Cautious optimism for 2017 investment conditions

Fund manager Deutsche Asset Management has given a cautiously optimistic assessment for investment conditions in 2017, with yields in the mid-single figures across asset classes.

Deutsche AM chief investment officer Stefan Kreuzkamp said that correct selection and diversification of assets will be critical in 2017. “We are not pinning our hopes for economic growth and capital market returns very high for 2017. Having said that, we have no concerns that we will see recession in the major economic regions. However, political and central bank actions may continue to prompt short-term dips in the market,” said Kreuzkamp.

Kreuzkamp said that European elections and Brexit have put the spotlight back on the future of the European Union (EU). Looking at prospects for the US following the election of Donald Trump, he said: “A combination of tax cuts, deregulation and infrastructure projects could stimulate the US economy to the extent that this boost could continue for eight or even nine years. Although this will bring inflation.” He added: “We are fully aware of the President-elect’s potential to surprise – in both directions. Politics shapes markets.”

On interest rates, Deutsche AM said it expects to see two more interest rate hikes in 2017 following a rate rise in December 2017. However, it said that rates in Europe will remain at low levels in 2017. “Interest rate divergence between the Eurozone and the US is likely to increase. In the medium term, we are not convinced that this era of very low interest rates is at an end, although 2016 may well have marked the lowest point for interest rates,” said Bill Chepolis, head of fixed income EMEA at Deutsche AM.