will avoid taking strong investment views on such events, while remaining alert for opportunities.
–After the Fed’s rate rise in December, a key question for next year will be how far US policy can “decouple” from that in the rest of the world. We believe the relative rise in US borrowing costs will be limited by the quest for yield from global investors.
–The return of inflation will be another important theme for the coming year. We believe that equities can do well in this environment, so long as the focus of central banks remains on stimulating growth rather than dampening price pressures.
–This month we initiated a euro high yield debt overweight relative to high grade bonds. Corporate credit quality remains strong and Europe’s economic expansion should be sufficiently robust to limit high yield defaults.