We expect risky assets to fare well in 2017/18, even as the yields of US Treasury bonds continue toclimb in response to tighter-than-expected Fed policy. We think the stock market in the US will only grind higher as labour costs there increase, but equities in Japan, the UK and Europe should fare better as their currencies weaken. The rally in dollar-denominated emerging market bonds will probably start to reverse, but we continue to expect emerging market equities to outperform. A wildcard is the outcome of the US presidential election. We think investors would react badly to a Trump victory, since it would increase uncertainty and open the door to protectionism.
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