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Press Release
Frankfurt am Main
Frankfurt am Main
23 November 2016
Capital Markets Outlook 2017: All Eyes on the USA
 Political challenges in the USA and Europe will characterise
investment year of 2017
 Global economy will grow by 3.5 percent, German GDP will halve
to 1.0 percent
 US dollar will climb above parity with euro
 DAX target for end of 2017: 11,300 points
According to Deutsche Bank strategists, the global economy and capital markets
will be mainly determined by political decisions in 2017. In its Capital Markets
Outlook 2017 published in Frankfurt today, Deutsche Bank experts primarily focus
on the situation in the USA. "Donald Trump clearly expressed his position in the
election campaign. He will now have to show which measures he can in fact
implement as a President. It is clear that the US economy will benefit from his
policy – at least temporarily,“ said Oliver Rakau, Senior Economist at Deutsche
Bank Research. In addition to a business-friendly tax reform, Trump's focus is
also on plans for a comprehensive investment programme. Only the extent and
the time frame are still uncertain.
Experts consider the trend towards a more restrictive immigration policy and a
more protectionist economic policy as particularly critical – developments that can
also be observed in other countries. "In Europe, such positions have not only
emerged since the Brexit vote", said Dr. Ulrich Stephan, Global Chief Investment
Officer at Deutsche Bank Private and Commercial Clients. "They particularly meet
with approval from people who consider themselves as losers of globalisation or
fear to be one of those soon." The basic problem is the unequal distribution of
wealth generated in the past few decades. "In fact, parts of the middle class in
many developed countries have not benefited enough from globalisation – in
some cases their real wages have even decreased," explained Rakau.
Politics: Necessary reforms are further delayed
Instead of countering this and eliminating the causes, the respective governments
still try to cover the biggest problems with monetary policy and fiscal measures.
"These are voter-friendly measures. Politicians delay necessary economic cuts
that would initially be painful," Stephan said. "It is a vicious circle: If quite
unproductive companies are kept alive artificially and structural reforms are being
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postponed, in the long term this results in the fact that the economy stagnates and
the situation gets worse.”
Macroeconomy: Self-made stagnation for fear of recession
The globally slow growth that has persisted since the financial crisis will continue.
"Unless politicians consistently implement structural reforms, I see no chance of
sustainable and noticeably increasing growth," Rakau said. In 2017, supportive
economic measures in the USA, China and Japan could at least regionally
stimulate the economy. This would be countered by slow development in Europe.
The fact that global trade has been sluggish since the financial crisis is also
expected to have a negative impact on global growth. This means the growth
model in many emerging markets – and export-oriented developed markets such
as Germany – is faced with challenges. According to Deutsche Bank forecasts,
global economic growth - measured by gross domestic product - may overall still
be slightly higher than in 2016 and reach 3.5 percent.
Europe: Many question marks, hardly any positive impulses
The economy in Europe will be facing turbulent months ahead. Italy will hold a
constitutional referendum at the beginning of December. Other stress factors in
2017 will be elections in France, the Netherlands and Germany. The uncertain
progress in the Brexit negotiations is also expected to keep slowing companies'
willingness to invest. Tense labour markets – particularly in European peripheral
countries – might curb moderately increasing inflation rates and the real income
development. Positive growth impulses seem only possible to come from outside
Europe. If US growth accelerates without new trade restrictions being established
at the same time, this would support European exports. For the eurozone,
Deutsche Bank expects economic growth of 1.1 percent in the year ahead - about
0.5 percentage points lower than in 2016. The forecast for the German economy
is 1.0 percent and is thus halved compared to the expectations for 2016.
USA: Economic development mainly depends on the new government
If important aspects such as the tax reform and the investment programme are
initiated in the USA, Deutsche Bank strategists expect noticeably rising growth in
2017. Furthermore, the planned easing of regulatory requirements, for example in
the financial and energy sector, could result in US companies being more willing
to invest. Deutsche Bank's forecast for US economic growth in 2017 is 2.3
percent.
Emerging markets: Hardly any noticeable improvement
According to Deutsche Bank, there will be hardly any noticeable improvement in
emerging markets. China will continue to restructure its economy. This will slow
growth. "Due to fiscal and monetary policy measures, we still expect strong
economic growth of 6.5 percent in 2017," said Stephan. For this year he expects
6.6 percent. If the emerging markets Russia and Brazil find their way out of
recession, positive impulses can be expected. Risks exist particularly in
increasing US interest rates and the thereby possibly induced capital outflows as
well as in a more protectionist trade policy.
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Dollar on the fast track
Even though the US central bank is independent in its decisions: It is still open
which indirect influence the new policy from the White House will have on the
central bankers. "So far, Trump has clearly positioned himself against the current
Fed chair Janet Yellen's policy. Nevertheless, we expect the Fed to carry out
moderate interest rate hikes in 2017," Stephan said. At the same time, other
important central banks' monetary policy is expected to remain expansionary. "It is
very likely that the European Central Bank will expand its bond purchase
programme beyond March 2017. The increasing interest rate differential between
Europe and the USA will lead to capital flows towards the USA in the course of
the year. This means the US dollar will further appreciate against the euro," said
Stephan. For the end of 2017, Deutsche Bank expects the euro to fall to 0.95 US
dollars and thus below parity.
Asset classes, regions and sectors
Bonds: End of the longest bull market in the world
In the past 35 years, yields for US government bonds have almost constantly
fallen. This seems to be over now. In the first few days after the US election, the
yield for 10-year US bonds already rose to more than 2 percent: "This trend will
initially continue in 2017 – but we do not expect significantly increasing capital
market interest rates in the USA," said Stephan. Trump's fiscal policy may drive
inflation up, but the weak global economic environment is also expected to reduce
the interest rate increase. By the end of 2017, Deutsche Bank expects a yield
level in the USA of 2.3 percent. This would be significantly above the expected
bond yields that investors could achieve in Germany or Japan. "Deutsche Bank's
focus is clearly on US bonds in 2017," Stephan said. "Euro investors might
additionally benefit from currency gains if the US dollar continues to appreciate
against the euro." However, emerging market bonds could also become more
attractive again if the initial shock about higher US yields recedes.
Equities: Some light but plenty of shadow for cyclicals
Following the China shock at the beginning of the year and the subsequent
consolidation phase, stock markets in developed countries have gained again, in
some cases significantly, after the US election. Deutsche Bank strategists expect
recurrent difficulties in the implementation of the announced US reforms in the
course of 2017. This is when the focus is likely to move more towards the
uncertain situation in Europe again. High volatility on stock markets would be the
consequence.
"In this environment, I see some light but also plenty of shadow for cyclical
sectors," emphasized Stephan. There will occasionally be interesting investment
opportunities with these companies. However, a high level of expertise in
selecting the sectors and individual stocks as well as active portfolio management
will be required. Defensive sectors and dividend stocks as a long-term basic
investment may benefit from market volatility: Investors looking for an interesting
risk return ratio might increase their investment in these sectors due to the lack of
alternatives.
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Germany: Political uncertainties have a negative impact on share prices
The DAX is one of the particularly cyclical stock indices worldwide. "German
companies would therefore benefit from comprehensive fiscal programmes as we
expect them in the USA, China and potentially in Japan," Stephan said. At the
same time, however political uncertainties in Europe are likely to be a burden on
German equities. As many German companies significantly depend on exports,
possible trade restrictions implemented in the USA and a weaker Chinese
economy might lead to further negative impulses. All in all, Deutsche Bank
strategists expect increased volatility on the German stock market in 2017. If
political uncertainties recede in the second half of the year, interesting investment
opportunities might come up. Stephan expects the DAX to reach 11,300 points by
the end of 2017.
USA: Stock markets benefit from new economic policy
Donald Trump's announcement of business-friendly initiatives has already paid off
for the US stock market: Since the beginning of November, the S&P 500 has
clearly improved. Deutsche Bank expects the S&P 500 to show further potential
and predicts an index level of 2,350 points by the end of 2017. Financials, which
should further improve their margins due to moderately rising interest rates,
appear promising. The US healthcare sector should also benefit if deregulation on
the pharmaceuticals market is implemented.
Real Estate: Plausible boom rather than bubble formation
The globally attractive interest rate environment for real estate investment is
expected to persist in 2017. Especially the USA seems interesting as an
investment objective: According to Stephan, "Robust US consumption and a
functioning US labour market provide positive momentum for the commercial real
estate market." The expected strength shown by the US dollar could open the
opportunity of additional currency gains for euro investors.
In Europe, investors are expected to keep focusing on German real estate.
Immigration and rising income are likely to stabilise the market. On an
international level, there is light and shadow because markets such as China
seem overheated in some regions. "All in all, a globally broadly diversified and
well managed real estate portfolio has the best return prospects for 2017," said
Stephan.
Commodities: Fighting for equilibrium rather than a fast comeback
Commodity prices are expected to remain under pressure. This also applies to oil.
It is still questionable as to whether OPEC will be able to reduce the production
volumes as announced. Furthermore, it will influence the development of oil prices
to a smaller extent than in the past: As soon as the price rises above the 50 US
dollar mark, US producers are ready to close the gap. "This is added to by the fact
that the production conditions for oil companies in the USA will improve with
Trump as a President," said Stephan. A noticeable reduction in the existing
excess supply is therefore not expected. There is also the risk of headwinds from
an increasingly strong US dollar, which may also make gold less attractive. "When
it comes to gold, investors should take into account that this is a relatively small
market that already shows bigger fluctuation in the event of smaller dollar or
interest rate movements," Stephan said. Deutsche Bank sees price potential for
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gold in 2017 but also significant investment risks in general. "Increasing interest
rates in the USA and a stronger dollar speak against gold. Furthermore, it neither
produces yields nor dividends and has lost its status as a crisis currency,"
Stephan pointed out.
Megatrends: Long-term opportunities apart from daily market moves
Especially in times of fluctuating markets, it may be worthwhile for investors to
take a look at long-term developments. These include future-oriented
technologies in the automotive industry. "Traditional car manufacturers will
continue to play an important role for the car of the future, but the influence of tech
companies in the value chain will grow massively", Stephan said. Another trend is
the Internet of Things, which is the intelligent internetworking of everyday items.
With regard to demographic developments, the areas of healthcare and
biotechnology will also become increasingly important for people's lives. Four
sectors might benefit particularly from the megatrends: "Biotechnology and
pharmaceuticals companies, healthcare equipment companies, software services
providers as well as companies from the semiconductor industry have significantly
increased their contribution to market capitalisation on the US stock market,"
Stephan explained. "This growth trend will continue."
Asset allocation
Homework for investors: Monitor political developments
Deutsche Bank considers growing protectionism and only slowly growing global
trade as the main stress factors for global economic development. In combination
with increasing inflation, this might result in a stagflation trend in some economies.
Expected economic stimulus measures in the USA should have a positive impact
on capital markets. Similar measures are expected in Japan and China. The
European countries, however, are not likely to agree on a coordinated approach.
"Due to the political uncertainties, dynamic portfolio management is
recommendable. The focus should increasingly be on investments in the USA,"
said Stephan. Towards the start of the year he thinks a significant equity ratio is
advisable. "Depending on where Trump will steer the US economy, the weighting
of other regions may be gradually increased in the course of the year." When it
comes to bonds, investors should opt for safe havens and riskier bonds in equal
proportions – with a considerable share of US bonds as well in this case. Real
estate investments and liquidity would complete the portfolio. As was the case in
previous years, commodity investments will also not play a significant role in
2017. "Nevertheless: 2017 may also turn out well for investors," Stephan said.
For further information, please contact:
Deutsche Bank AG
Press and Media Relations
Markus Weik
Phone: +49 69 910 41349
E-mail: [email protected]
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About Deutsche Bank
Deutsche Bank provides commercial and investment banking, retail banking, transaction banking
and asset and wealth management products and services to corporations, governments,
institutional investors, small and medium-sized businesses, and private individuals. Deutsche
Bank is Germany’s leading bank, with a strong position in Europe and a significant presence in the
Americas and Asia Pacific.
This release contains forward-looking statements. Forward-looking statements are statements that are not
historical facts; they include statements about our beliefs and expectations and the assumptions underlying
them. These statements are based on plans, estimates and projections as they are currently available to the
management of Deutsche Bank. Forward-looking statements therefore speak only as of the date they are
made, and we undertake no obligation to update publicly any of them in light of new information or future
events.
By their very nature, forward-looking statements involve risks and uncertainties. A number of important
factors could therefore cause actual results to differ materially from those contained in any forward-looking
statement. Such factors include the conditions in the financial markets in Germany, in Europe, in the United
States and elsewhere from which we derive a substantial portion of our revenues and in which we hold a
substantial portion of our assets, the development of asset prices and market volatility, potential defaults of
borrowers or trading counterparties, the implementation of our strategic initiatives, the reliability of our risk
management policies, procedures and methods, and other risks referenced in our filings with the U.S.
Securities and Exchange Commission. Such factors are described in detail in our SEC Form 20-F of 11
March 2016 under the heading “Risk Factors”. Copies of this document are readily available upon request or
can be downloaded from www.db.com/ir.
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