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Growth of the US for both returns and protection The attractiveness of the US has been driven by interest rate rises (with expectations for further raises this year) and bond yields lagging in other developed markets (figure 8). There is also market confidence of a ‘pro-business’ corporate tax regime following Trump taking office in January 2017, causing sovereigns to note the growth potential of US equity markets (with 40% of sovereigns expecting to increase North American allocations in 2017), as other developed market stocks remain flat. Currency strength underlies this optimism (USD up 3% against EUR and 20% against GBP in 2016‘), with some sovereigns deliberately targeting dollar exposure through their international investments. Liability sovereigns noted the dual benefit of the open currency position, both eliminating hedging costs and generating additional returns relative to home market currency. In our 2015 sovereign study, we highlighted the attractiveness of real estate investments in developed markets. Under FIRPTA (Foreign Investment in Real Property Tax Act), sovereign appetite for real estate investment in the US has further grown. Most notable, however, is the growing optimism around the potential for new infrastructure deals in the US following political campaigning suggesting an investment opportunity of USS1 trillion. Despite positivity, sovereigns in Europe and Asia noted that successful US real estate investments gave no guarantee of similar opportunities within infrastructure. Many respondents were concerned about growing protectionism in the US, questioning if it might both limit access to infrastructure and real estate investments for foreign sovereigns and would have long-term economic implications as foreign relations are strained. 1Source: XE currency data. Data from 01 January 2016-01 January 2017. 16 Fig 8. 10-year government bond yields US UK Germany Japan 0.0 Source: US - US Treasury Resource Center, UK - Bank of England Data, Germany - Bundesbank Statistics, Japan - Ministry of Finance Interest Rate Index. Data taken as daily average yield on 30 December 2016. HOUSE_OVERSIGHT_026696