Consensus moves from deflation to reflation

AFTER the horrendous start to 2016 it should surprise no one that people are prone to nervousness. Brexit, Trump, Tapering and political risk have been the buzzwords of the last twelve months. Markets like certainty and these have created considerable uncertainty.

Even so, markets have performed. Global growth has been improving since commodity markets bottomed in mid-February last year. US interest rates are rising because the economy is almost back to full employment. Deflation is receding; even the fractious Opec has regained some unity. The rise in long-term US bond yields since November has not really hurt returns in developing countries. Consensus has moved from planning for deflation to expecting reflation.

Looking into 2017 we continue to recommend being strategic, rather than short-term. Look for value that hasn't yet reflected the surge in growth and the return of inflation. Avoid consensus trades - long US dollars has become the latest. Think about individual countries and sectors, rather than entire markets or regions.