The Chief Investment Officers from BNP Paribas Wealth Management in the US, Europe and Asia have selected 10 investment themes, which, along with their global strategy, provide attractive investment solutions in this changing world.
A CHALLENGING ENVIRONMENT
2016 was driven by greater flexibility in monetary support, with a gradually improving global economy, punctuated by political shocks and some surprising reactions from financial markets.
In 2017, fiscal stimuli, rising interest rates, tighter monetary policy in the US … and inflation may impact the portfolios of private investors and their strategy.
“Our 2017 investment themes comprise some attractive solutions for investors seeking stable income or wishing to hedge against rising interest rates, but also for those willing to capitalize on more dynamic products or new developments”, underlines Florent Bronès, Head of Investment Strategy at BNP Paribas Wealth Management.
INVEST WHILE PROTECTING AGAINST AN ACCELERATION IN INFLATION
Theme 1 - Managing inflation risk with financial assets
Over the past decade, inflation has been driven down by falling commodity prices, low capacity utilization and high unemployment rates. The rebound in commodity prices and improving job markets will help push inflation higher in most developed countries, especially in the US and the UK. Eurozone inflation will rise, and there are upside risks in the medium term. Long-term inflation expectations have already been raised.
Theme 2 – How tangible assets may help to manage inflation risk
Having a direct exposure to real assets is a smart way to maintain attractive long-term returns, enhance portfolio inflation protection, and reduce downside risk. Real assets include precious metals, direct real estate, agricultural properties and forests.
Theme 3 – Managing interest rate risk
Until recently, interest rates and bond yields had been falling continuously since the financial crisis. With an expected rise in inflation and increasing economic growth, central banks should normalize their monetary policies. Some (e.g. the Fed) might even raise their policy rates. Bond yields are set to continue their upward trend. Traditional bond investors are at risk as the rise in yields will push down the value of existing bonds. BNP Paribas Wealth Management offers a number of solutions to benefit from rising interest rates and bond yields.
INVEST IN EQUITIES AS INFLATION IS ACCELERATING
Theme 4 – Ride the reflation trade
Last summer, market sentiment shifted from deflation fears to reflation hopes. Investors were more confident about the ability of governments to stimulate growth via fiscal policy. BNP Paribas Wealth Management recommends playing this reflation trade in mature stock markets. Cyclicals, value stocks and financials are expected to be the main beneficiaries.
Themes 5 & 6 – Technology Innovation and the connected consumer
In today’s world of intense competition, the declining working age population, global anaemic demand and appetite for re-industrialization, technology innovation is the key to corporate success. The “survival of the fittest” requires businesses to embrace digital transformation. Digital will continue to be key for the success of companies in 2017 and digital consumption is generating high growth segments. We may consider in that field the 4.0 industry: cloud computing, sensors and 3D printing, advanced robotics, connected objects, artificial intelligence, cybersecurity…
Theme 7 – “Chindia”: extremely complementary markets
Growth is accelerating in India, driven by infrastructure spending and manufacturing. Meanwhile in China, growth is stabilizing in a rebalancing mode, driven by services and consumption. India is a growth story; China a value story. Both are the least exposed in Asia to US protectionism. Adding all these parts makes for an attractively balanced investment theme.
Theme 8 – Play the secular trend on stock markets
Reflation is on track and has supported a major sector rotation into cyclicals over the past few months. For investors taking a longer-term view or convinced of current cyclical drivers, BNP Paribas Wealth Management suggests playing companies which benefit from a secular trend in their activities. They will offer solid growth potential in the medium term, especially in two sectors: Technology and Health Care.
Theme 9 – The potential of responsible investments
SRI (Sustainable and Responsible Investment) aims to combine financial performance with a social and/or environmental impact. A full range of SRI solutions are available to clients to suit their investment profile. There are numerous investment possibilities: in energy; renewable energy, energy management, distribution and efficiency; in water; infrastructure and treatment; in waste management & equipment; in pollution control; and smart cities. SRI funds perform in line with (or better than) traditional funds in the long-term.
Theme 10 – Why favour companies with high operating leverage?
In the context of an improving economic backdrop, companies with high operating leverage are expected to benefit from higher profitability. For these companies, rising sales will imply higher profit margins and thus higher earnings. BNP Paribas Wealth Management recommends a stock selection based on this quantitative criterion.
BNP Paribas Wealth Management: an international network underpinning our investment strategies
In order to meet the increasing demand for information from private clients, given the rapid and complex changes taking place in the financial markets, BNP Paribas Wealth Management relies not only on its own global and local analyses but also draws on the expertise of various sister businesses within the BNP Paribas Group, including Asset Management, Investment Banking and Real Estate, in order to formulate investment strategies. The Group’s international reach is also a highly valuable asset. Locally-based strategists at the various Wealth Management entities around the world collaborate closely to draw up investment strategies for all markets – the United States, Europe, Asia and the emerging countries – providing our clients with both a broad global view and detailed local knowledge.
A video featuring Florent Bronès presenting the ten Investment Themes can be viewed on the website
or via the Voice of Wealth app, downloadable from the Apple App Store and Google Play :
BNP Paribas Wealth Management is a leading global private bank and #1 Private Bank in the Eurozone. Present in three hubs in Europe, Asia and the US, over 6,600 professionals provide a private investor clientele with solutions for optimising and managing their assets. The bank has €341 billion worth of assets under management (as of September 2016).