As the end of the year approaches, the experts start dusting off their crystal balls to try and decern the future. Mark Burgess, Deputy Global CIO at Columbia Threadneedle, shared his outlook on the investment landscape of 2018 in a recent report. Here are his key predictions.
Markets can still grow but watch out for risks
According to Burgess, several factors such as expansive monetary policies, coordinated global growth, the expansion of international trade and the robustness of corporate revenue growth will continue to guarantee a fruitful environment for high-risk investments in 2018. However, he warned that geopolitical risk may create major hurdles – we’re thinking about the B word obviously and the impact it may have on Europe, as well as US foreign relations souring with North Korea, China and Mexico. High valuations on credit markets may also hurt investors in the new year.
Higher demand for higher returns
“We expect corporate earnings growth of 10-15% in 2018 supported by ‘Goldilocks’ conditions of moderate economic growth, low inflation and asset-friendly monetary policy,” the expert explains. For him, the most attractive areas for equities will be Japan, Europe (UK excluded) and Asian emerging markets. In the bond sector, the demand for high-quality return will remain a dominant topic but this is unlikely to change considering the ageing population in most of the world. Moreover, given the current starting yield levels, “investors are unlikely to see strong excess returns from credit markets”.
Favor high-yield corporate bonds over government bonds
Columbia Threadneedle’s negative stance remains unchanged on government bonds from “core” countries. All the while its view on credit stays neutral with European high-yield corporate bonds seemingly offering “marginally more upside than corporate investment grade”. The strengthening of the macroeconomic context has sustained the commodities markets and favourable supply and demand dynamics have supported price increases, but some factors still need to be monitored in these areas.
Commodities still going strong but keep an eye on oil
“With energy being part of every supply chain, destabilisation in the Middle East will be a key element to watch, as will politics in China, where the government has turned its focus to environmental policies,” Burgess states in the report. He observed that, instead of boosting production to respond to an increase in demand, companies are adopting a “supply discipline” and redistributing capital to shareholders by reacquiring shares and dividends. He continued: “A sharp rise in oil could derail the current trajectory, but the macro environment – with strong US growth and supportive China and Emerging Markets, should support commodity prices into 2018.”