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Are global markets the best bet for future investors?

21 November 2017EconomicsEmerging MarketsGlobal
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Are global markets the best bet for future investors?

  • 33% of attendees at our Autumn Outlook event saw value in European equities
  • 2017 Citi research shows political uncertainty isn't likely to pose lasting risk to global markets

On the 18 November, Citi hosted their Autumn Outlook at London's Savoy Hotel, inviting three experts for a discussion on the next 12 months in global markets Participants of the evening's event included Citi's Jeffrey Sacks, Director Investment Strategist EMEA; Matt Williams, Director and Product Strategist for BlackRock; and Luca Paolini, Chief Strategist for Pictet.

One theme discussed at length was the future opportunities to be found in the global markets. Indeed, the eight-year bull market continues to run, even after the significant political events of 2016 such as Brexit and Trump's presidential win. As the event's host, Citi's Products and Advisory Director Vidur Varma explained: "We've seen synchronised growth across the economies, where many different economies are growing at a particular pace."

European markets still holding their value

When asked which asset they felt would give the strongest return in the next 12 months, 33% of the event's attendees voted for European equities, compared to only 2% for fixed income and bonds.

Our panel generally agreed with this insight, though Williams' advice on European markets came with a caveat: "Not all European equities are cheap," he explained. "So keep an eye on valuations." He also advised that any potential investors should watch the markets closely, as times of political volatility can provide attractive entry points into an otherwise expensive market.

Paolini added that there is currently good value in Japanese equities. While they might not have performed well this year, Japanese equities can be seen as relatively inexpensive. What's more, Japan is also benefitting from China's technological revolution, which relies heavily on Japan's sophisticated resources as the need for AI, AR and robotics grows1.

Further uncertainty in the US

In another poll, guests were asked what they think holds the biggest risk to global markets. President Trump's policies and Central Bank tapering were ranked as the top concerns, each taking 33% of the votes.

With regards to political uncertainty in the US, Williams highlighted the strength of the Constitution, which has been designed to avoid "mad king syndrome". He suggested that any risk which appears from President Trump's policies may be relatively short-term – a 2017 Citi study also found that most fluctuation due to geo-political events rarely cause lasting financial change.

Citi analysts are instead watching the Fed Chair election with some trepidation. If Trump's chosen candidate takes a polar opposite approach to current chair Janet Yellen, this could bring a potential risk to global markets.

Cautious optimism is key

On the subject of Central Bank tapering and the markets in general, Sacks suggested that it is too early to get too cautious. "There's another 12-18 months left of this upcycle," he said. "And that's supported by global growth of just over 3%, and Central Banks only raising their rates gradually."

"We think the dollar's going to weaken," Sacks continued. "While emerging markets are in a multi-year upcycle, and we think political risks in Europe are overplayed. Europe is going to have a very strong 12 months, and there are several reasons behind it. Most importantly, the pick-up in GDP growth is broad, and in addition, it's reflected in EPS growth." Regarding the UK economy, he did add that Brexit negotiations are still a cause for caution in the UK markets, as the Sterling will not strengthen until Brexit negotiations are clarified.

Read more about the historical impact of geopolitical events on the global economy, or if you'd like to discuss the topics and opportunities covered in this article, your Relationship Manager is always on hand for guidance.


1 https://www.forbes.com/sites/trangho/2017/05/02/why-you-should-invest-in-japans-stock-market-despite-weak-economic-growth/#29c4f7686af1

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