January 2017 (Quarterly update)

The Henderson Global Snapshot explores the themes driving markets, the trends to watch, market returns and metrics, and the Multi-Asset Team’s outlook for regions and sectors at quarter end.


Global growth reviving before Brexit shock

Image_The USA flag
Image_The Chinese flag
Image_The Japanese flag
Image_The European Union flag
Image_The Union Jack Flag
Image_A selection of Emerging Markets flags

Market drivers:


Core inflation stable
Rising energy costs are boosting headline inflation but the Federal Reserve’s preferred core measure remains below its 2% target, at 1.6% in November, unchanged from January. A pick-up is needed to warrant the three quarter-point rate hikes in 2017 suggested by Fed forecasts.


Profits rebounding
Solid economic growth and a pick-up in producer prices drove a 14.5% rise in industrial profits in the year to November. The profits turnaround has contributed to a recovery in private investment, which rose an annual 4.9% in November after contracting in mid-2016.


Export-led growth
Industrial output surged 5.5% in the six months to November, boosted by strong exports. Global acceleration and a weaker yen promise further strength but will the Trump administration demand an end to the Bank of Japan’s bond yield/currency suppression?


Solid economy
GDP rose by 1.7% in the year to Q3 2016, equal to the increase in the US and above “potential” growth of 1.0% (EU Commission). The unemployment rate fell from 10.6% to 9.8% in the year to October – a larger decline than in the US, Japan and the UK.


Old Lady too loose
The Bank of England has maintained lower rates and pushed on with QE despite much stronger-than-expected economic data and a rise in annual broad money growth to 7.8% — an eight-year high. Excessively loose monetary policy risks sustaining higher inflation due to currency weakness.

Emerging markets

Inflation convergence
Average consumer price inflation across the (E71) large emerging economies fell significantly during 2016, reflecting earlier economic weakness and currency recoveries. With Group of Seven (G71) inflation rising, the E7/G7 gap dropped to a two-year low.

Trends to watch:


Falling money growth
Economic strength in late 2016 was signalled by faster monetary expansion earlier in the year. Money measures have slowed since the summer, suggesting that the economy will lose momentum from spring 2017. Hoped-for fiscal stimulus may not arrive until late 2017/2018.


Tighter monetary policy
Strong money growth has revived the economy but has contributed to housing speculation and currency weakness, and is now feeding through to a pick-up in inflation. A rate hike in early 2017 would surprise markets and could relieve downward pressure on the renminbi.


Kuroda climbdown?
Rising US rates may scupper the Bank of Japan’s attempt to taper QE while targeting a zero 10-year yield. Governor Kuroda may use better economic news as a pretext to raise the yield peg in early 2017 but this may intensify market speculation of an eventual abandonment.


Capital account relief?
A current account surplus of over 3% of GDP in 2016 was swamped by a record capital outflow. With money trends signalling respectable economic prospects, and the ECB set to reduce QE, the capital exodus may slow in 2017, lifting the euro — assuming no political shocks.


Stronger wage pressures
The Bank of England expects wages to lag accelerating prices, undercutting consumer spending. This happened in 2011 but the labor market is much tighter now, while minimum wage hikes are pushing up low-end earnings. A wages shock could trigger an early rate rise.

Emerging markets

Indian monetary madness
The Indian authorities cancelled banknotes accounting for 86% of currency in circulation without ensuring a sufficient supply of replacement paper, resulting in a 28% plunge in the M1 money stock. Expect major and lasting economic fall-out unless M1 recovers swiftly.

Source: Henderson Global Investors as of 12/31/16. These comments are the views of Simon Ward, Henderson Chief Economist, and should not be construed as investment advice. These views may differ from those of other Henderson fund managers.


Equity market returns for Q4 2016 (%)Local currencySterlingDollar
US S&P 5003.38.53.3
Japan: Topix14.84.7-0.5
Euro area: Euro Stoxx7.75.90.7
UK: FTSE All Share3.13.1-1.9
MCSI Far East ex Japan (US$)--1.7-6.5
MSCI Emerging Markets (US$)-0.3-4.6

Source: Thomson Reuters Datastream, Henderson Global Investors, index price returns, as of 12/31/16.

Euro area: EU member states using euro currency (currently 19)
Asia: China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam
BRICs: Brazil, Russia, India, China
World: G10, Eastern Europe & Africa, Asia, Latin America, Middle East

 Forecast P/E 2016P/E 2017EPS growth 2016EPS growth 2017
Emerging markets13.311.88.313.0

Source: Thomson Reuters Datastream, Henderson Global Investors' calculations, and IBES estimates for MSCI Indices as of 12/31/16. GEM: global emerging markets, EPS: earnings per share. *Forecast. P/E = price/earnings ratio.

Consensus GDP growth forecasts (%)201620172018
Euro area1.61.41.5
Asia ex Japan5.75.85.7

Source: Bloomberg, economic forecasts, as of 1/3/17. Forecast GDP = real gross domestic product. Forecast CPI = consumer price index.

Consensus inflation forecasts (CPI %)201620172018
Euro area0.21.31.5
Asia ex Japan1.92.62.7

Source: Bloomberg, economic forecasts, as of 1/3/17. Forecast CPI = consumer price index.

Bonds31 December 2016 yieldQ4 return %
US 10-year Treasury2.45-6.46
Japan 10-year government bonds0.05-1.14
Germany 10-year Bund0.11-2.81
UK 10-year Gilts1.24-4.35
Corporate bonds: (Barclays Global Aggregate Corporate Index $)--3.26
High Yield: (Merrill Lynch Global High Yield $)-0.45
Emerging market debt (JPM Global Emerging Markets Debt $)--4.21

Source: Thomson Reuters Datastream, Henderson Global Investors, as of 12/31/16.

Currencies and commodities31 December 2016Q4 return %
S&P GSCI Total Return Index $-5.76
Brent oil ($/barrel)-15.81
Gold bullion ($/Troy oz)--12.41

Source: Thomson Reuters Datastream, Henderson Global Investors, as of 12/31/16.


Please note the below are the views of the Henderson Multi-Asset Team at quarter end. They do not represent a Henderson house view or the views of individual fund managers and should not be construed as investment advice.

Positive Up icon    Neutral Neutral icon    Negative Down icon


Image of a Bond certificate
  Outlook Comments
Global corporate May benefit in the short term as duration (interest-rate sensitive) assets appear oversold, but the improving growth outlook is a major headwind.
UK gilts Duration assets look oversold in the short term; however, further improvements in economic data are a key vulnerability over the coming quarter.
Global sovereign Duration assets look oversold in the short term; however, improving US data may spur faster US rate hikes, and European inflation appears under-priced.
Emerging market debt Risk aversion in emerging markets post the US election remains elevated; the strong dollar may begin to affect dollar-issuers; higher global interest rates are also an issue.
High yield Spreads (the yields available over corresponding government bonds) are approaching record narrows, but should benefit from an improving growth outlook and stabilization in commodity markets.


Image of a bull and a bear
  Outlook Comments
UK Benefits from weaker sterling are largely offset by ‘Brexit’ uncertainties. Yield, however, remains attractive.
Europe Dominated by cyclical stocks that will likely benefit from a weaker currency and higher global interest rates.
US Plenty of growth momentum but an extremely popular trade. Higher US interest rates and an appreciating dollar are tightening financial conditions materially.
Japan Dominated by cyclical stocks that will likely benefit from a weaker currency and higher global interest rates.
Asia A strong US dollar and waning Chinese mini-economic cycle remain headwinds. Trump’s protectionist trade rhetoric is also a concern.
Global emerging markets A strong US dollar and post-US election risk aversion remain key barriers.


Image indicating various currencies
  Outlook Comments
£/$ The potential for fluctuations between now and the triggering of Article 50 is high. An inflexible Eurozone (no tailored ‘Brexit’) is our base case scenario and would be negative for sterling.
£/€ Political risks are likely to weigh on both currencies.
£/¥ The Bank of Japan’s yield curve targeting policy (controlling 10-year government bond yields) is likely to reinforce yen weakness; however, political news flow remains a major risk for sterling.


Image of stacked gold bars
  Outlook Comments
Property Appears expensive and typically underperforms in a rising interest rate environment. However, yield remains higher than many asset classes.
Gold Has stabilized alongside bonds. Most key macroeconomic drivers remain unfavourable, but gold retains its useful status as a hedge against outside risks.
Oil Appears expensive: it is at the top of its recent trading range. That said, it is likely to be supported by the recent OPEC¹ deal.

Source: Henderson Global Investors as of 12/31/16. These comments reflect the views of Henderson's Multi-Asset Team and should not be construed as investment advice. These views may differ from those of other Henderson fund managers.

International and emerging markets investing involves certain risks and increased volatility not associated with investing solely in the US.

One should consider the investment objectives, risks, fees and expenses of any mutual fund carefully before investing. This and other important information is available in the Fund's prospectus and summary prospectus at or by contacting your financial adviser. Please read it carefully before investing.

Past performance is not a guide to future performance. The information in this article does not qualify as an investment recommendation.
The distributor of the Henderson Global Funds is Foreside Fund Services, LLC, which is not an affiliate of Henderson Global Investors. HGI-71205-16 GS-R-1016


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Unless otherwise indicated, the source for all data is Henderson Global Investors. Nothing on this page should be construed as advice. Any reference to individual companies is purely for the purpose of illustration and should not be construed as a recommendation to buy or sell or advice in relation to investment, legal or tax matters. Please remember that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested.