The rate of growth of the US GDP is expected to be in the range of 2 to 3 per cent, VanEck director of investments and portfolio strategy Russel Chesler said, adding that inflation in the country was “under control”.
“With reasonable unemployment levels this is very much a Goldilocks economy. Fiscal easing together with tax reform and infrastructure spending promised by Trump is positive for the US,” Mr Chesler said.
“There is a possible risk that by the end of 2017 inflation may jump and there may be modest overheating in the US economy. Increasing interest rates should temper the possibility of overheating.”
Mr Chesler said China was expected to hit its own inflation target of 6.5 per cent this year as well, despite the “bumpy deceleration” the country is currently enduring.
“Ongoing infrastructure spending and consumer spending is expected to continue. The main risk is credit growth, which will need to be carefully managed. China’s inclusion into the MSCI EM Index could be on the cards in 2017,” he said.
The strong housing pipeline in Australia should serve to support economic growth locally, as will tourism “particularly if the Australian dollar weakens, which is likely with the expected strengthening in the US dollar”, Mr Chesler said.
“Provided the current bounce in commodity prices remains and retail sales continue to improve, the scene is set for increasing equity prices,” he said.
“Our belief is the RBA cash rate will remain low with a possible further cut in 2017, however a rate hike is unlikely this year.”
Mr Chesler said investors would find better opportunites for growth and yield outside of the top 10 shares in the mid- and large-cap sectors.
Companies that generate offshore income are also expected to benefit as the Australian dollar still has further to fall, Mr Chesler said.
“Strategies with an inherent value bias should continue to outperform this year on the back of strong performance towards the end of 2016,” he said.
“Overall we expect shares are likely to trend higher this year, resulting in positive returns in 2017.”
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