Looking back 12 months ago, who could have thought that the UK would vote to leave the European Union and that the US would vote in Donald Trump to be its next president?

The answer, not many, and the resulting theme of huge unpredictably was one that dominated global stock markets from June onwards. It is also one which is set to take just as great a hold in 2017. This is because with the Brexit effect still looming large, Europe going to the polls and Trump getting the keys to the White House, next year looks set to carry on providing surprises.

With this in mind we gaze into the proverbial crystal ball to see what the experts are predicting, both multi managers and financial advisers, in an attempt to pull together some noteworthy themes to look out for next year.

Equities

Despite all the uncertainty still surrounding Brexit, Charles Stanley’s chief investment officer Jon Cunliffe is bullish in the prospects for UK equities in 2017, expecting the FTSE 100 to reach 7,400 before the end of the year.

“Better global growth and a resilient UK economy, aided by the significant ease in UK financial conditions we have seen in 2016, such as a fall in the value of sterling and a post-referendum interest-rate cut, should help corporate earnings,” says Cunliffe.

Indeed absent any external shocks to the economy, Miton’s mullti asset manager David Jane, thinks the outlook for equity markets is broadly positive. He says: “The current bull market may be long in the tooth but it certainly is not frothy by any means, many investors remain on the sidelines and the characteristics of the end of bull market phase do not appear evident yet at least.”

Both Jane and Cunliffe are less positive on prospects for the so-called ‘bond proxies’ in 2017, namely defensive equities such as consumer staples, pharmaceutical and utilities which have benefitted the most from the decline in bond yields in recent years. In economic conditions which are likely to see inflation rising, and interest rates being hikes and bond yields going up, these areas look more vulnerable than in the recent past.

Jane says: “We expect that the huge rotation out of “bond proxies” and into more cyclical industries will continue, as the long bull phase since 2009 has been driven primarily by the revaluation and leveraging of otherwise dull industries, such as consumer staples and tobacco. We now expect a period of stronger economic growth and, hence, sales and profit growth from all those equity sectors which have been left behind. With a Trump presidency it is fair to assume a positive backdrop for the US corporate sector.”

While Cunliffe is less positive on the prospects for the bond proxies, he says he would continue to favour holding a “selective allocation” to those companies offering superior dividend growth.

“The sectors we expect to perform the best are cyclical, such as industrials and materials. They will benefit from better economic activity and extra infrastructure spending. In addition, financials should benefit from higher bond yields, with US banks in particular boosted by expectations of looser regulation under a Donald Trump presidency,” Cunliffe adds.

In terms of which regions to consider, Jane says the easy call to be bullish on is the US, while the more courageous bets are on Japan and Europe, where valuations remain much lower and a strong US dollar is a clear benefit.

“Europe in particular has been a huge laggard, for all the well known economic and political reasons, yet its stock market is relatively underexposed to these issues. This may be the market that surprises to the upside in 2017,” says Jane.

Indeed Japan and Europe are two region bases for the Share Centre going not next year. However Sheridan Adams, investment research manager at the Share Centre, says while valuations in Europe do look appealing, the multiple elections taking place in the region could provide headwinds. Two other regions she points to are Brazil and Russia.

“2017 could indeed be a turning point for the Brazilian economy, as commodity prices seem to have stabilised, coupled with the expectation that political and policy uncertainty is waning. Moreover, Russia has been in recession for two years but 2017 could see its economy turn a corner supported by a higher oil price, a low interest rate environment and higher real wages.”

Bonds

While Jane is positive on the prospects for equities in 2017, he thinks conditions are less favourable for bond markets, except for the very selective and cautious. This is because in a post quantitative easing (QE) environment, with Japan and Europe determined to hold down interest rates and intervene in markets, he says it seems unlikely that US and UK interest rates will be at the levels that might otherwise be expected at this stage in the economic cycle.

“Therefore, continued falls in bond markets, particularly for longer dated bonds, are a fair prospect, but not to a dramatic degree as intervention is likely to take place if rises in yields become difficult for borrowers. The long term impact of the ability of central banks to buy outstanding debt is yet to be known but in the near term we are likely to see the continued pattern of intervention whenever stress appears.

“We count ourselves as a cautious bear of bond markets. While we expect rises in rates to impact longer dated bonds, if we continue with our strategy of being cautiously selective in shorter dated corporate bonds we can reasonably expect a small positive return.”

The Share Centre also maintains a preference for equities over fixed income in 2017. Adams says that those investors who do want, or need exposure to bonds, the Share Centre currently has a preference for high yielding assets.

Alternatives

In the face of all the volatility faced in 2016, the price of gold saw big uplifts thanks to its so-called safe haven status. However Charles Stanley’s Cunliffe is not a fan of the precious metal going into next year.

“We don’t like gold, unless the purpose of buying it is for a hedge against an unanticipated and adverse financial market environment,” he says. ”Higher interest rates, particularly in the US, will increase the cost of holding precious metals and a stronger dollar will tend to depress their price.”

While gold experts have a range of views of where the price of gold may go over the medium term, Adams adds that what we can be certain of is that in times of market uncertainty gold does tend to do relatively well.

She adds: “We also know that gold fairs well when the US dollar weakens. Investors should appreciate that gold is a good hedge against inflation, it’s held its pricing power against other asset classes in deflationary environments, and it tends to react positively when emerging economies are growing.”

Another commodity being prices rises in 2016 was oil and as a result of OPEC and some non-OPEC producers recently agreeing to trim supply, the price has been holding steady at $55 per barrel recently.

So what of its prospects next year? Adams says: “The rise in the oil price is a key component to inflationary pressure rising in 2016.  At its current price level US shale producers are likely to be encouraged to increase their supply, which could kill the rally in the oil price. However, a number of factors could see the price rise or fall, not least OPEC or other parties not fully implementing agreed cuts to supply or a ramping up of tensions in the Middle East.”