Though the risk from rising rates is potentially higher in Australia than elsewhere given household debt levels and the state of the housing market, we judge the risks and outlook as balanced and advise investors to remain neutral on equities and risk.
The risks from rising rates are potentially higher in New Zealand than elsewhere given the overvaluation of equities and the housing market. We advise investors to underweight NZ equities, fixed income in general, and the NZ dollar.
In our 2018 outlook, we review the prospects for several asset classes—developed and emerging markets equities, credit, real assets, sovereign bonds, and currencies—and share the advice of our chief investment strategist.
In our opinion, institutional investors are better served focusing on investing in companies seeking to profit from the development and adoption of blockchain technology and “fintech” (financial technology) more broadly than holding cryptocurrencies directly.
Institutional investors should very carefully consider the risks of cryptocurrencies before investing.
China has recently opened its domestic bond market to foreign investors. At first glance this is a huge opportunity for investors. However, as with many things in China, the story is more complicated than it appears.
We are not ready to pronounce the strong dollar cycle dead, but do admit the US dollar is in critical condition. Investors should remain partially unhedged or prepared to ride out a period of currency volatility.
We still expect a rising US dollar over the coming year or so; however, the currency is entering the final phase of the strong-dollar cycle and investors should be aware that valuations and historical cycles suggest USD weakness over the coming decade.
History implies the US dollar has more to rise before this strong dollar cycle is over; however, much depends on the fiscal and trade policies enacted by politicians and the responses from global central banks. This chart book provides currency views and historical analysis of momentum, valuation, and fundamentals for five major currencies: USD, GBP, EUR, CHF, and JPY.
For New Zealand and the global economy as a whole, 2017 may be as good as it gets, especially if fiscal stimulus and protectionism cause inflation to rise in 2018, forcing a more aggressive tightening in monetary policy.