Wed, 18/01/2017 - 12:09
President-Elect Donald Trump’s commitment to infrastructure investments means real assets are set to outperform in 2017, according to ETF Securities, one of the world’s leading independent providers of Exchange Traded Products (ETPs).
Real assets – assets such as commodities, real estate, land and infrastructure assets – will be supported by the President’s USD1 trillion commitment to rebuild the United States infrastructure, and are likely to outperform in 2017.
James Butterfill, Head of Research and Investment Strategy at ETF Securities (ETFS), says: “Subject to the President developing a team of credible policymakers, refraining from irrational policy outbursts, and being able to deliver on his election promises in a politically toxic environment, real assets in general are likely to benefit from his vow to rebuild the US. Despite varied fundamental drivers, demand from emerging markets, particularly China, is likely to be a continued source of commodities consumption, and substantial cutbacks to capital expenditure budgets will restrain supply. The resulting fundamental tightening in underlying conditions should keep the commodity complex well supported in coming years.”
ETF Securities notes that real assets such as commodities, real estate or infrastructure tend to outperform traditional portfolios in a rising inflation and low interest rate environment, and expects investor appetite to increase as a result.
ETFS expects Sterling’s Euro weakness to start to reverse as the Euro weakens if the ECB stays its current stimulatory course. USD is likely to continue to strengthen if the US Federal Reserve can get in front of potential inflation pressure that is developing in the US. The safe-haven trade that has benefitted the Swiss Franc is likely to continue as many EU members are facing major elections in 2017. As greater sense of stability in Europe gains momentum afterwards, this safe-haven trade is likely to unwind.
“2017 looks like a year of more populism and more volatility, and inflationary policies as a result. The current Trump bump in equities and risk on assets may well be short-lived but his presidency looks most positive for real assets, such as commodities, infrastructure or real estate,” says Butterfill.
ETF Securities' 2017 Outlook also sets out:
• The illiquidity mirage: concerns over bond market illiquidity are overdone: electronic trading, as well as the use of buy-side inventories as a source of liquidity, are becoming more prevalent in corporate bond trading. This may have changed the nature of liquidity but there is no clear evidence that liquidity has deteriorated.
• Separating the signal from the noise among ETP flows: Analysing ETP flows help identify opportunities for investing in 2017.
• Lithium: a new precious metal? How demand for batteries for electric vehicles will change appetite for lithium.
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