2017 is shaping up to be a better year than 2016, economically speaking, as we experience tailwinds from the US economy that grew at 1.6% in 2016 and is expected to grow at 2.3% this year.
It is well known that the world economy is led by US indicators, so positive signs from the US is promising. Market commentators’ opinions are still mixed about President Trump, yet many do agree that he is net positive for the US economy. Only time will tell.
With the US economy steaming ahead, it is expected that the Federal Reserve Chair, Janet Yellen, will announce two to three rate hikes in 2017; the first of which we have already seen with a 0.25% increase to their benchmark rate.
Globally, data is being released that points to a synchronized recovery across major economies including Japan, the EU and China, this is good news for emerging market countries as it will drive commodity demand – a key growth driver for emerging markets.
With this in mind, it is still vitally important to understand that the biggest risks facing markets globally in 2017 is political instability and unpredictability.
We have several key elections in Europe still to come, article 50 and the Brexit negotiations needing to be processed over 2017 and 2018, as well as key policy decisions needing to be made by the US over the course of the year. Political risk is still very high.
Back home, the strength of the rand has been a key talking point and detracted from the rand returns of local balanced funds with 25% offshore investment allocations. In the debate between wanting a strong or weak rand, we think all can agree that a stable rand is most desirable for investment markets, however this is unlikely to materialize in the near future.
As with last year, political interference remains one of our biggest challenges in 2017.
In the wake of Jacob Zuma’s cabinet reshuffle and most notably the removal of the finance minister and deputy minister, political risk has never been more apparent and concerning.
This move saw the rand losing 9% against major currencies in the last week of March alone, reversing much of the currency’s recent gains.
At the time of writing, South Africa had just been downgraded to junk status by the S&P, resulting in further losses to the Rand. It is uncertain what the other ratings agencies will do at this stage.
It is important to remember that in times of extreme volatility and uncertainty, there are always opportunities for investors. The investment theme that continues to remain the cornerstone of your financial plan is diversification across asset classes, geographies and asset managers. Knowing that all things in investment markets move in cycles, it is crucial to remove emotion from decision making.
As always, we urge that you trust in the asset managers we have independently researched and selected, to remain focused on your long-term objectives, and be committed to your personal financial plan.