Fund manager BlackRock has said that one of the key lessons from 2016 is that economics can trump politics, with reflation now outweighing political uncertainty as a driver of returns.
BlackRock said that this was shown in the US market rally, after the election of President-elect Donald Trump, with higher expectations of a fiscal boost pushing up stocks. It added that uncertainty does not necessarily imply widespread volatility, as equity volatility spikes after Brexit and Trump’s election were short-lived. “Instead, political surprises and initial sell-offs were seized on as buying opportunities. We believe this argues for taking the long view rather than reacting to short-term market noise,” commented a BlackRock spokesperson.
Another takeaway is that there are still good return opportunities in today’s low-return environment. While government bonds and low volatility stocks underperformed, higher risk assets produced better returns and value stocks and commodities recovered in 2016. BlackRock added that it expected to see some of these trends continue in 2017, with more flows into risk assets.