Read the full article on CityAM here: Years ending in seven have been fatal for markets: 2017 may be no different
Key points covered in the article by Anthony Barklam, Head of Debt Capital Markets:
As many others who have worked in the City over the past three decades will attest, years that ended in seven have proved fatal for global financial markets. 1987 saw the original 'Black Monday' stock market crash. 1997 heralded the Asian financial crisis. 2007 marked the beginning of the global financial crisis.
Each episode came at the end of a strong period of recovery from a previous downturn, and as we get further into 2017, there are some familiar, foreboding omens. Investors, continuing their hunt for yield, and corporates, facing tough decisions regarding growth, leverage and financing, must be attuned to seven key market indicators this year.
- Equity markets, spurred on by Trump's economic agenda and healthy global earnings, have reached historic highs.
- Interest rates, and associated borrowing costs, while beginning to rise in the US, remain at historic rock bottom levels in the majority of the largest global economies.
- Global debt is another indicator that is reaching heady, worrying highs.
- European growth is still struggling for lift-off in some countries.
- Geopolitical risk continues to spread across the globe.
- Short-term market dynamics mean that many investors cannot stay un-invested for long or they may underperform.
- Finally, technicals – the weight of cash and available cash for investment –are helping prop up current optimistic valuations.
Irrespective of market view, negative interest rates have propelled both equity and debt markets to levels that sit uncomfortably against each other. Whether you believe in the bullish equity story or the bearish bond story, the lesson of 2007 is that one will be proven right pretty soon.
For under-levered, cash hoarding corporates, there may be a temptation to hold off spending or delay strategic M&A decisions in this environment. But, with markets at such unprecedented levels of liquidity and buoyancy relative to the underlying fundamentals, now is the perfect time to take advantage of the frothiness and lock in finance at levels never seen before.
As the decade since the last crash approaches, and the harbingers of doom continue to roll in thick and fast, investors and corporates alike should give greater thought to how they want to see out the possible threat of 2017.