The Investment Strategy Association of Geneva (ISAG) has released its perspectives for 2017. And it will be a year of uncertainty according to investment strategists based in the Swiss city.
Politics in Europe (elections, implementation of Brexit), monetary (dollar, Fed rate hikes) and the extension of the US business cycle are likely to drive this uncertainty, the association said.
Political risk becomes a structural element in the conduct of investment policies, it underlined.
“A reform-based change in power in France would be a positive surprise but the risks remain high in Italy, Spain, as well as in the Netherlands,” ISAG assessed.
Uncertain will also be the reading of the US economic cycle. The association of Geneva-based strategists, chaired by Emmanuel Ferry, CIO of Banque Pâris Bertrand Sturdza, looks cautiously at further Fed rate hikes, expecting a cumulative tightening of 25bps to 75bps.
The US economic cycle reaches its final phase and fiscal stimulus measures proposed by Trump will occur in a full employment regime, limiting their impact on economic growth and promoting inflation, ISAG highlighted.
ISAG’s strategists are likely to hold a wait-and-see policy on Trumponomics, regarding topics of globalisation, proactive goals of job creation or fiscal shock.
A consensus has emerged from the views of ISAG’s members on macroeconomic financial guidelines.
For them, the valuations of financial assets are stretched in all asset classes. Monetary policy divergences will pursue and the economic cycle is relatively mature.
“The result is an asset allocation that maintains an equity (42%) and credit (24%) bias, with a slightly overweight slider. The weight of alternatives remains high at 12%, while cash is at 6% and raw materials at 4%.
“With regard to state bonds, the weight is limited to 12% but many CIOs have said they are ready to retake exposure to US rates after the correction of 2016,” the association pointed out.
The allocation view of Geneva-based investment strategists results in strong convictions regionally speaking.
“In terms of shares, the preference is switching to Europe and Japan, in phase opposition with the United States (cycle, currency, monetary policy). Switzerland is a bottom-up theme to gamble on productivity,” argued the association
Geneva-based investors are still cautious towards emerging market countries because of the strong dollar and the political transition in China. They also favour US Tresauries at the expense of German Bunds.