Top of the Pops: What will be the market’s Christmas No.1?

Just when you thought risky assets could not go any higher or quantitative easing any better, welcome to 2017: the year of the relief rally. The year when asset returns made the TMT bubble of 2000 lore palatable if not possible. Among the cornucopia of rising risk assets, which one will end the year on top?

We might have the tried and true US Equities. A bit like Mariah Carey’s “All I Want for Christmas Is You”, this one’s an easy crowd pleaser. While maintaining historically high margins of nearly 10%, US S&P 500 earnings have grown 10.4% through Q3 2017[1] and are expected to grow slightly higher in 2018 with the majority of earnings growth coming from the IT sector.

Or alternatively, the Christmas number one could go to an asset class coming in from the shadows, like EM equities: a bit like the comeback of Wham’s “Last Christmas”, one of this year’s favourites in homage to George Michael. The last calendar year MSCI EM equities topped the asset class charts was 2009.

Normally the winner of X Factor does well on the Christmas list. This year’s contender is Rak-Su and give it to me or “Demelo”. The market wanted inflation and a strong USD in 2017 but got neither of them in spades. Not surprisingly, with negative real rates, cash is a strong contender for worst asset class of 2017. Holding onto cash in most major currencies would have lost you money in real terms. The Zero Lower Bound (ZLB) turned out to not be a lower bound after all with negative short-term nominal rates in Japan, Europe, Sweden, Switzerland and Denmark during 2017.

The odds on favourite for this year’s Christmas number one is Ed Sheeran’s remix with Beyoncé of “Perfect”. And our Christmas chart wouldn’t be complete without the perfect asset class stocking stuffer, the bitcoin. According to COINBT:SS the lead crypto currency is up 1,575% year-to-date.

Stormzy’s “Blinded by Your Grace” might apply to the impact of currency if you valued your assets in US dollar rather than sterling in 2017.  Based on the negative sentiment in the options market, the historic trade deficit and/or stubborn fiscal deficit the GBP lost nearly 10% against the USD. Despite a formal end to QE and the first serious Federal Reserve rate rises since 2006, the USD surprised the market and lost nearly 10% of its value over the year. [2] So to hedge or not currency hedge became a serious question again for investors.

Jason Lejonvarn – Investment strategist, Mellon Capital

[1] Bloomberg, as at 30 September 2017

[2] Bloomberg YTD as at 13 December

Just when you thought risky assets could not go any higher or quantitative easing any better, welcome to 2017: the year of the relief rally. The year when asset returns made the TMT bubble of 2000 lore palatable if not possible. Among the cornucopia of rising risk assets, which one will end the year on top? We might have the … read more

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The comeback king: Shinzo Abe and Japan’s reinvigorated economy

Between 2006 and 2012, Japan had no less than seven prime ministers; more than one a year. November’s landslide election of Shinzo Abe for a record-breaking third term signals a decisive end to an era of political instability and bodes well for a reinvigorated economy.

Immediately after Abe’s recent victory , the Nikkei 225 hit a 21-year high, building on a run that saw Japanese equities comfortably outperform European and US stock markets since the start of September.

On the macroeconomic front, too, the picture looks rosy. Corporate profits and business sentiment are up. GDP has risen for seven quarters in a row, its longest spell of interrupted growth for 16 years. Nominal GDP was almost 11% higher in the third quarter of 2017 than it was five years earlier.  We see this spurt of growth as a major milestone. For the first time since 1997, nominal GDP is now above ¥533 trillion, meaning the economy has finally recovered the ground lost over two long decades of stagnation.

If you step back and look at what the government promised on the economy and what it has actually achieved since it launched fiscal and monetary stimulus in 2013, it’s pretty impressive. We think it points the way to a positive outlook for investors.

Miyuki Kashima – head of Japanese equity investment, BNY Mellon Japan

Between 2006 and 2012, Japan had no less than seven prime ministers; more than one a year. November’s landslide election of Shinzo Abe for a record-breaking third term signals a decisive end to an era of political instability and bodes well for a reinvigorated economy. Immediately after Abe’s recent victory , the Nikkei 225 hit a 21-year high, building on … read more

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Bitcoin gains new ground

Despite initial controversy, more and more major companies and payments systems are starting to accept Bitcoin as a valid currency. The advantage of Bitcoin is that it is seen as being a currency that is finite in nature which cannot be manipulated by central bank policy politics. With Bitcoin you can’t just print money out of nowhere – it is tethered to a finite resource, as the ability to ‘mine’ it is designed to resemble a precious metal such as gold. In this regard it seeks to replicate the approach to currency typified by the gold standard.

Paul Markham – global equities manager. Newton, a BNY Mellon company

Despite initial controversy, more and more major companies and payments systems are starting to accept Bitcoin as a valid currency. The advantage of Bitcoin is that it is seen as being a currency that is finite in nature which cannot be manipulated by central bank policy politics. With Bitcoin you can’t just print money out of nowhere – it is … read more

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