With 2016 behind us, we can safely say that last year's investment theme was "uncertainty." The year kicked off with wariness about global growth and concerns about a slowdown in China's economy. Just as the economy showed signs of improvement in late May, uncertainty stemming from Brexit in June and the U.S. election in November repeatedly threw the Federal Reserve and the markets for a loop. With the Fed projecting four rate increases, then backpedaling to two and ultimately holding off until the last month of 2016, the economy continually took two steps forward and one step back.
As 2017 gets underway, questions about the Trump administration's policies on trade and other issues, as well as the potential for political change with elections in Italy, Germany, France, Hungary and the Netherlands, persist. The markets will no doubt be paying close attention to the outcomes of these events.
Against this global backdrop, these four currencies should offer potential for strong growth in 2017.
Global uncertainty may make some investors steer clear of foreign currencies, but savvy investors can find solid opportunities if they understand the dynamics of individual countries and the global landscape. Of course, part of this understanding will require closely following how the newly elected U.S. administration handles international trade deals in the coming year.
The economic fundamentals in Norway – a longtime favorite of the World Markets trading desk – continue to be among the best in the world. Norway's economy is relatively insulated from the European debt crisis and the country's central banking strategy is characterized by prudent fiscal and monetary policies and tight lending standards, with interest rates held at 0.50 percent. Norway was one of the few countries that withstood the financial crisis due to its low unemployment rate and positive GDP growth of over 2 percent in 2008. The country is currently the largest energy exporter in Europe and the third largest exporter of oil and gas in the world, behind Saudi Arabia and Russia. These healthy fundamentals, combined with a recovery and stabilization of oil prices, point to a potential long-term investment opportunity in the Norwegian krone.
Turning to emerging markets, we could see a performance boost in the Russian ruble this coming year, led by more stable or slightly increased oil prices and predicted improvement in its relations with the U.S. Though it's unclear exactly how the new administration will direct policy in regards to Russia, any easing of sanctions could lead to a jump in the ruble.
Additionally, the Brazilian real was a top performing currency last year, and could continue to perform well under a strengthening Brazilian economy, rising commodity prices and increased metal demand from China. However, there is still some uncertainty when it comes to Brazilian politics while Russia's administration is firmly in place.
Finally, India is projected to surpass China in both GDP and population growth. India has achieved high levels of GDP growth – between 7 and 8 percent this past year – due to high levels of private consumption, as opposed to government spending and increased debt levels. The emergent middle class, a population that is trending younger, and continued reforms could lead to the highest GDP growth rate of all the major global economies. Taken together, these factors point to India as potentially offering the best opportunity for returns among the emerging market currencies.
Uncertainty will not disappear any time soon with so many market-moving events in play. Regardless, precious metals and select foreign currencies can provide diversification benefits in any portfolio. While the equity markets and other areas of investment are likely to experience volatility springing from upcoming events, these currencies and precious metals may offer investors more stable opportunities with a strong potential for returns.