Political developments, namely the Trump effect, the repercussions of Brexit and the impact of the European elections, are the three biggest risk and opportunity factors for 2017, according to fund manager Amundi.

Amundi global head of research, Philippe Ithurbide, said there is a risk that markets will misprice these events, with a tendency towards Brexit indifference, optimism on the Trump effect and pessimism over European elections. While these assumptions are not unreasonable, Ithurbide said downside risks should not be dismissed if the market consensus is proved wrong. “The consequences are clear: weaker rate hikes, US equities at risk, European assets less risky, GBP potentially in danger, and emerging asset classes in a good position,” he added.

Looking at recent events, he said that while the picture in the US is getting more complicated, with Trump’s wrangling with Congress, it is becoming clearer in Europe, with populist parties failing to win in the Netherlands and no longer leading the polls in France. As a result, Amundi is now more positive on Europe and is overweighting European equities. “Our optimism on Europe is back, because profits should be coming back, and the more solid growth/stronger inflation pairing is not unwelcome,” Ithurbide said. On bonds, he said Amundi is waiting for better levels before going back into US Treasuries, but still likes inflation-linked bonds. Amundi is also moving back into emerging markets, based on attractive valuations, currencies which are often undervalued, and potentially high capital flows.

On currencies, Ithurbide said that Amundi is highly cautious on sterling: “Brexit is a one-sided risk, and the most natural and simple expression of that risk (real or perceived) will be on sterling.” At the same time, the euro could be more volatile than normal, if a non-European party looks like winning, but the Norwegian and Swedish currencies look attractive: “We think they are quite undervalued at this stage, with very (or even overly) accommodating monetary policies.”


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Published: April 1, 2017
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