In recent years, central bankers had markets hanging on their every word, reacting to even their slightest change of tone when issuing public statements.
"We believe the effectiveness of central banks will be much more limited from here and that politics could displace central banks as the key focus for many investors."
The past year had been "relatively volatile" for markets, he said. There had been a couple of specific events driving volatility, most notably the Brexit decision in June and, more recently, the United States presidential election.
The decision by Britain to leave the European Union, or Brexit, caught markets by surprise and the high volatility immediately afterwards reflected that shock, Mr Timms said.
But if markets thought that was a shock, they were well and truly stunned when Donald Trump emphatically beat Hillary Clinton in the US presidential election, as the Republicans also served up a crushing victory over the Democrats.
"There is no shortage of political events on the 2017 calendar and we expect the trend of volatility to continue as they unfold."
Markets had become well aware of the anti-establishment, anti-globalisation undercurrent that seemed to be growing in many parts of the world.
In Europe alone, France, Germany and the Netherlands would go to the polls this year. There was also tension involving hot spots like the South China Sea, the Middle East and Russia to keep investors anxious, he said.
"We could see more regular bouts of volatility as markets fret over what could go wrong and, even if the general trend is up, it is likely to be a bumpier ride."
Inflation, a traditional enemy of investment and returns, had been noticeably absent during recent years. While it was not envisaged to return quickly, 2017 could be the year when inflation started to make a comeback. A few early signs had been seen recently, Mr Timms said.
The most notable element of the October jobs report in the US was the better-than-expected increase in wages. Average hourly earnings increased 0.4% for the month, lifting the annual growth rate to 2.8% — the strongest since 2009.
In China, manufacturing prices recently rose for the first time in almost five years, he said. The China produce price index rose 0.1% in September from a year earlier, the first increase since January 2012.
It had been a similar story in this part of the world as September inflation for both New Zealand and Australia came in slightly ahead of market expectations.
"While it remains very low, inflation certainly appears to have bottomed out and could quietly rise from here."
A catalyst for sharper than expected increases in prices would be tight labour markets in places like New Zealand and the US. Low employment trends would add to wage pressures as employers competed more fiercely for staff, usually leading in broader price rises, Mr Timms said.
This year could be better for growth shares.
The International Monetary Fund was forecasting global economic growth to slow to 3.1% before recovering to 3.4% during 2017.The recovery was projected to pick up as the outlook improved for emerging markets and the US economy regained momentum.In the US, a recovery in investment was projected, as was a fading drag from inventories.
The IMF forecasts suggested US growth would lift from 1.6% last year to 2.2% this year, while emerging market growth would rise from 4.2% to 4.6%.
On the other side of the coin, growth was expected to slip in Europe, Japan and the UK. None was expected to see negative growth but momentum was forecast to slow, he said.
In New Zealand, the Reserve Bank was forecasting GDP growth of 3.7% in the year to March 2017 and 3.6% for the next 12 months to March 2018.
"Even if these forecasts are negatively impacted by the recent earthquakes, we still expect the New Zealand economy to deliver robust growth."
The IMF had noted the potential for setback to its outlook was high, something reflected in repeated markdowns in growth over recent years. It was also unclear how the US outlook would change under Mr Trump as president. For now, markets were expecting many of his policies to be positive for economic growth but it remained to be seen how those would be implemented and whether they would deliver as expected, Mr Timms said.
The impact on other parts of the world was equally uncertain. A more protectionist stance could mean improved US growth came at the expense of other parts of the world, most notably emerging markets. Ironically, that could drag global growth down and, to a degree, affect the US.
"On balance, and despite these risks, it could well be a reasonable year for growth companies."
The yield on longer-dated bonds were well off their lows, making for a challenging environment for high-yield companies. While they offered attractive dividends, Mr Timms said investors would be less willing to pay high prices for those as alternatives, such as fixed interest and bank deposits, were now offering "more reasonable returns".
If growth, inflation and interest rates were going to be higher than they had been in recent years, companies with lower yields but more attractive growth prospects would be the beneficiaries.
Craigs recommended investors ensured they had a healthy allocation to high quality companies with strong growth options.
Action points
• Make sure you are well-diversified across asset classes, geographies and sectors. Stick to high quality, fixed interest and blue chip shares Add some portfolio insurance such as gold and hope it never performs.
• Ensure portfolios have an exposure to assets that can keep pace with inflation.
• Own growth equities, both in New Zealand and abroad.
