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Investor optimism high for 2017 despite year of geopolitical shocks

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European investors are increasingly optimistic about stock market returns in 2017 and are less concerned about geopolitical events, despite a year of political shocks, according to JP Morgan Private Bank.

The bank’s latest Private Client Survey explores European investor expectations for 2017, including rising optimism for emerging markets and public equities, and increased appetite for alternative strategies.
 
In contrast to the previous Private Client Survey released in May, European investors have become more optimistic about stock market returns over the last six months, with 39 per cent believing public equities will be the best performing asset class over the next 12 months.
 
Alternative strategies also attracted attention from investors, with a quarter (28 per cent) expecting them to provide good returns. Unsurprisingly, in today’s environment of record low or negative bond yields and interest rates, cash and fixed income appeal to just 9 per cent and 7 per cent of investors respectively.
 
“While the spring survey revealed a change in sentiment towards European equities, the latest survey shows investors now favour US equities again, with a third (32 per cent) believing the US market will outperform other regions,” says Peter Gabriele, EMEA Private Bank head of investments. “On the other hand, only 16 percent of clients believe European equities will be the best performing equity market in 2017.”
 
Following a year of political shocks, investor concern towards geopolitical events has decreased, as perceived by the impact of Brexit and the US presidential election. Investors are currently most preoccupied with policy or economic risks for markets. A quarter (25 per cent) of clients state central bank policy divergence as the biggest risk in 2017; followed closely by low inflation or deflation (24 per cent). That said, Donald Trump’s surprise presidential victory is a concern for 18 per cent of investors, and ongoing fears surrounding the Brexit and the potential European slowdown remains for 16 per cent of investors.
 
Geographical opinion is consistent across Europe with the exception of Switzerland, which is the least concerned about the impact of the US presidential election, while those in Sweden are the most relaxed about the impact of Brexit on the economy.
 
With returns on cash and government bonds in the developed world just above zero or even negative, investors have been turning their attention to emerging markets. Over a quarter (30 per cent) of investors believe emerging markets enjoying an economic rebound will be the biggest surprise over the next 12 months. UK investors remain the most optimistic about emerging markets, with 42 per cent of investors stating that this will be the biggest positive, followed by 34 per cent of investors in Germany.
 
The strength of the US dollar also prevails with 50 per cent of investors believing the currency will be the strongest performing currency over the next 12 months – and investors in France and Spain remain the most confident on this. On the other hand, one quarter (24 per cent) of investors think gold will be the standout performer in 2017.
 
Despite this, confidence in the Sterling still remains low, with only 12 per cent of investors believing it will be the strongest performing currency next year. This is only slightly ahead of the euro (8 per cent) and the Japanese yen (6 per cent).

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