2016 Review 2017 Outlook

Thursday, December 15, 2016

Key points: 2016 started badly for investors with worries about global growth and deflation. But global growth turned out okay &, despite political events, rising bond yields & disappointing Australian growth, the end result has been a constrained but okay year for diversified investors. 2017 is likely to see another year of okay & maybe even slightly higher global growth, higher inflation, higher bond yields after a pause and divergent monetary conditions as the Fed tightens but other countries stay easy. The RBA is likely to cut rates to 1.25%. Most growth assets, including shares are likely to trend higher, resulting in reasonable returns in 2017. The main things to keep an eye on are US policy under Trump (stimulus v trade wars), the Fed and the $US, bond yields, various European elections, China and the impact of the rising supply of apartments in Australia.

US share market analyst Joe Granville once observed that “if it’s obvious, it’s obviously wrong”. 2016 was perhaps remarkable for the things that many thought were obvious at the start of the year but did not happen: the global economy did not see plunging growth and deflation; the Fed did not blindly raise interest rates; commodity prices did not continue to crash; the Brexit vote did not plunge the world into a growth slump; the election of Donald Trump did not cause a share market crash; China did not hard land (again); Europe did not break apart; tensions in the South China Sea did not bubble over into war; and the Australian property market did not collapse. What did happen was far more mundane: