Emerging markets were star performers in the first half of 2017, and we retain our long-standing overweight to emerging market equities and local currency debt. Here we consider risks ahead - in US rates, oil, China and Brazil – and how investors should navigate this changing landscape.
Head of Investments, Lombard Odier Private Bank
The “goldilocks” economic environment of improving growth and stable inflation leads us to maintain our risk-on investment stance.
Now that political concerns have abated, investor focus is shifting back to fundamentals. The particularly improved picture in the Eurozone warrants continued preference for European equities.
The corollary is that an inflexion point in ECB non-conventional monetary measures lies ahead, quite probably the main game changer of coming quarters: we have thus begun to position portfolios for euro appreciation.
The impact of a tighter ECB stance on European bond markets will need to be closely monitored: higher core yields, wider spreads?
Oil seems the only potential disruptive factor in this ultra-low volatility world. At this point, we reaffirm our range-bound scenario.
Asian economic and trade conditions are looking good, with China progressively replacing the US as the dominant force in the region.
Reduced dependence on the US market makes Asian exporters less vulnerable to any protectionist measures that could be taken by the Trump administration.
Downside risks to the Russian economy have subsided, but the same cannot be said about Brazilian politics.
Japan’s cyclical conditions remains solid, with growing domestic consumption and investment – and even incipient signs of wage inflation in some segments of the labour market.
The monetary policy framework unfortunately ties the economic outlook largely to external factors such as crude oil prices, US fiscal policy and geopolitics.
The recent Tokyo assembly election results will drive doubts about Prime Minister Abe’s political longevity, heralding a return of factional competition and leadership uncertainty.
The wealth and structure of your family or your family business will change in line with economic, technological and sociological developments, and with new generations taking over the reins. These changes may not always have positive repercussions on your wealth, and could even diminish it.
Euroscepticism is on the wane, after a series of populist party defeats in recent elections. Nevertheless, the situation in Italy and the popularity of Five Star Movement bear close monitoring.
The European economic recovery is broadening, with improving external demand adding to already robust domestic activity.
Progressive (rather than sharp) ECB policy normalisation is likely going forward.
Benoit Peligry, local managing director at Lombard Odier’s Paris office, and Coralie Jaxel, private banker in charge of the initiative, discuss our partnership with France Digitale, and the opportunities and challenges facing start-ups and entrepreneurs in France.
The multi-year recovery of the US economy proceeds apace, with no signs of overheating.
The lack of inflationary pressures should limit the Fed’s leeway to raise rates much further, paving the way for balance sheet management.
Recession signals are also absent for now, pushing that risk out at least 12 to 18 months.
Halfway into the year, let us pause to reflect on the global economic and financial situation. The good news is that many of the risks outlined in our 2017 outlook have abated, buttressing our view that a worldwide recession is not on the horizon.
Lombard Odier won 'Western Europe's Best Bank for Wealth Management' at the prestigious Euromoney Awards for Excellence 2017 on Thursday 6 July – one of the industry’s most coveted awards.