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.
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.
Although the election results provide a powerful “risk-on” catalyst in the short term, the underlying long-term problems facing France and the Eurozone are unlikely to go away under a Macron presidency, so the old adage “sell in May and go away” may be vindicated yet again.
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.
Some of the reflation trades that received a boost from the US election look to be merely taking a breather as investors square positions; however, the fundamental support for others—particularly the outperformance of US small-cap equities—is challenged.
January’s publication summarizes three articles on currencies. The first discusses why covered interest rate parity has not held since the global financial crisis, the second highlights expectations for major currency pairs this year, and the third argues that hedged equities may not be reducing risks in portfolios.
Change is in the air and the prospect for a bit of sunshine to break through the overhang of slow growth and lower-for-longer yields is palpable. Of course, the sun doesn’t shine forever, and overall our views are little changed. The things we have been worried about for some time—high valuations for certain risk assets, record-low interest rates, slow economic growth—have not gone away. The surest call to make for 2017 is that higher growth expectations will be paired with the distinct possibility of negative outcomes, putting a premium on diversification and liquidity management.
In light of markets’ initial reaction to the victory of Donald Trump in the US presidential election, we wanted to remind clients of our approach to portfolio management by providing thoughts from our Chief Investment Strategist, Celia Dallas.