It’s a global
marketplace
6
Trump’s win
overshadowed
the most
important trend
of the year – a
rotation away
from bonds
along with a
move away
from defensive
equities into
cyclical ones
such as consumer staples and
so-called “bond proxies”, which
benefited the most from the
expectation that low interest
rates and sluggish global growth
were here to stay.
“Industrial shares are starting
to do better as investors factor in
an improving economic outlook.
Meanwhile, shares in resources
companies have been buoyed by
expectations of global growth
and infrastructure spending, and
banks are up strongly as higher
interest rates tend to mean
greater profits from lending
activity,” he said.
But will it last into 2017?
Morgan says markets may have
got ahead of themselves in
pricing in an economic boom.
“With so little policy clarity,
a divided Republican party and
a heavily indebted economy,
investors await evidence that
Trump will be able to deliver the
stimulus many have anticipated,”
he said. Although if 2016 has
taught us anything, it is that you
should take predictions with a
healthy pinch of salt.
PERFORMANCE OF SECTOR IN POUNDS AND YEN
IA Japan (Yen)
Investment Trusts, managed
by Henderson
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IA Japan (Sterling)
40%
30%
20%
10%
0%
-10%
-20%
01
/1
1/
20
16
01
/0
9/
20
16
01
/1
0/
20
16
01
/0
8/
20
16
01
/0
7/
20
16
01
/0
4/
20
16
01
/0
5/
20
16
01
/0
6/
20
16
01
/0
3/
20
16
-30%
01
/0
1/
20
16
01
/0
2/
20
16
Trusts that invest in the US
have been among the best
performers this year. The IT
North America Equities sector is
up 36.03 per cent so far in 2016,
while IT North American Smaller
Companies is up 26.42 per cent,
its highest annualised return
since 2009.
However, Rob Morgan, pensions
and investment analyst at Charles
Stanley Direct, said that Trump’s
win overshadowed the most
important trend of the year – a
rotation away from bonds along
with a move away from defensive
equities into cyclical ones.
“All the politics has kind
of masked what has been an
important trend of market
leadership – though Trump has
been a catalyst for an acceleration
of it,” he said.
He added that a mini rotation
began in July when global
economic data beat forecasts and
inflation expectations began to
creep up. This resulted in the
yield on 10-year UK gilts rising
from 0.5 per cent to 1.4 per cent
today.
“Now, with the election
of Donald Trump, investors
are forecasting additional
fiscal stimulus, tax cuts and
infrastructure spending,” Morgan
continued. “These ingredients are
seen as likely to ignite economic
growth in the short term, increase
inflation and mean the US Federal
Reserve raises interest rates
further and faster than previously
thought – and this may be a bad
recipe for the bond market.”
Morgan says this has led to
the underperformance of areas
ARE YOU A
GLOBAL INVESTOR?
/ 2016 IN REVIEW /
Source: FE Analytics
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