Emerging market assets have long been a source of both potential profit and peril for investors. 2017 saw an incredible streak of capital inflows into emerging market equities, bonds and currencies. Whilst returns are still characteristically volatile, this historically maverick asset class has become more mature and resilient than ever before, as was highlighted during February's market sell-off.
Middle Eastern investors have been cautious on risk for a while. I believe that if markets remain relatively calm, many will be tempted to deploy more cash.
Markets are grinding higher and many investors are looking to call the top of the market cycle. In this light we ask ourselves what causes bubbles and more importantly how do we spot them? Over time I have collected a range of indicators that seek to have some predictive value in spotting bubbles emerging. I modestly call this the Heiligenberg Index.
Leicester city’s rise and fall over the past year mirrors that of financial risk premiums. Fundamentals are probably average but performance can oscillate wildly. The Fed wants to see monetary conditions tighten: this can come through a stronger dollar, higher risk-free rates or increased risk premiums.
A new era has begun; what seemed inconceivable only a year ago has happened: Donald Trump has actually moved into the White House. His first week in office could be telling for the next four (or eight?) years. Disputes around the inauguration turnout aside, will we get a flurry of activity or will it be the start of Trumponomics getting bogged down in Washington bureaucracy? Alongside markets, we will be paying close attention.
Investors are constantly trying to judge the so-called “reaction function” of the Federal Reserve to understand the likely path for monetary policy. This understanding could get turned on its head in the next twelve months if Janet Yellen is replaced by Professor John B Taylor of Stanford University.