Speaking at the asset manager’s briefing on Wednesday, Flanders said while the French and Italian elections could be cause of concern, it was important to remember there was overall support for the euro and that markets weathered the many storms of last year.
The unpredictability of events over the course of the year could also work to open up opportunities for active managers, though Flanders said “anyone looking at a company level is in a better position than if they looked at a sector as a whole”.
The tail-end of 2016 saw the beginning of a shift from monetary to fiscal policy in the US before the election of Donald Trump, and Flanders adds this trend looks set to continue.
“Subpar growth and equally supine inflation since the financial crisis meant that super-loose monetary policy seemed like a permanent fixture instead of being a temporary response, but that era is ending. The combination had turbocharged asset price returns in the wake of the crisis – the S&P 500 rose 292% on a total return basis since early 2009 – but this gap between the real economy and markets seems unsustainable,” said Flanders.
She added that it remains to be seen whether Trump’s promised stimulus, in an economy which is already performing, could shorten the economic likely and bring forward the chance of a further recession.
“Globally, real government spending grew at its fastest rate in several years in 2015 and 2016 and US fiscal policy turned slightly supportive before the election. So the shift in emphasis from monetary to fiscal support was in train well before Donald Trump’s victory in November. But his plans for a major new fiscal stimulus package in the US have accentuated this trend and potentially magnified the risks,” said Flanders.
However, increased economic momentum in the short term in the US should continue to support US equities, though Flanders said investors should look out for continued sectoral shifts to reflect a more reflationary environment and stay realistic about returns.
