Forget the crystal ball – all eyes are on Trump

ments have benefitted by up to 25 per cent simply from sterling’s fall.

The FTSE 100 is up 10 per cent year to date while European and emerging market equivalents are also ahead. But it should be borne in mind that the FTSE is still no higher than it was in spring 2015 and barely higher than in 2000.

Most global markets are similar. The only truly dynamic one is the US – Standard & Poor’s having risen by 500, or 12 per cent year to date, and continually posting new highs.

Fixed Interest (government and corporate bonds) have continued to do well for most of 2016 and are in positive territory over the period, but inflation and rising interest rates are the enemy of bond investments.

Investors have benefited from a 30-year bull market in bonds as inflation and interest rates have plummeted but this has to come to an end at some point.

Interest rates and inflation have started to rise in the US and are likely to continue on an upward path, especially if Trump pushes through the promised expansive fiscal policy.

The UK government bond index has fallen five per cent in the last three months.

What then might be in prospect for 2017?

This, of course, is far harder to call. Crystal ball gazing always was an inexact science!

A lot depends on how far and how fast Trump can go.

Commentators are already saying that “animal spirits” in equity markets are being unleashed by “Trumpflation”. Under this scenario, equity markets will soar in 2017, especially in the US. On the flip side bonds could suffer, which is not great news for cautious investors who rely on them to reduce volatility in their portfolios.

But this reaction is based on “Good Trump”.

If he throws out various trade agreements and pushes through protectionist policies, global markets, especially emerging markets, will struggle. So the US could do very well at the expense of the rest of the world.

In the UK, Brexit is still the big unknown.

Given the unlikely alliance of ex-Prime Ministers, Tory rebels and bolshie Scottish Nationalists, will there be Brexit at all? If Brexit comes to pass will it be hard or soft? Will there be transitional arrangements? It is all up in the air.

Many UK companies will continue to flourish but the UK economy as a whole could be significantly hit if lack of access to Europe dents London’s position as the financial entrepot for the continent.

This uncertainty has already been felt in the commercial property investment market.

Many UK property funds were temporarily closed in the aftermath of Brexit as they anticipated mass withdrawals driven by uncertainty over London’s commercial property market.

As it happens, there weren’t any serious outflows and most of these funds are now open for business with only small capital write downs.

However, this could be a taste of things to come. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com