Equities performed within expectations in 2016. Will it be the same in 2017?
By Gwyneth Yeo / theedgemarkets.com.sg | February 1, 2017 : 9:10 AM MYT
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SINGAPORE (Feb 1): Bank of Singapore had been successful in predicting the trends in the equity markets in 2016, but concedes that the uncertainties from Donald Trump’s administration has made the job of making accurate market predictions far more difficult in 2017 than in past years.
According to BoS’ investment strategist James Cheo, a good scenario would be where Trump’s fiscal thrust and deregulation added to the US’ current financial situation. On the other hand, a negative scenario would occur if Trump’s fiscal policies led to inflation outpacing growth.
Cheo admits that either of these scenarios would have a lower probability of occurring. What’s most likely to happen is the position between both scenarios, with moderate fiscal policy and some deregulation, which still leaves plenty of uncertainty in equity returns.
As such, Cheo remains “underweight” on equities, given that equity markets are currently trading at their historical highs.
“In order for markets to go higher, earnings have to improve significantly. A closer look at earnings shows that analysts’ estimates of earnings are very optimistic at 10 to15% for 2017. However, actual earnings for 2016 were muted at 2 to 3% for most markets and negative for Europe and Japan,” says Cheo, forecasting single digit earnings growth for 2017.
While equity returns are likely to be similar to 10 year bond yields, US equities could perform much better at 7% to 8% given Trump’s pro US slant. Europe’s equity returns would be much lower at 3% to 4% from increased political risk and Japan’s would be around 5% to 6%.
Asia’s equity returns could be about 7% and potentially enter into a bull market, says Cheo, though he cautions that the downside for the region could be large if a trade war emerged between US and China.
, CCT is slowly rising back. CMT dim gai 
