Despite volatile markets, investors need to remain active
Although China is the second largest economy in the world, and represents 18% of total equity market capitalisation, it represents only a fraction of the world’s leading market indices. As China continues to rebalance and reform its economy it will play a larger role in global indices, and therefore investors should consider increasing their exposure to Chinese assets.
Of course China is not without its issues. In particular, investing in China as a non-Chinese citizen is still subject to additional restrictions, which clients should be aware of when investing here. However, these continue to be relaxed by the government, making Chinese assets progressively more attractive to international investors.
Over time disruption is becoming a more and more significant theme, as the pace of technological progress increases. It is an investment topic that impacts practically all companies and industries around the world – including asset managers like AllianzGI. Investors need to find new ways to adapt to and capitalise on disruption, including implementing disruption into the research process on the companies we cover, and developing new products.
For investors, disruption makes earning consistent returns more challenging, as seemingly dominant incumbent companies can quickly lose their competitive advantages. This makes active investing more important than ever – investors need to take active risk and pick the winners of disruption.
Our MC Neil Dwane recalled that as we concluded our last Investment Forum in Hong Kong in January 2016 there was already a change in the political undercurrents, moving away from globalisation and free trade toward populism and protectionism. As we look forward to 2017 Europe will take centre stage, with Brexit negotiations imminent and important elections looming in the Netherlands, France and Germany. The new Trump administration has already shown it can rattle markets with just a few tweets, and exemplifies the adage that ‘uncertainty is the only certainty’.
Investors should be aware that European markets will likely remain mired in political events that will bring further volatility to a region that has suffered numerous political setbacks over the past few years. In the US, equities may have room to run if Trump’s fiscal stimulus and tax cuts come to pass. However, caution is the watchword for investors, who would be well advised to take news from the Trump administration with a degree of scepticism.
Overall, investors need to take risk to earn returns, and to remain active in increasingly volatile markets – a stance that has been validated time and again by the market’s results.
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