Predictions for the economy and investments in 2017

The UK economy will perform better than many anticipate, predicts Richard Stone, chief executive of The Share Centre. He thinks that there will be the first interest rate rise in the UK for nearly 10 years.

UK economy

Stone believes the UK economy will continue to perform more strongly than anticipated. "Unemployment remains low and employment is at near record levels.

"The boost from sterling"s devaluation will continue to feed through - particularly for exporters to the EU who still have unfettered access to the single market but with substantially lower pricing in euro terms."

US economy

January will see the inauguration of president Donald Trump and we will then start to see how his policy pronouncements play out.

In the US the power of the president is constrained by the checks and balances inherent in the system, particularly in Congress. But the president still has significant sway on foreign policy and trade.

Commenting on the US economy, Stone says that it is building a reasonable recovery.

Looser government spending (based on president-elect Trump's commitments to boost infrastructure) and corporate tax rates which may lead to the repatriation of profits to the US might help the recovery. This, in turn, could see US interest rates continue to rise through 2017.

However, Jenny Jones, head of US Small and Mid Cap Equities at Schroders points out that Trump's hostility to foreign trade agreements is troubling.

Jones says: "In a globally connected world disruptions to our trade relationships could be damaging to us and our partners. It remains to be seen what he will actually do but it does seem to argue for investments in more US-centric parts of the market.

"This suggests US small and mid-cap companies, where approximately 82% of revenues are domestically sourced. For large cap that number is about 65%."

She adds: "We also note that the US stock market has rallied post-election, driving up biotech, pharmaceuticals and infrastructure related stocks.

"There seems to be a general belief that the pall of Hillary Clinton's hostility to drug prices is gone and GDP growth will be higher than anticipated due to Donald Trump's stated intention to lower taxes and spend on infrastructure."

Emerging markets

Another consequence of Trump's presidency is that relations with China may become more difficult, says Stone. This in turn could impact trade. But others have argued that Trump's rhetoric may not bear any serious consequences.

Conversely relations with Russia may soften, which might alleviate some of the political tensions currently on the global stage, says Stone.

Markus Stadlmann, CIO of Lloyds Private Banking, says: "Emerging markets show a mixed picture. China has begun to address its biggest challenges, those of bad debt and loss-making state-owned enterprises that suck up funding better allocated to efficient and competitive privately owned companies.

"Other emerging markets in Asia are dependent to varying degrees on the success of China, and the growth of global trade which has taken a hit following Donald Trump's win with similar concerns over exports and inflation that the Japanese are facing."

Europe

Stadlmann predicts that the continued shift of the German economy from exports to domestic demand should help European companies over the medium term.

"In the meantime, the value of the euro has fallen relative to the dollar partly as a result of continued debasement of the euro, and also following concerns over the exit of the UK from the European Union.

"As has been seen in the UK, this has the potential to boost inflation and to make exports leaving the EU more price competitive. This, in turn, could help to support profit margins of European companies making their share price valuations more favourable."

Japan

Japanese companies are generating substantial profits with increasing margins and cash-flow yields, whilst demand for durables within Japan remains solid, says Stadlmann.

"The post-US election uncertainty could increase the value of the yen still further which is bad for both Japanese exports and inflation. So, there remains the real prospect of helicopter money being 'dropped' on Japanese consumers, so to speak."

Gold

Regarding the performance of gold into 2017, Mihir Kapadia, CEO of Sun Global Investments, says: "Traditionally gold has been a good investment in times of crises or when interest rates are very low and/or falling, and otherwise it is a very poor investment when the market is bullish.

"As the interest rates rise in the US, gold which by definition has no income (or even a negative income when the costs of storage are taken into account) will be a less attractive investment, and this explains some of the weakness the commodity has been facing in recent months."

He adds: "We now have some alternatives to gold as the choice of investment for periods of panic. There has been a crackdown in China and India recently, which has restricted their citizens' ability to move cash."

He points out that investors who might otherwise have bought gold to overcome government restrictions on currencies have been buying crypto currencies such as the Bitcoin, which has appreciated strongly in recent weeks.

"Considering the economy, the allied factors and the weak performance of the yellow metal in recent weeks, we think it will trade sideways from current levels in 2016 and our forecast is $1150 per ounce in Q1 of 2017." Others have predicted that the gold price will slide below $1000 in 2017.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.