In an ultra-low or even negative interest rate environment, maintaining an overweight stance in emerging market assets (equities, debt and currencies), in credit (vs. government bonds) still makes sense, while continuing our search for yield and spreads. “Alternative” and “real”assets also remain attractive from a diversification and yield standpoint. 2017 is nevertheless expected to be a more complex year than 2015 or 2016.
However, there is no denying that the negotiations over Brexit, (with the risks on the United Kingdom but also on the political cohesion of the European Union), the situation in China (credit bubble, exchange rate policy and capital account opening policy), the limitations of monetary policy or the prospects for a change in the direction of budgetary and fiscal policies (with the United States probably showing the way with the new leadership), or finally the different elections in Europe (and the rise in populist movements) are likely to bring about meaningful change in current trends. This is what our stress tests clearly show. Anticipate periods of severe stress and the implementation of portfolio hedging. The year 2017 seems to be a pivotal year for financial markets, particularly for bond yields and emerging markets.