The year 2016 was anything but ordinary, bringing enough drama to keep most of us reeling. C-level executives from leading banks in the UK, Asia-Pacific and North America give PBI their views on the year that was, and make some predictions on what we should expect going into 2017 and beyond
The year of the unexpected: Barclays Wealth & Investment Management
Dena Brumpton, CEO
The year 2016 will long be remembered as the year of the unexpected. Few would have predicted at the start of 2016 that the UK would have voted to leave the EU, both major political parties would have appointed new leaders, and that the US President would be Donald Trump.
Throughout these turbulent times, Barclays has remained committed to helping our clients navigate through the uncertainty. We’ve also developed new and innovative ways to engage and interact with clients.
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The EU referendum was a once-in-a-generation political event, the impact of which will be felt for many years to come. Barclays has a clear message: The complexity of the situation will not hinder our ability to help and support our clients.
We are yet to see the impact that leaving the EU will bring; following the initial panic post-referendum the short-term landscape has remained unchanged and markets are waiting to see the long-term outcome of the vote to leave. While we are waiting for more information on the UK’s economy, our view is that Brexit will have a more or less localised effect, with any potential headwind to UK activity slowing but not upending the European economic recovery.
With regards to the US election, we maintained that the gap between campaign rhetoric and actual policy implementation is routinely wide, and we believe that economic self-interest will prevail. Our view remains that investors are better served by focusing on the underlying global economy.
The global economic backdrop continues to look favourable for those who lean their investment portfolios towards stocks and away from bonds. The ongoing rout in government bonds is certainly being hastened by fears of the next administration’s potentially inflationary agenda, but this is a correction that we see as long overdue in a world where the forces of inflation are less structurally impaired than only recently imagined.
The service we offer continues to be increasingly enhanced by technology, bringing unprecedented levels of client engagement to the industry. This year we launched the Barclays Mobile Banking app for our business’s wealth arm, as well as the Direct Investing platform, representing our commitment to delivering a holistic investment philosophy that clients can interact with.
The app provides clients a comprehensive view of their investments, in as much or as little detail as they would like, anytime and anywhere. This has had a great impact on our overall client experience, evidenced by our improved NPS scores.
The world of savings and investments has continued to evolve. In this low-interest-rate environment, people are looking for financial products that will give them the best returns. Our new online direct investing service provides a simple way to invest online, putting our clients in control of their financial decisions and helping them to achieve their goals.
In an increasingly digital world, it is vital that Barclays and the wider industry develop products and services that clients find usable, clear and engaging, and this will continue to be a focus for us.
The year of uncharted territory: Deutsche Bank Wealth Management
Tuan Huynh, chief investment officer, Asia-Pacific
The year of 2016 has been one of uncharted territory. Although unlikely to rank amongst the most eventful of the past 20 years, it will likely be defined by one key trend: lower crude oil prices, and two key events: Brexit and the US Presidential election.
Crude oil prices generated significant market concern at the start of the year, as prices dipped below $30 a barrel. At those levels, many oil producers faced ongoing concerns. Supply was abundant compared to soft demand, and low-cost oil producers continued to boost production.
With lower energy prices, the energy sector was adversely affected, spilling over to other related sectors such as shipping and the general economy. Oil investment stalled, particularly affecting the offshore marine industry.
Prices have risen closer to $50 a barrel since, with supply continuing to remain flush. At the time of writing, the Organization of Petroleum Exporting Countries (OPEC) continued to push for a production cut.
Markets then experienced a rollercoaster ride with Brexit on 24 June and the US election on 9 November. In both cases, popular polls had been wrong in predicting the outcome, which caused markets to move strongly. In particular, the currency markets were one of the most affected.
At the same time, global stock markets fell but rebounded sharply after Republican candidate Donald Trump was elected US President over Democrat candidate Hillary Clinton. Markets are now pricing in stronger growth in 2017, led by the US economy, from more fiscal spending and tax cuts.
Despite volatility driven by events above, fundamentals have remained more resilient in 2016. While US growth is likely to slow in 2017, growth in the eurozone has continued to improve. Solid PMI figures across the developed economies also showed that investor confidence and the manufacturing sector are in a much better position compared to a few years ago.
In Asia, China looks set to outperform its minimum growth target of 6.5% this year. While markets were concerned about a sharp slowdown, China’s official support on infrastructure spending and the housing market ensured that GDP growth stayed at 6.7% during the first three quarters of the year. Still, questions with regards to the economy, high debt levels and reforms persist.
As governments and central banks digested market reactions from market events, they faced the challenge of balancing their policy objectives with the limited tools they have. Policy effectiveness is an issue.
A case in point is Japan. While Japan moved its monetary policy into negative interest-rate territory in January, markets reacted in the opposite manner. The Japanese Yen strengthened while domestic equity markets weakened. Markets saw a limit to the Bank of Japan’s toolkit, even as it maintained that it has more tools at its disposal.
In contrast, the US Federal Reserve has appeared to gain more credibility with its advance signals of potential policy movements. Market reaction after the first US rate hike in December 2015 has been relatively muted, until Trump’s election as president.
Although policymakers have limited tools to boost conditions further, we believe that central banks will be reluctant to pull the plug on accommodative policy. The European Central Bank’s asset purchase program is due to expire on March 2017, but growth remains fragile. We still see a six-month extension, to September 2017.
The lesson learnt from 2016 is to never underestimate the alternative scenario. There is always a need to watch for and hedge tail risks. Markets can shift quickly, as shown after the US election. The search for a stable dividend, shifted swiftly to a search for sectors to invest in. Here at Deutsche Bank Wealth Management we believe that it is important to consider the investment horizon, remain flexible and to find the right instruments to invest in.
The year to create and build: HSBC Private Bank
Chris Allen, CEO in the UK and the Channel Islands
The year 2016 has brought plenty of reasons to keep close to our clients. The year started with volatility and uncertainty about how and when central banks would start to taper quantitative easing.
Referendums and elections in the UK, the US and Italy all raised new questions about change in some of the world’s largest economies.
In talking to our clients about how this will affect them, their investments and their future plans, what has struck us is the constancy of their entrepreneurial drive to create and build. It is more important than ever that we as an industry nurture that.
HSBC was established to finance trade, connecting our customers to opportunities. What we do in the private bank is an extension of that purpose: supporting business owners and entrepreneurs in their personal and family finances.
We provide advice on succession planning and family governance, as well as taking care of complex borrowing and investment needs. Our goal is to ensure that more of HSBC’s commercial banking customers are supported by the private bank in 2017.
While the financial services industry faces some questions over what the regulation of the services we provide our clients will look like post-Brexit, our priority in the aftermath of the EU referendum must be to focus on the issues that matter the most to clients.
In the private bank we talked to clients individually about managing the risk in their portfolios ahead of the referendum, and about maximising opportunity when the picture became clearer.
Our colleagues in the commercial bank ran weekly webcasts on the impact of the referendum result. We know our clients valued this close communication and advice.
Providing this 360-degree view of the commercial and personal financial needs of business owners has been our priority throughout 2016.
In particular we have supported those on the journey to wealth who are starting to think about selling their businesses.
Many entrepreneurs we have encountered post sale have told us they would have welcomed advice on how to get the future they wanted for themselves out of the sale, not just on getting the best price.
We have started to fill that gap by holding a series of events looking at the personal outcome of business sales – and across the whole country we saw an impressive turnout from business owners.
The benefits of the collaborative approach that HSBC’s universal banking model allows are also reflected in our results: More and stronger relationships with HSBC group clients have resulted in a good year for the private bank in the UK.
The lesson we have drawn from 2016 is that while circumstances might change, entrepreneurs will still drive businesses, job creation and trade. Their human instinct to seek security for themselves and their families will remain.
Within HSBC we have the ability to meet all of those needs in a joined-up and considered way. Concentrating on those fundamentals must also be the priority for 2017.
The year leading to renewed optimism: BNY Mellon Wealth Management
Jeff Mortimer, CFA, director of investment Strategy
Investors faced significant and at times unexpected events in 2016. Equity markets had their share of ups and downs, only to surge post-election with all major domestic indices hitting new highs. Meanwhile, the yield on the benchmark 10-year treasury bond, which fell from 2.2% at the start of the year to a low of 1.4% following Brexit, surged to nearly 2.4% as president-elect Trump’s pro-growth policy priorities raised inflation expectations.
Although who sits in the White House is not a key driver of market performance, their ability to drive policy priorities through congress can influence growth, inflation and interest rate expectations.
We believe that in light of Trump’s victory and the Republican majority control of congress, there is potential for less regulation, an increase in fiscal spending and tax reform for individuals and corporations.
As we close out 2016, we have seen many of our investment themes play out, including modest global growth, a stabilization of oil prices, modest equity gains, volatility and a rise in rates. While we expect some of these trends to persist into the New Year, there are a few new themes already shaping our investment thinking as we enter 2017.
With a Trump presidency we expect a reliance on monetary policy to fade and a focus on fiscal spending and tax cuts to increase as a new way to spur economic growth.
This expected acceleration in domestic economic activity will likely enable GDP to grow a bit faster, but will also have consequences such as a strong dollar and possible higher inflation due to consumer-led spending, which could put upward pressure on interest rates.
We expect the long global expansion, now entering its eighth year, to continue into at least a nine-year expansion. As a result, investors will benefit from a domestic bias in their equity exposure with an emphasis on cyclically-oriented sectors.
Rising rates can be tricky for fixed-income investors, yet we believe interest incomes will more than make up for this slight capital loss. Bonds will continue to play a diversification role within portfolios with attention to diversifying across sectors and interest rate risk management.
While we are somewhat optimistic about 2017, there are still a lot of unknowns.
Investors should remain confident amid any bouts of volatility, but stand prepared to take advantage of opportunities this paradigm shift may create.