RISK AND REWARD | STRIKING THE RIGHT BALANCE

CIO MONTHLY | FEBRUARY 2017

While global economic growth is improving, macro risks have also increased. In this article, we discuss key drivers and risks for markets in 2017.


What a year 2016 was! The US equity market reached all-time highs, global bond yields reached all-time lows, commodity markets saw a reversal of fortune and, closer to home, the Reserve Bank of Australia (RBA) cut interest rates to their lowest level ever. On the political front, we also saw two unthinkable events take place—the UK voted to leave the European Union (EU) and Donald Trump became the 45th president of the United States.

Since the inception of our business last year, we were overweight international equities via the US, which proved to be profitable for our investors. We were also underweight high grade bonds which was the right decision, as these securities sold off late in the year. 

Now, as we start a new year, it’s time to consider the right balance between risk and reward. In this month’s article, we outline what we see as key drivers and risks for markets. There’s little doubt that macro risks have increased, and the potential for a downside move in the price of assets such as equities is higher than it was last year. On the other hand, global economic growth is improving, and the monetary environment is expected to remain accommodative in aggregate, despite higher US interest rates.