As rates could rise further in 2017, we expect that a broad range of investment themes will help generate enough alpha performance to offset the rates impact.
2016 was a year of surprises. The Federal Reserve (Fed) backtracked on its outlook on interest rate hikes, Britain voted to leave the European Union, Italian Prime Minister Matteo Renzi resigned after a resounding defeat in the Italian referendum, and Donald Trump triumphed over Hillary Clinton to become the 45th US President.
Asia ex-Japan (AxJ) equities returned -2.0% in US Dollar (USD) terms, underperforming MSCI World and MSCI Emerging Markets (EM). Currencies across AxJ generally weakened against the dollar following the Federal Reserve's (Fed’s) decision to hike rates.
USTs weakened further in December, as caution prevailed following the November sell-off. As widely expected, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps).
As we start 2017, we expect the continued recovery in Japan’s economy will be driven by three factors outlined in this article.
Trump certainly is non-conventional, in many ways similar to Teddy Roosevelt. Hopefully, Japan can adapt to this new reality, and instead of blocking Trump's initiatives, be able to have acceptable compromise “deals” ready.
Nikko AM's Global Investment Committee's 2017 Outlook — More Economic and Equity Reflation, Despite Less Dovish Central Banks
Previously, capital markets had become highly conditioned to a “lower for longer” world, with the search for yield having implications both within and across risk asset classes.
We believe that in an increasingly uncertain world, Japan’s less uncertain market will provide a compelling opportunity for serious investors.
The phrase “lower for longer” could well become unfashionable very quickly after years of central banks combating the forces of deflation and wishing for inflation instead.