Five months into the year, now is a good time to reflect on the performance of the global real estate securities sector, and to provide you with an update on our product development and market outlook.
How would we sum up the current macroeconomic environment?
From a macroeconomic perspective, the world is gradually improving; public markets have fared well under Mr. Trump, a trend that should continue. However, one should note that the world has been feeling somewhat complacent recently and that markets do not necessarily provide for a margin of error on either the macroeconomic or geopolitical front. Currently, U.S. government yields are lower than they were when Mr. Trump entered into office. His reforms have yet to be negotiated or approved by the House and the Senate. Markets may have priced in the optimism associated with these reforms; without these reforms, reality could come short of expectations priced in by equity market valuations. While equity markets rallied, real estate securities markets lagged, despite falling rates. The EUR has been strengthening whereas the USD has been weakening.
While we have seen increased geopolitical tensions – in Syria and North Korea – these events have had little, if any, impact on the market. Volatility is hovering around all-time lows, supporting the complacency argument mentioned earlier. The monetary policy toolbox is running out of options and the current U.S. administration is very focused on moving the world out of a zero nominal / negative real interest rate context. The consensus expectation is for two interest rate hikes in the U.S. in the remainder of 2017, with the first one likely to occur in June 2017. The major central banks (U.S., European and Japanese) are expected to announce tapering of their monetary policies. There is still uncertainty about when by how much and how exactly this will impact bond yields. Clearly, the focus is shifting from monetary to fiscal policy, as the next driver of global growth and of potential market volatility.
Market Performance in EUR
Market Performance in USD
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