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ECONOMY: Top 3 Risks in 2017 for Investors
Recent Western Cape Business News
2017 looks set to bring positive news for investors, but the Fed, elections in the EU and the oil price are the key risks for investment, according to independent financial advisory group deVere Acuma.
The policies of US president Donald Trump - whose presidential campaign was focused on US job creation, tax cuts and investment in infrastructure - and the Federal Reserve’s reaction to their impact will be the biggest risk, according to Nigel Green, the founder and chief executive of deVere Group, of which deVere Acuma is a part.
Other key risks facing investors are the French and German elections and the ongoing effect of the low oil price.
For South African investors, there are additional local risks including projections of low economic growth, looming ratings agency downgrades and a volatile currency.
Gavin Smith, deVere Acuma’s head of Africa, says that for investors, the landscape is completely different to that of six or seven years ago. They will need to adapt to changes in the environment to capitalise on the many opportunities that will be presented and to mitigate any potential risks, he says.
“The biggest threat to investors are the changing expectations for growth, inflation and interest rates in the US, which remains the world’s largest economy,” says Green.
Data and anecdotal evidence suggests that the US economy has been given an initial boost from the election of Trump. Considering the likelihood of a stimulus package, and given the already near full employment rate, inflation could go higher than the Fed’s goal of 2 per cent.
“Should this happen, the Fed could perceive the inflationary pressures as leading to an overheating of the economy and raise interest rates quicker than markets anticipate to cool it down,” suggests Green.
The second major issue of which investors should be conscious, is elections in France and Germany, where nationalist and far right groups are seeking to establish themselves in government. This could lead to a crisis in the EU as borders could be re-established and trade flows impeded in the world’s biggest single trading bloc.
The third risk is that the decline of the oil price from the highs of a few years ago will continue to have a significant effect on the finances of oil exporters.
These issues will shape investment decisions and outcomes over 2017 for investors globally. Taking into account country-specific risks in South Africa, investors will need to be much more savvy than some years ago in order to build wealth in an evolving investment landscape.
Green says there may be continuing recovery in countries such as the UAE, Brazil and Russia, as oil and gas prices stabilise at considerably higher levels than this time last year. And healthy demand in America will support exports, barring any trade tariffs introduced by Washington.
However, emerging market nations collectively hold approximately $9 trillion of USD debt, which becomes increasingly expensive to repay in local currency terms as and when the dollar rises. In addition, political risk remains high in many of the major emerging markets, not least in some of those countries that are currently benefitting from the increase in energy prices.
“After the tumultuous 2016, investors need to position themselves to ensure they are best-placed to take advantage of the opportunities in the evolving global economy, to circumnavigate the risks, and to remain fully on-track to reach their long-term financial goals,” says Green.
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