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Written by: Nigel Green | deVere Group
There will be many reasons for investors to be cheerful in 2017. However Donald Trump’s policies and the Fed’s reaction to their impact will present the biggest risk next year.
In addition, the forthcoming elections in France and Germany, and further movements in oil prices will also present risks for investors in 2017.
That said, it is highly likely that the year will bring about good news for investors, although they must avoid getting complacent. It’s crucial they remain alert as the investment landscape we’re in now is very different to the last six or seven years, which could, of course, impact investor returns.
As the world changes, so must investors, in order to make the most of the various opportunities that will present themselves, as well as sidestep any potential risks.
As such, the major threat for investors in 2017 are the shifting expectations for growth, inflation and interest rates in the U.S., the world’s biggest economy.
Even ahead of the president-elect taking office, data is suggesting that the U.S. economy has received a boost from the impending Trump presidency. The probability of a stimulus package when Mr Trump takes office, and considering the near full employment rate, means inflation could rise higher than the Fed’s 2 per cent target.
In this event, the Federal Reserve could indeed recognise the inflationary pressures as heading towards an overheated economy, and subsequently raise interest rates faster than markets predict, in an effort to cool it down.
Furthermore, investors should remain alert with regards to the upcoming elections in France and Germany. Nationalist and far right parties are looking to establish themselves in government in these countries. If this should be the case, the EU could face an existential crisis as borders could be re-devised and trade flows obstructed in the world’s largest single trading bloc.
The third risk facing investors is the fall in the price of oil from the highs of recent years, which will continue to have a substantial impact on the finances of oil exporters.
Consequently, although the outlook for 2017 is robust, investors must always avoid complacency to benefit as much as possible from an evolving investment landscape.