After 12 months like 2016, jpmam logowhat is on the horizon for the New Year? Some may be hoping for a return to a semblance of normality, with moderates winning the elections planned for Germany, France and the Netherlands. Others will doubtless watch the early moves of the Trump administration with some apprehension.

 

In financial markets, the US seems to be tightening monetary policy as it is loosened in Europe. Japan presents a mixed picture to the world and the jury remains out on China’s shift to a more mature economic model. In Europe, the old year went out with bank rescues in Italy and some tentative filling-in of Britain’s strategy for leaving the European Union.

So what do investment professionals make of it all? We asked JP Morgan fund managers what they see as the greatest challenges to the investment market in 2017 – and the greatest opportunities. We also asked them to share their New Year investment resolutions.

 


 

UK Outlook

JPM Guy Anderson

Guy Anderson

The Mercantile Investment Trust plc

 

Q1 – What do you see as an interesting investment opportunity in 2017?

A – Inflation beneficiaries – cyclicals and financials.

Q2 – What do you think will be the biggest changes to the investment market in 2017?

A – Bonds to fall, finally!

Q3 – What is your investment New Year resolution (or resolutions)?

A – Be wary of the complacent politician (should any still exist…).

 


 

European Outlook

JPM Stephen Macklow-Smith

Stephen Macklow-Smith

JPMorgan European Investment Trust plc

Q1 – What do you see as an interesting investment opportunity in 2017?

A – For most of the last three years the story in Europe has been to buy domestic exposure and avoid the banks. In 2017 I think this will reverse: the stronger US dollar will favour European companies with export exposure, while the issues with Eurozone banks are largely in the past, and credit is expanding

Q2 – What do you think will be the biggest changes to the investment market in 2017?

A – The most important change will be the continued normalisation of yield curves, which will drive retail money out of sovereign bonds and into other asset classes as well as improving the operating environment for banks as mentioned in the previous answer.

Q3 – What is your investment New Year resolution (or resolutions)?

A – Put less faith in opinion polls!

 


 

US Outlook

JPM Fiona Harris

Fiona Harris

JPMorgan American Investment Trust plc & JPMorgan US Smaller Companies Investment Trust

Q1 – What do you see as an interesting investment opportunity in 2017?

A – Since the US election, US equities have rallied strongly. In particular, US stocks with a domestic focus have done well as they seem best positioned to benefit from the president-elect’s pro-growth, pro-business policies. We believe this trend is likely to continue in 2017 and should benefit small caps, which tend to have more sensitivity to the US economy and have a higher median tax rate. These attributes should allow them to benefit more from any potential lowering of corporate tax. Better economic growth and lower taxes should potentially be supportive of further small cap outperformance.

Q2 – What do you think will be the biggest changes to the investment market in 2017?

A – We believe most of President-elect Trump’s stated polices are pro-growth and the prospect of corporate tax reform, increased fiscal spending and less regulation are positives for equities. We are encouraged by investor reaction to the election but think some caution may be warranted. There remains a large degree of uncertainty as to the final outcome of President-elect Trump’s proposals. Republicans may be pro-business but many are also fiscal conservatives. So Mr. Trump’s ambitions may be scaled back by Congress. While we consider all sources of risk, we do believe US earnings can grow at a faster rate in 2017.

Q3 – What is your investment New Year resolution (or resolutions)?

A – As with any other year, 2017 should bring with it challenges and opportunities. My investing principles are simple but the key to success is sticking to them: Stay focused on the fundamentals, invest for the long term and take advantage of volatility.

 


 

 

Japan outlook

JPM Nichplas Weindling

Nicholas Weindling

JPMorgan Japan Smaller Companies Trust plc & JPMorgan Japanese Investment Trust plc

Q1 – What do you see as an interesting investment opportunity in 2017?

A – I believe the Japanese equity market is looking as an interesting asset class for 2017. The Japanese yen has weakened, company earnings are improving and the outlook for global growth (of which Japan is a major beneficiary) is brighter. All of this added to cheap valuations and the market being broadly “under-owned” by investors lead us to believe it should perform well in 2017.

Q2 – What do you think will be the biggest changes to the investment market in 2017?

A – I believe we have already seen the biggest shift in 2016 – with macro factors having a strong impact on the markets, such as yen weakness, Bank of Japan policy, US election/Brexit effects and a significant style shift. The start of 2017 is likely to continue to be driven by these factors, but we will see a return to fundamentals in 2017. The market will then refocus on good companies that are making money for shareholders.

Q3 – What is your investment New Year resolution (or resolutions)?

A – 2016 was a tough year – and to quote a football phrase, very much a game of two halves. In 2017, despite the volatility we have seen in 2016, we have to maintain our focus on companies that are high quality, are leaders in their sectors and are capable of growing earnings and returning this to shareholders over the long term.

 


Emerging markets outlook
JPM Omar Negyal
Omar Negyal

 

JPMorgan Global Emerging Markets Income Trust plc

A – With such a broad asset class, I believe there could be a wealth of opportunity for emerging- market investors over the coming year. Rather than focus on particular markets we would highlight how volatile markets offer to stock investors such as ourselves the opportunity to acquire stocks which the market has oversold over concerns around politics, the global economy and markets.

Please note that Investment in emerging markets may be more volatile and therefore risk to your capital could be greater. Emerging Markets may be subject to increased political, regulatory and economic instability, less developed custody and settlement practices, poor transparency and greater financial risks. Emerging market currencies may be subject to volatile price movement.

Q2 – What do you think will be the biggest changes to the investment market in 2017?

A – Prior to the US presidential elections, emerging market equities were bullish, powered by improvement in underlying earnings per share. Post the surprise election result we’ve seen a quick adjustment in rates and currencies reflecting the view that US growth and US inflation will be higher.

The outlook for emerging markets remains difficult, but there are positive signs. Some currencies are rising from their low levels and trade balances are improving, although there are still few signs of a true earnings recovery taking hold.

Q3 – What is your investment New Year resolution (or resolutions)?

A – We stick to our philosophy and our disciplined approach, continuing to look for individual stocks that generate attractive returns on equity, produce positive free cash flow and have clear and understandable dividend policies. Even in an uncertain environment, the strength and experience of our team means we are able to identify many stocks with attractive dividend yields, which we think bodes well for returns to shareholders over the long term

 

 


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