Combine long-term discipline with short-term flexibility: McDonald
KUWAIT: The Investment Studies Center (ISC) of the Union of Investment Companies (UIC), in cooperation with Northern Trust Company, held a lecture for investors titled “The Rise of Populist Politics: Considerations for Investors” yesterday at KIPCO Tower. Chief Investment Strategist James D McDonald presented the first part of the lecture on ‘Investment Outlook: 2017 and Beyond.’ He spoke about combining long-term discipline with short-term flexibility aimed to provide downside protection and upside participation, which included both strategic and tactical outlooks.
He presented a review of the results. “Global equity returns are expected to make slow progress in choppy market waters while global interest rates remain anchored at low levels over the next five years,” stressed McDonald. He explained that anger over stagnant-to-falling real incomes has manifested into populist political movements globally. “Concerns over what populist political candidates would do in office adds further uncertainty to the slow growth environment. Italy has the highest risk of populist politics, while the US and Germany are at medium risk. Japan is at low risk with its stable government,” added McDonald.
He also spoke about stagflation and declining return expectations, adding to the tactical risk after the US election. He spoke about global manufacturing, which is stable and improving, Chinese growth, deficit spending, European growth that has been resilient, stocks and bonds, in which it is rare to lose money, OECD oil and product inventories are bloated, oil rig count vs oil price, crude oil production vs oil price and depletion that will pressure production. McDonald reviewed risk scenarios including inflation, Fed translation troubles and policy letdown. He explained that geopolitical events tend to fade and concluded with market corrections.
The second part of the lecture was presented by Geeta Sharma, Head of Fixed Income, Strategies EMEA and APAC. She spoke about the risk in fixed income and seeking protection when rates are rising. She spoke about hiking cycle, bond yields, risk assets, high yield market outlook, credit quality matters, market comparisons, emerging markets outlook and focus on real yields.
The last part of the lecture was presented by Benjamin D Goetsch, CFA, Investment Strategist, Global Equity, who spoke about “Generating Alpha in an Evolving World”. He explained the sources of equity strategy performance, factor impact of potential policy changes, factor performance after recent political events, performance of factors, US equity dispersion, monetary policy dependent returns, factor returns during rate increases and design matters.
By Nawara Fattahova