House View by the Chief Investment Office
The end game? Why 2017 is the year of hard choices for policymakers.
22 November 2016 | Tags: Economy
Reading time: 8 minutes
By Mark Haefele, Global Chief Investment Officer
The world’s long-term economic problems are well known – rising debt, aging populations, and muted growth. But it is not these problems alone that will drive markets in 2017. As in 2016, policy is likely to prove the decisive factor.
Many investors we speak to believe that a “reset” for financial markets is overdue. The case seems simple: everyone can see that markets have risen consistently, yet so have inequality, debt, dependency ratios, and social tensions. Meanwhile, growth, investment, and productivity are weak. It looks like something’s gotta give.
However, we have to remember that the “everyone” who can see the global economic problems includes policymakers and electorates worldwide. And they have shown they are willing to pursue increasingly extreme measures to solve the issues at hand. Here are some simple thought experiments: faced with a lack of growth, will a central bank that has already distorted the local bond market choose to stop, or start buying equities? Or, faced with rising overseas competition, will voters stick with the status quo, or turn to protectionism?
The answers to these questions, and many more like them, will matter a great deal for your portfolio.
Solving the world’s myriad economic problems is about trade-offs, and the choices that both policymakers and electorates make will matter a great deal for your portfolio. The only certainty is that different countries will make different choices. Diversification is the best way to protect and grow your wealth in an increasingly complex world.
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