Investor caution: What assets will be hit by Brexit, Budget & more

Investor caution: What assets will be hit by Brexit, Budget & more

If safe havens such as gold and UK property should be at the top of your strategy, are these assets among those to put on hold over the next few months?

 

2017 is arguably the most important year this decade for the global investor community.

And some of the biggest events that are likely to shape the year – and the performance of your investments – are coming up in the next few months.

  • The Budget (March 8th): Chancellor Phillip Hammond will present the UK government’s final Budget before the country invokes Article 50 and begins the formal process of leaving the European Union
  • Netherlands general election (March 15th): Dutch voters head to the polls, with far-right, anti-EU candidate Geert Wilders leading numerous opinion polls over the last 12 months
  • Brexit: Deadline for UK government to invoke Article 50 (March 30th): British Prime Minister Theresa May will trigger Article 50, the formal process that will begin the UK’s withdrawal from the European Union
  • French presidential election (April 23rd): Voters in France head to the ballot box, with anti-EU National Front candidate Marine Le Pen leading numerous opinion polls

Each one of these events has the potential to rock investment markets. Whether it’s the uncertainty of a vote for a far-right candidate in a major Eurozone nation, or the fallout of any complex Brexit negotiations, the fallout is likely to lead to volatility in financial markets around the world.

This is also before we consider the continued rollout of Donald Trump’s policies as he begins his US presidency.

We’ve already analysed the strength, and importance, of adding safe haven assets such as UK property and gold to portfolios during times of economic and political turbulence.

While safe-haven assets can add long-term surety to portfolios, many investors will still want to deal in assets that can deliver significant gains in a relatively short period of time.

But if the sheer volatility of 2016 still hasn’t perturbed you from buying assets such as the following, perhaps the forecast of more uncertainty over the next few months will prompt you to reassess your investment strategy this year:

Equities

After Brexit, stocks fell sharply, before posting strong rallies.

After Trump, stocks fell sharply, before posting strong rallies.

Investors were told that both of these results would spell disaster for equities. But while they witnessed immediate drops as panic gripped trading floors, most have since gone on to recover, posting huge gains.

But will this performance continue in 2017?

This year will see the triggering of Article 50 for the UK’s EU exit. It will also see the roll out of Donald Trump’s policies. Both of these events have the potential to cause more disruption in markets across the globe, particularly as analysts, at this stage, have absolutely no certainty about what either of these political events will involve.

The Trading Economics forecast index (see right) for each quarter this year currently predicts falls in every major global stock market:

Click to view chart
chart

“We think that, fundamentally, risks for equities in 2017 are likely to be higher compared to 2016”

Dubravko Lakos-Bujas, JP Morgan

“Investors should avoid trying to time the market, in our view.”

 

Brian Belski, BMO Global Asset Management

“2017 may be the least certain in years, with higher-than-usual risks and a binary set of outcomes that have dramatically contrasting results: euphoria or fizzle, significantly higher or lower than the base case,”

Savita Subramanian, Bank of America Merrill Lynch

2017.invest.gov.bonds.tw

Government bonds

Adding gilts to portfolios in a low-interest environment is often a shrewd investment decision. And the current Bank of England base rate of 0.25% is the lowest it’s ever been.

But, like equities, 10-year gilt yields fluctuated wildly in 2016 following the Brexit vote.

And herein lies the problem for gilts investors. Prices are affected by future inflation and the performance of the economy. In November, UK inflation hit a two-year high, rising to 1.2% from 0.9% in October.

Given the current weakness of the pound and the potential prospect of a “hard Brexit”, inflation is only likely to rise in 2017. The Bank of England predicts it will rise to 2.7% by the end of the year, and will remain above the 2% target until 2020.

“Sterling weakness continues to raise the cost of inputs for uk businesses, and there are signs these cost increases are slowly being passed on to consumers. This in turn could hit consumer spending, which has so far held up well despite brexit related uncertainty.”

Ben Brettell, Senior Economist at Hargreaves Lansdown

DOWNLOAD YOUR HOW TO INVEST IN 2017 GUIDE:

Which assets can you still rely on over the next 12 months?

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