DIY Investor Magazine
/
Jan 2017
30
Brexit creates the prospect of fundamental change, not
just for the UK.
The resignation of Italian Prime Minister Matteo Renzi
has impacted Italy’s banking sector and Monte dei
Paschi de Siena, reputedly the world’s oldest surviving
bank, could now be nationalised.
‘Brexit creates the prospect of fundamental change,
not just for the UK’
With an estimated total of 360 billion euros of bad
loans in the Italian banking system, the need for wider
resolution is critical if the euro and whole Eurozone are
not to face existential risks.
The Fed should keep US interest rates rising to offset
‘Trumpflation’, keeping the dollar firm and keep the
euro in a range between parity to the dollar and $1.08;
however, if concerns grow about the very future of the
Eurozone, intervention by central banks may be required
to counter wilder swings. In the FTSE 350 sectors,
trends suggest that Mining looks likely to make a little
more progress, whereas beverages (main component
Diageo) and Chemicals (Johnson Matthey and Croda)
and General Industrials (RPC, DS Smith) may be
expensive.
Oil & Gas group (Royal Shell and BP) could have
more upside potential while Weir Group in Industrial
Engineering should have further to go while the oil price
consolidates recent gains at around $55 per barrel.
Banks (HSBC and Barclays) appear to have some
further long term upside but may be erratic in the short
term; the index sector group with the best bottoming
profile in the short term is Fixed Line Telecoms,
dominated by BT Group although timing could be
crucial.
Summary and Conclusions
The trend in commodity prices in 2016 has had a
profound effect at many levels globally – corporate,
national – and this influence is unlikely to be diminished
in 2017.
The world economy must now deal with the prospect
of a recovering oil price even if not back to the $100 a
barrel in the short term
Precious metals, particularly gold and silver, may have
a good year if the perception grows that inflation is
accelerating and that Central Banks are behind the
curve with their interest rate policies.
‘Investors will have to follow economic and political
developments especially closely in the coming
months’
The London equity market will not be immune from Wall
Street but it will also need to deal with uncertainties
around Brexit; there could be short term trading
opportunities but, as in 2016, the longer term picture
may not be clear for several months. The investment
emphasis is likely to remain on seeking out reliable
higher yielding equities as rising interest rates weigh on
bond markets.
Given recent events, politics has become a more
significant factor in assessing the prospects for markets
and the election as President of Donald Trump – a self-
confessed political ‘outsider’ – carries its own challenge
to gauging the outlook for 2017.
Purely in terms of threats or opportunities for investors,
the ‘Trump Effect’ could either see the emergence of a
reinvigorated economy and a rise in US national self-
esteem, or the project could stall as vested interests feel
unable to embrace the Trump initiatives.
Investors will have to follow economic and political
developments especially closely in the coming months
and there could be heightened volatility in markets,
leading to a ‘right royal’ casino atmosphere at times;
if the conspiracy theorists are to be believed about
possible Russian links, perhaps all investments should
be placed on red!
THIS IS A MARKETING COMMUNICATION: It has not been prepared in accordance with
legal requirements designed to promote the independence of investment research and
is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not
to deal ahead of the dissemination of the report.
This document is not an offer to buy or sell any security or currency. This document
does not provide individually tailored investment advice. It has been prepared without
regard to the individual financial circumstances and objectives of persons who receive it.
The appropriateness of a particular investment or currency will depend on an investor’s
individual circumstances and objectives. The investments and shares referred to in this
document may not be suitable for all investors – for more information visit
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