Global & European Economic Report – Signals urgent need for Alternative Fund Raising Programs for 2018

LONDON, England– Gibraltar Capital Directors deliver Global & European Economic Report for 2017 at International Bankers Forum. Announces its New Capital Fund Raising Program – to be known as REVPAC. (Revenue Participation Capital) BOND Programs– to be unveiled to European Bankers in London during 2nd Quarter 2018.

London – Gibraltar Issues Global & European Economic Report at London Bankers Forum

Gibraltar Capital Global Bankers Financial Campaign is designed to recruit key investment banking partners in preparation for the unveiling of unique capital underwriting programs for 2018.

LONDON, UK- Gibraltar Capital Directors host Bankers Forum at London Year End Banking Luncheon. Gibraltar Capital hosted the 2017 Global & European Economic report for European Investment Bankers. The report – a summary of the year's International State-of-the-Economy – while less stellar than in former years, signaled a need to re-engineer fund raising programs to finance the emergence of new business ventures.

What could be more interesting than investing during the rapidly changing age we are blessed to live in? The next 50 years will see an explosion of change occurring at a progressively faster rate.

Global Trends 2017

Equities Likely to Outperform

On the back of accelerating global growth and the low interest rate environment, Credit Suisse economists and analysts predict that equities are likely to continue to outperform other asset classes in 2017. Cash, commodities (including gold), and bonds are not expected to offer attractive returns in 2017. Despite this, investors remain underinvested in equities compared with historical levels.

"It did not pay to be cautious in equities last year. This year will probably be less rewarding from a total return perspective, but just as exciting as 2016," said Michael Strobaek, Credit Suisse's Chief Investment Officer for the Private Banking & Wealth Management division, who expects a "volatile" 2017, particularly in the equity market. "Credit Suisse forecasts a 13 percent rise in global equities in 2017, with equities remaining the cheapest of the major asset classes," said Andrew Garthwaite, Head of EU Global Strategy Research in Credit Suisse’s Investment Banking division.

Global Growth Looks Set to Accelerate to 3.5 Percent or More

"There is a good combination of reasonable growth and extremely contained inflation, with no risk of outright deflation for the moment," said Giles Keating, Credit Suisse’s Global Head of Research for the Private Banking & Wealth Management division. Credit Suisse economists expect global growth to accelerate to 3.5-3.7 percent in 2017 from just below 3 percent last year, spurred by advanced economies. "Growth is gradually gathering pace around the world, with the US clearly in the lead," Keating said.

A World in Reflation

"There is very strong pressure on policy makers to tackle the underemployment that we are currently experiencing. Nearly five years after recovery began, developed world economies are still operating way below potential, limiting wage-growth, corporate investment and the improvement in budget deficits." said Jonathan Wilmot, Head of Strategic Advisory within Credit Suisse’s Private Banking & Wealth Management Research department. Inflation is also likely to remain low as energy prices are forecast to stay flat or even decline. "There is room for higher core inflation and rising wages without threatening central banks' inflation targets. This favors reflation," Wilmot said. Successful reflation means keeping interest rates and bond yields below nominal GDP growth until the economy returns to full employment. Regulations will make that easier, but of course also slow recovery. "Fortunately it seems that regulators will be more pragmatic in the implementation of new rules, now that they are largely in place," Wilmot said, adding that the priority of governments should be to make more credit available to low-income households and small and medium sized enterprises.

US Recovery Could Surprise on the Upside

The ongoing US recovery is "still a very youthful expansion" and previous recoveries suggest that "we've got a long period of expansion ahead in the US and the rest of the world with a lot of spare capacity at hand," Keating said. "US companies are finally spending cash on mergers and acquisitions, share buybacks and on outright investments, while the US housing market is beginning to regain momentum," Keating noted. "Even though the Federal Reserve has announced that it plans to scale back its asset purchases during the course of the year, it is unlikely that the Fed will contemplate raising interest rates before we are well into 2017 and maybe even beyond that," he added.

In 1937, when the US economy gathered speed after the Great Depression, the Federal Reserve tightened prematurely causing another severe recession. "If the Fed tightens too soon and too much now, it may well perpetuate a new period of underemployment. We don't expect the Fed to repeat the mistake it made in 1937," Wilmot stressed. "But it will be a challenge to keep bond yields subdued when growth is accelerating. In fact, really strong growth could help push risk appetite to euphoria and make bond yields temporarily overshoot to the upside, triggering an equity market correction," Wilmot added.

ECB May Cut Rates Further, Even if Eurozone Growth Picks Up

The European economies are also picking up, although from a much lower level. Credit Suisse forecasts European growth of 1.25-1.5 percent in 2017, driven by continued strength in Germany and a recovery in Southern Europe. "The overall picture is positive, with labor costs coming down," Keating said. "Yet one fundamental problem remains: The high borrowing costs for small and medium sized enterprises, which are not coming down, a factor likely to limit the speed of the ongoing recovery," he underlined. The European Central Bank (ECB) may ease its monetary policy further during the course of 2017, if the euro's exchange rate remains stubbornly high and if inflation remains lower than its target of close to 2 percent, Keating said.

Japan Could Surprise Positively

"Japan has the greatest upside potential, particularly if we see a pick up in domestic buying and if investors switch from cash and bonds into equities. More than half of financial assets were being held in cash in Japan late 2016," said Garthwaite. "Valuations remain reasonable in Japan, with relative earnings revisions remaining the best of any region," he said. Japanese equity valuations currently trade at a 10 percent discount to the US.

A Mixed Picture in Emerging Markets

China is in the midst of a transformation set to make it the world's leading economy in the years to come. "In China the key issue is the new direction of structural reforms announced, rather than the exact level of the country's growth rate. Last year, the Chinese services sector overtook the industrial sector for the first time ever as a result of earlier government policies, giving a foretaste of the trends encouraged by the government's reform plan," Keating explained. "The announced reforms mean that growth in China's demand for energy and commodities won't be as fast as in the past, which should help contain their prices," he added. "This is good news for the economic recoveries in the advanced economies importing their energy and commodity needs, though less good news for emerging economies such as Brazil, Chile, Russia and South Africa producing them. We thus favor emerging markets importing commodities, which also have spare capacity at hand," Garthwaite said. "Our preference goes Poland, Hungary, India and South Korea rather than emerging markets in Latin America."

Why Stay Overweight in Equities?

Equities should outperform bonds for quite a period of time in a reflationary world, Wilmot said. "As long as bond yields do not shoot higher. We might even witness euphoria on the stock markets during the course of 2017," he said. "Looking at long-term trends, equities have the potential to outperform bonds by 8 percent annually over the next 5 years or 5 percent annually over the coming 10 years," Wilmot added (see chart 2).

Many investors are still concerned about going into equities after their negative experiences in 2008/2009 and 2000/2001, but in today's environment the other asset classes tended to be regarded as "safe" alternatives are not as interesting as they used to be, Strobaek underlined. "With regard to the choice of assets, investors can go by exclusion: Cash offers zero and in some cases even negative real returns. Gold prices have been very volatile ever since the gold rally ended in September 2011. The commodities super cycle witnessed during the 2000s is definitely over. Meanwhile government bonds yields remain at record lows with bond yield set to slowly but surely move higher," Strobaek explained. "Investors are chronically underinvested in equities, even if this asset class should make up 50, 60 or even 70 percent of their portfolios for those with a medium- to long-term horizon." There have actually been outflows of 140 billion US dollars from equity funds since 2008, while there have been inflows of 1.2 trillion dollars into bond funds, according to EPFR data. "We believe that the corporate sector has potential to purchase about 2.2 trillion dollars of equities in the US and Europe, if underleveraged companies relever", Garthwaite stressed.

Focus on Future Earnings Rather Than Valuations

"Valuations are not cheap when looking at P/E ratios. But it's an earnings story from here on. European earnings could rise by as much as 40 percent or even more," said Garthwaite. "Although today's price earning ratios (P/E) are close to those recorded in 2007, we do not expect a big correction for the moment. High valuations are not really an issue," Strobaek said. There is one major difference. "In 2007 investors thought they could get rich fast. This is exactly when it is time to get out. Today's investors are not all euphoric about equities, despite the positive global outlook just described. Credit Suisse believes that the equity rally can continue and our preference goes to European and emerging market equities. We recommend being underweight in US equities on the backdrop of their strong performance in 2016. A healthy correction is necessary before entering US equities," Strobaek stressed.

Earnings Potential in Europe and Japan

There is a lot of potential earnings growth in both Europe and Japan, said Wilmot, referring to the slow recovery of these two regions' industrial production when compared to the US. Garthwaite echoed these comments, singling out Credit Suisse's preference for German, Italian and Austrian stocks. "We believe that the equity market is set to be on an uptrend until equities become clearly expensive against bonds, quantitative easing ends or risk appetite is clearly in the euphoria zone, as opposed to neutral as we speak," Garthwaite underlined.

Main Risks to 2017 Scenario

Weaker Chinese growth, a Chinese housing, credit and investment bubble, as well as a strong acceleration of US growth leading to earlier-than-expected tapering by the Fed are some of the main risks identified by the Credit Suisse analysts. In Europe, political risks linked to upcoming mayoral elections in France, the Scottish independence referendum and the European Parliament elections were mentioned. In Japan, a drop in the popularity of Prime Minister Abe or a failure to step up quantitative easing by the Bank of Japan were also highlighted as potential risks.

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Ian Wellington, Chairman of Gibraltar Capital Group, announced that a new financial instrument – known as REVPAC(Revenue Participation Capital) BOND PROGRAMS – would be unveiled to Gibraltar’s Investment Banking Partners during the 2nd Quarter of 2018. Due to the downturn of the Global Economy, Gibraltar was forced to postpone the unveiling of the new financial instrument until Year 2018. Mr. Wellington concluded the State-of-Economy Forum with the statement – “that once investors understand that globalization is a positive force and that “gross revenue participation investing in new ideas” is a viable investment product (in adjunct with equity markets) , they will also see the advantages of adding international REVPAC BOND PROGRAMS alongside equities in their portfolios. Multinational corporations have been using this global strategy for years; why shouldn’t investors do the same?