33 Shares to Buy for 2017

Background to 2017’s 33 Share Tips

As is the case with many things in life, timing is everything in markets. In this instance, we think that the prospect for financial markets in 2017 was largely set by the major events that unravelled in the second half of 2016.

In essence, while we are programmed in markets to set out our respective stall based on calendar and/or financial year-ends, the reality is that life operates on a continuum and is thus to a large extent guided by recent historical events.

Key Market Themes For 2017

For this reason, we expect two key themes from 2016 to have a significant influence on how financial markets perform in 2017. First and foremost in our view is the election of Donald Trump as America’s 45th President.

For evidence of the impact that this is going to have on markets, Members need not look any further than the recent price action in the US dollar and US bond yields, the latter of which has perhaps not surprisingly been inversely correlated to what is happening in US equities. In essence, the election of Donald Trump has boosted US interest rates and steepened the yield curve.

Dollar Strength

While we think this is a sign of things to come, the great rotation from bonds to equities is unlikely to be a linear or orderly progression, with the elephant in the room being the Federal Reserve’s stress tolerance to a higher US dollar index. The fact that the Federal Reserve’s December meeting yielded a dovish tone in our view highlights this risk.

This is likely to mean that the Federal Reserve will be willing to let inflationary pressures build up (to a certain extent and from a current low base) in order to keep US dollar strength from derailing the economic recovery in the US.

To do this, the Federal Reserve will seek to keep the effective federal funds rate at a level that would otherwise be considered too low relative to key targets such as underlying inflation, employment, wages growth, and economic activity.

By virtue of the US dollar being the default international currency and a major economic hub, the prospect of higher US inflation represents a major theme for global markets, including Australia.

In fact, part of the reason for expecting the Federal Reserve to opt for keeping the federal funds rate low is to counter the prevailing actions of other major central banks, such as Bank of England, Bank of Japan, the ECB, and the People’s Bank of China

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DISCLAIMER The views and opinions expressed herein are for information purposes only. They are subject to change without notice, and do not take into account the specific investment objectives, financial situation or individual needs of any particular person. They should not be viewed as recommendations, independent research, or advice of any kind. The views accurately reflect the personal views of the author. They are not personal recommendations and should not be regarded as solicitations or offers to buy or sell any of the securities or instruments mentioned. The views are based on public information that we considers reliable but does not represent that the information contained herein is accurate or complete. With investment comes risk. The price and value of investments mentioned and income arising from them may fluctuate. Past performance is not an indicator of future results, and future returns are not guaranteed. We acknowledge an individual’s tax situation is unique and tax legislation may be subject to change in the future.
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