Greek bonds: a ‘feta’ investment or tragedy waiting to happen?
August 2018 marks the end of an era for Greece: After years of austerity, its emergency loan...
Rates are going to rise and we’re going to see inflation. When was the last time you heard those two predictions at the start of an annual outlook? Perhaps a few fund managers were willing to put their heads above the parapet in 2016, but political uncertainty put paid to any major improvements in the global growth outlook.
2017, however, seems to be a different kettle of fish. Last we heard from the International Monetary Fund, global economic growth was expected to tick up to 3.4% in 2017, from 3.1% in 2016. America raised interest rates in December and hinted at further rises throughout the year, which is a sign the US Federal Reserve thinks the economy is in much better shape than it’s been for a while.
Bond yields are also starting to rise. Bond yields are often used as a gauge of global sentiment and can give clues as to where both bond and equity markets are likely to head. Falling yields equals rising bond prices and can indicate people are concerned about economic growth prospects and expect interest rates to also fall. Rising yields means falling prices and typically suggests people are more positive on the growth outlook.
So for the first time in around 35 years, 2017 may see us investing in a period of rising rates and bond yields, and inflation. It’s not that rates are going to be high—I mean, we’re starting from a low base; the US is still only at 0.50% to 0.75% and the UK is at 0.25%—but the important thing is we could be entering a new cycle.
Similarly, inflation (price growth) has been minimal or non-existent around the world for several years now. Most central banks in developed countries consider a healthy economy needs somewhere between 2% to 3% inflation annually, yet many have struggled to get their rate above 1%. So even small improvements would be welcome.
These changes could definitely have impacts on how and where you invest your money.
So what are we expecting in three key markets to in 2017? Here’s a quick round-up: