Key themes for 2017
There is no sign of over-investment globally – in fact there has been too little investment. 2017 is likely to provide reasonable investment returns. The investment cycle still favours growth assets over cash and bonds - despite likely bouts of volatility.
Below we highlight the top themes for 2017:
- Global growth of around 3.2% or just above, with the US around 2.5%, Europe and Japan lagging and China running around 6.5%. Australian growth of around 2.5%.
- A gradual rise in underlying inflation, albeit from low levels.
- Global monetary conditions remaining easy but less so, with gradual monetary tightening in the US and China offset by ongoing easing in Europe, Japan and Australia.
- Reflecting this, global shares are likely to trend higher and we favour Europe and Japan over the US (which may be constrained after its 2016 outperformance and Fed hikes).
- Australian shares are likely to have solid returns as resource sector profits surge following the rebound in bulk commodity prices, overall profits rise 10% and interest rates remain low.
- Still low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds.
- Commercial property and infrastructure are likely to continue benefitting from investors’ ongoing search for yield, but this demand will wane as bond yields trend higher.
- Australian capital city residential property price gains are expected to slow to around 3-4%, as the heat comes out of the Sydney and Melbourne markets and rising supply hits.
- Cash and bank deposit returns will remain poor.
- The downtrend in the $A from 2011 is likely to continue as the interest rate differential in favour of Australia narrows and it undertakes its usual undershoot of fair value.
About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital, is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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