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The uncertainty brought on by political shifts in the U.S. and Europe, paired with muted economic growth across much of the world, leaves many economies vulnerable to shocks. While the global economy is expected to continue on a path of low growth, there are a number of bright spots for investors.
Download our 2017 Outlook for an around-the-globe look at the challenges and opportunities facing investors today — from the impact of the growing Indian consumer class to the historical precedent for interest rates staying low.
Highlighted below are some of the key insights from our Outlook.
With Election Behind Us, U.S. Consumer Leads Recovery Onward
With no signs of excesses in the economy, look for continued growth driven by a strengthening consumer. After years of gains, most U.S. stocks appear to be fully valued, which means selective investing is essential.
Valuations in most areas of the U.S. market are above their long-term averages
Source: U.S. Bureau of Economic Analysis, U.S. Commerce Department, MSCI, RIMES, Thomson Reuters Datastream as of 12/31/16. Cyclically adjusted P/E ratios are for the MSCI USA sector indexes and the index price divided by the average of the previous 10 years of inflation-adjusted earnings for the 10 years ended 12/31/16. Average hourly earnings and unemployment rate as of 12/31/16. Household debt service ratio represents ratio of debt to household net worth as of 9/30/16. Capital goods orders include nonmilitary capital goods excluding aircraft as of 11/30/16.
After Wave of Setbacks, Europe Is Still Playing Catch-Up
Deflationary pressures, weak economic growth and mounting political risks are weighing on the outlook for the European economy. Some companies, however, are overcoming regional challenges and offer potential for attractive valuations.
Source: RIMES, Thomson Reuters Datastream as of 12/31/16.
* MSCI EAFE Index vs. the S&P 500 Index rolling 3-year returns as of 12/31/16.
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India Rising: Developing Nation Buys Into Consumption Society
India has become one of the most important components of the global economy and it may just be getting started. Consumer spending has propelled economic growth and infrastructure improvements could further boost the economy.
Households that own durable goods (%), as of 2015
Source: Euromonitor International. Data are based on possession rate, which is a measure of how many of the population units used (e.g., households) own at least one unit of a certain product, as defined by Euromonitor.
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Portfolio Construction Strategies
There are a number of ways that you can act on the insights in the 2017 Outlook within your portfolio. Below are sample asset allocations to consider depending on your time horizon and risk tolerance.
MORE GROWTH
MODERATE
MORE CONSERVATIVE
This option is characterized by a higher allocation to equity with strong growth potential, and is most appropriate for investors who can withstand volatility over a long investment horizon. The sample asset allocation is based on American Funds Growth and Income Portfolio℠ as of 12/31/16.
This option is a strategy to consider for investors approaching retirement and offers exposure to a mix of global stocks and bonds with the potential for less volatility than a growth portfolio. The sample asset allocation is based on American Funds Balanced Portfolio℠ as of 12/31/16.
This option provides exposure to a diverse mix of stocks from dividend–paying companies and fixed income securities. With a heavier allocation to bonds, it is most appropriate for investors in retirement who seek income and lower volatility than the other allocations. The sample asset allocation is based on American Funds Income Portfolio℠ as of 12/31/16.
Get the Whole Story
Read our 2017 Outlook to learn more about the challenges and opportunities ahead for investors in a transitional world.
MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products.