HOUSE_OVERSIGHT_014441.jpg

Chart 13: China could be named a currency manipulator 7 6.9 68 =———CNY/USD 6.7 6.6 6.5 6.4 6.3 " 6.2 -10 6.1 6 -15 se ys s s s s se s ye ws Chart 14: But world trade has slowed — would Trump make it worse? ——World Trade growth (%) N WO CO WwW FT 1 1 1 bony bony bony bony bony oO oO oO oO oO 7 —_ 7 mv) mv) Source: WTO, BofA Merrill Lynch Global Research Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Source: Bloomberg The question for investors is whether Trump the candidate or Trump the deal making businessman will eventually be the driver behind trade policy. It is not impossible to imagine the President-elect gaining some concessions from his hard line stance and then claiming victory. After all, since one of his aims is to get the US economy growing at 4% a year, a prosperous global economy to export into is probably preferable to one that is taking a hit from an aggressive US trade policy. That is the inclination of our EM strategists and economists, so they are expecting the reality to be softer than the rhetoric. At this stage we have to acknowledge that it is little more than an educated guess. It makes us less certain of our long EM equity position than we were. Nevertheless, we had already switched it out of an MSCI position into an Asia ex Japan in part because of US election risks and our strategists are particularly upbeat about Asian markets. They think they are cheap, they are positive on China and they think growth and hence earnings will surprise on the upside. What about the rest of the world? Growth has been improving Growth indicators have been improving around the world of late. Data since the US election would seem to support that with the PMIs in the Euro Area improving again and their equivalent in the US sustaining the gains seen last month. Our EM indicators remain robust and our China ACT indicator continues to indicate steady growth there too. Our economists forecast 3.5% global GDP growth with EM growth around 4.7%. Our Euro Area growth numbers have been nudged back up towards 1 %% with Brexit not proving to be as much of a drag as feared. We still expect the UK economy to see something of a slowdown in 2017 as the lagged effect of the fall in the pound hits consumer incomes. Perhaps our most optimistic view of the world, relative to consensus, comes from Japan where with fiscal policy turning more supportive (we put the package at 1.5% of GDP) we see growth at 1.4% in 2017. 10 Global Cross Asset Strategy - Year Ahead | 30 November 2016 Bankof America 2 Merrill Lynch HOUSE_OVERSIGHT_014441