In 2016 the local index was held ransom by a run of unpredictable political and macro economic events. The ASX200 climbed an unremarkable (but tidy) 7%, which belies the volatile, circa 1000 point trading range that it traversed. The influence of these events was not lost on equity investors, Macquarie Research estimates circa 75% of US stock moves in 2016 were driven by macro developments as opposed to stock-specific events. With Trump’s inauguration only weeks away, it is easy to see why strategists believe 2017 will again be dominated by big picture events. The latest edition of Livewire’s 2017 Outlook Series steps back from stock specific matters and asks Shane Oliver, Vimal Gor, Chad Slater and Jonny Shapiro (AFR) for their views on 5 big macro trends. We also probe them for the one Black Swan event that they think has the potential to surprise markets this year.
Chart: The ASX200 traversed a rocky road in 2016 (Source: CommSec) (VIEW LINK)
Panel: Vimal Gor, BT Investment Management; Dr Shane Oliver, AMP Capital; Chad Slater, Morphic Asset Management; Jon Shapiro, The Australian Financial Review
Q: The 30-year rally in bonds is over. In 2017, bond yields continue to rise. True or False?
Shapiro: False. The bond market is closer to death. It's older, but it's a feisty old beast, and it will live on.
Gor: True, but I have serious reservations about how far they rise.
Oliver: True, they've gone way too far in the short term on the upside, and they're due for a pause or a correction, but I think bond yields in the US and probably on average globally, will end the year higher.
Slater: False. Deflation's not dead; it's sleeping.
Q: In 2017 commodity prices will continue to move higher. True or False?
Oliver: True. I think the broad trend will remain up, particularly as global demand continues to edge higher.
Gor: False. I have worries about China.
Slater: False. And true. Some do, some don't.
Shapiro: I'd say false on that one. I think they've run very hard and in some of the commodities that most Australia is most sensitive to, there seems to be excess supply. Weight of balance would say "false."
Q: In 2017 the Australian economy will celebrate 26 years without a recession. True or false?
Oliver: True! Yes, we've gone through a bit of a wobbly patch. Lately, anyway. September quarter was down, but I think that was a bit of an aberration due to bad weather ... A bit of an odd patch there in terms of state CAPEX spending, or capital spending. I think that will bounce back. Soft retail sales, I think that will bounce back. And of course, I think the resources side will continue to boost export volumes.
Gor: True. Hopefully, they're true.
Slater: False. We're having a recession. We're halfway there already.
Shapiro: True. It's hard to bet against a 26-year trend, and while there are challenges, I think there's enough reasons why Australia will continue to grow.
Q: 2016 was the year of the anti-establishment vote. In 2017, we will see Europe join this trend. True or False?
Oliver: False! I think the reality is that Europe has always been to the left of Britain, of the US, and so you're not seeing this left-ish backlash against rising inequality that you are seeing in the US and Britain.
Shapiro: I'd say true in that they would influence politics more but false, in that they would actually come to power.
Oliver: The one where I'm a little bit worried is Italy, but I think if Five Star Movement does take power in Italy, they won't be as anti-Euro as they are at the moment. They'll have to wind that back just like Syriza did in Greece.
Gor: True, definitely true, and hopefully true.
Slater: False. I think it's over-hyped. Merkel will get re-elected.
Q: Growth returns to the USA with annual GDP growth of 3% or more. True or False?
Oliver: Little less clear on that one in my own mind, but I'd probably say false. But I think, to the extent growth lately in the US has been bouncing around 2%, on average ... A bit soft in the first half of 2016, bit stronger the second half, but averaging around 2. I'd say the risk is that it comes up. My point forecast would be something like 2.7, 2.8% growth, so pick up on the last few years, but there is that little risk there that'll it get over.
Shapiro: False. 3%, probably possible, but at that stage, tighter financial conditions act as a counterbalance.
Slater: True. For a little bit.
Gor: False, but if it is true, global growth will slow.
Q: What's the one, left-field event, the Black Swan, that could come out and surprise markets?
Shapiro: A total black swan for me would be a some kind of a financial panic, but not driven by asset prices or securities moves, but driven by something operational, so a bank or an exchange being hit by a cyber attack.
Oliver: There will be a black swan event. I guess the issue is always the magnitude of that event, but sort of thinking about that one, I thought, well there is a consensus out there amongst investment analysts, anyway, that commodity prices won't sustain at those levels. I'm kind of wondering, well it could actually go the other way, that we could see a continued surprise on the upside in terms of commodity prices, particularly with a bit of momentum getting up behind the global economy, and of course, Donald Trump providing more stimulus in the U.S.
Gor: The one left-field event that I hope happens is the British Lions winning the New Zealand tour. In terms of markets, though, I think we're very complacent about China. There's a risk that they come back and disappoint.
Slater: We'd say the best one we can think of is that Trump gets impeached or resigns by year-end.
Click here (VIEW LINK) to access more of Livewire's 2017 Outlook Series
Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment of financial planning decisions, you should consult a licensed professional who can advise you whether the decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.
Buy Hold Sell is a weekly video series exclusively available through Livewire. In each episode two fund managers are asked for their views 'Buy, Hold or Sell' on five ASX listed companies. The format is meant to be short, sharp, insightful and...