2017- Year of Repercussions

The Trade Joker welcomes all the investors on board to the NEW YEAR 2017 flight. Before we begin, you are requested to fasten your seatbelt because the weather conditions could be foggy and we might face heavy turbulences. We will take you all over the globe where in some areas our plane might face some thunderstorms (in USA), fog and mist (in UK), storms (in Europe), snow and freeze (in Middle East) and less visibility followed by gray clouds (in China). But the most we care about is a happy and safe landing.

On the basis of global events, 2016 was depressing, as you read in our previous issue. Now, we are entering from the year of referendums to the year of repercussions. Ironically, the only thing less brutal can be Game of Thrones season 7.Remember, the good old days when Ned Stark was beheaded and Jon Snow was betrayed by the Men of the Nights watch. What if King’s Landing was to take an exit from Westeros (KLEXIT) or people would vote King Joffery and made him the king for 10 years. 

Well! Everything will be alright in Westeros but what happens when Donald Trump suits up for his first day in the office or UK starts discussing Brexit. Brace yourself for the most volatile year expected in the history of financial markets.

First 100 days of Trump

It will be interesting to see how Donald Trump and his elite cabinet spend the first 100 days of the 115th Congress. I know what will happen on the first day thought, A complete Ctrl+Z to Barack Obama’s actions taken on immigration and environment. Besides, an appointment of the new Supreme Court justice is on the list followed by so-much-discussed infrastructure measures and so popular permanent tax cuts, skewed to wealthy class accompanied by cuts in the domestic spending. Obamacare could be completely repealed, and imagine the chaos that would create in the health industry. A three year old with a toy he always wanted, he will be enthusiastic but what happens when he loses interest and looks for a new toy. And if you survive that, Fed Chair Janet Yellen sees a rate hike thrice in 2017. Seriously, one ridiculous problem at a time please!

 

The Exit Enters 2017

Last year, a majority of Britons voted to leave the most powerful trading bloc in the world- European Union. The dramatic selection of Teresa May hit the headlines and now, UK plans to initiate the proceedings by putting Article 50 of the EU’s Lisbon Treaty at the end of March. At her New Year speech, Teresa May pledged to seek a Brexit deal that would work for all the Britons. “All the Britons “; aren’t 48% Brits against the Brexit? This is political volcano which will erupt this year and could destroy the business and work. UK car sales are expected to decline by 5 to 6 percent. The prices of cars have increased due to increased cost (weaker pound). And it gets even worse because Brits are divided.

Northern Irish voted to stay, Londoners wanted to say and so did Scottish. Nicola Sturgeon, the Prime Minister of Scotland made it obvious last year that a referendum is on the queue. She however, softened here stance recently if UK remains in the single market. Last year, Ireland received a large number of applications from the Britons requesting an Irish passport and the official number is 67,994. Britons can apply for Irish citizenship if they have an Irish parent, even if they have never lived in the country, while Northern Ireland citizens can hold both a British and an Irish passport.

Dual citizenship would allow them to keep their EU citizenship after Britain leaves the EU. So, do we smell more referendums?

The Story of EU Elections

It might feel like Europe has been through the wringer in 2016, but really it’s only just beginning. 2017 brings elections that will be critical—not only for the future of their countries but for the continent as a whole. From March to October, Europe will undergo through major political changes. Let us see the timeline of the EU elections and outcomes which may shock or rock the markets.

March- Dutch Parliamentary Election

Shock- A solid Geert Wilders win that allows him to form a government, which would see crackdowns on the Netherlands’ Muslim population at home, and a dramatically Eurosceptic turn abroad.

Rock- A solid Mark Rutte win where he doesn’t need Wilders as a partner (the performance of Rutte’s current partner, the Labor party, will be important here). Rutte is a pro-European moderate of calm temperament and his continued presence at the helm would be a relief for the EU establishment.

April- Serbian Presidential Election

Shock- Vojislav Seselj, Serbian Radical Party leader and a former close ally of Slobodan Milosevic, is standing, following an acquittal on war crimes charges relating to the 1990s Balkan conflicts in the Hague earlier this year. However, his party took only 8 percent of the national vote in the recent parliamentary elections.

Rock- A second term for Nikolic would mean more of the same: shaky progress toward EU accession, balanced with occasional pro-Russian maneuvers.

April and May- French Presidential Elections

Shock- If Le Pen wins, the EU will be approaching real crisis—the hard-right candidate is pro-Russia and vehemently anti-Brussels. But the Emmanuel Macron win (unlikely but possible) would be seismic in its own way: a victory for centrism at a time when reports of its death are everywhere.

Rock- Pollsters say the most likely scenario is a face-off between Francois Fillon and Le Pen in the second round, leading to a comfortable Fillon victory.

September- Norwegian Parliamentary Election

Shock- If the Christian Democrats switch support and the left puts in a decent electoral performance, the government could change.

Rock- Rising oil prices would boost the economy, and could keep the government sitting pretty.

Before October 23: German Parliamentary Election

Shock- Any result that saw Chancellor Angela Merkel toppled would send shockwaves through Europe.

Rock- Merkel’s position is far stronger than the coverage suggests, especially as the AFD would struggle to form a coalition with anyone, even if it performed better than expected. Europe’s great survivor could well survive once again.

Will oil prices finally boil?

Oil supply from the world’s biggest producers will be in focus from the first trading day of January as market participants assess the extent to which countries such as Saudi Arabia and Russia reduce production following a global deal to cut supplies for the first time since the global financial crisis.

There will also be keen interest in the return of US shale oil and the sustainability of supply recoveries by Libya and Nigeria, conflict-ridden nations that were left out of the output cut agreement. The outcome of these unknowns will determine when oil supply and demand come into balance in 2017 and whether prices will remain above $50 a barrel.

If OPEC members and co-operating countries such as Russia succeed, they could finally draw down tanks brimming with excess crude — helping to end the commodity supply glut. Alongside oil, industrial metals such as zinc and copper have also been climbing on hopes that stronger global growth will underpin demand.

China – Rise of the Kungfoo Panda.

I remember this time of the year. I sit and watched while the markets bleed as a result of the slowdown in China’s manufacturing sector and the equities crashed on the negative sentiment. But since last year the Chinese economy grew at a stable rate of 6.7%. This is not the same double digit growth, China use to enjoy but it is still higher than most of the western economies.

However, Chinese Yuan has devaluated more than 5 percent while US dollar continue to grow strong. The stress occurred due to higher debt levels and slow growth looks manageable now. When viewed from a fundamental perspective, it appears likely there will be sufficient growth in the returns shareholders receive over the long-term.

It is also worth remembering that China will have their 5-yearly Communist party congress in the latter half of 2017 which could add to geopolitical tensions if President-elect Trump continues with his anti-Chinese rhetoric.

Such factors contribute to the risk and it would be imprudent to allocate 100% of a portfolio to emerging markets but it would be equally imprudent to ignore the long-term opportunity as the current prices do provide a large margin of safety and thus shouldn’t be disregarded Regional allocations and risk analytics must play a strong role in the sizing of emerging market positions.

New Snapchat Story- IPOs in 2017

After a dismal year for initial public offerings, investors are salivating over the prospect of highly valued companies hitting the market in 2017. But with uncertainty around a change at the White House and a litany of companies that may still fear a smaller valuation from Wall Street investors than venture capitalists that boom could look more like a gradual creep.

Snap- The parent company of Snapchat reportedly filed confidentially for an initial public offering in the fall that could value the startup at $25 billion or more, according to media reports, leading experts to believe this is the IPO to watch in 2017. Technology companies will also be watching investors’ reaction to the offering, though going public in itself may be enough of a sign.

Spotify- Spotify raised $1 billion in debt financing in March, according to The Wall Street Journal, with conditions that essentially force it to go public in 2017 or pay greater interest on its debt and increased discounts to its investors.

Spotify has a large base of paying subscribers and strong social media as well as music discovery features, which gives them an advantage over competitors. Spotify also nearly doubled its revenue in 2015, though losses also grew substantially, according to filings.

 

Palantir Technologies Inc- The secretive data-mining company was buzzed about in 2016 as Chairman Peter Thiel brought technology and tech leaders, including Palantir Chief Executive Alex Karp, to meet with President-elect Donald Trump. Palantir sells its software to government agencies, including the Defense Intelligence Agency and other military branches, which could become more relevant under Trump’s administration. Karp said in October the company, which is valued at $20 billion, is in a position to go public and that the “aggregate business” will be profitable in 2017.

Uber- In 2017, the ride-hailing startup is expected to face continuing battles over regulation as it fights with cities over self-driving cars as well as the operation of its driver-based business. Additionally, the company faces lawsuits over whether its drivers are employees or independent contractors, and a widespread ruling that finds the drivers are employees could have major implications for Uber’s business model.Uber could test the IPO market in late 2017 or early 2018, Murphy said, given the size of the market and the company’s scale. But Uber raised a $5 billion round in 2016 and thus doesn’t appear to have a near-term need for capital.

 

Airbnb Inc- Like Uber, Airbnb is also up against a bevy of regulations. But the company appears to be chipping away at short-term housing regulation city by city, with the most recent example coming in New York City. That will likely continue through 2017. At least until the company can develop solid working relationships in major cities.

Airbnb raised an additional $850 million in funding in September, valuing the company at $30 billion, so the company does not appear to have an immediate need for cash.

Dropbox Inc- It feels like the file-storage company has been forever rumored to go public, but 2017 may finally be the year for Dropbox. Dropbox is reportedlyly in talks with advisers over the timing of an IPO and CEO Drew Houston told Bloomberg in June that the company is cash-flow positive. One reason for Dropbox to go out next year is to gain greater name recognition, as the storage space heats up with competition from bigger companies like Google and Amazon.

 

That being said, one thing which is certain in 2017 is uncertainty. The volatility will be at its peak and the investors will have to manage their risk efficiently and safe. The flight could be bumpy but it sure will give you goosebumps.

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