Where to invest globally in 2018

The start of a new year is always a good time to review your investment goals. To help that process, here are some thoughts on what the experts are saying is in store for 2018.

Despite all the uncertainty created by political factors, 2017 proved to be a good year for investors, with all asset classes rising, and almost all geographic sectors making gains.

The FTSE All-Share index delivered a total return (including dividends) of 12.3%, whilst in global markets the MSCI World index gained 12.7% in sterling terms. The US did slightly better than the UK with the S&P 500 gaining 12.6%, as well as achieving a positive total return in every month, which was a first.

Asia and emerging markets were the best performing regions, with the MSCI’s Asia Pacific ex-Japan and Emerging Markets indices both returning over 25%. Europe and Japan followed with gains of over 16% in both the MSCI Europe ex-UK and TSE (Tokyo Stock Exchange) indices. 

So the outlook as we enter 2018 looks promising. However, investors should not get complacent, particularly when valuations in some sectors look high. As we all know, what goes up must come down – the only question is when.

The view on this is mixed, with some pundits predicting a correction of between 10%-30% this year, whilst others are forecasting that the bull run has further to go. Certainly, the markets are still in bullish mode, with both the FTSE 100 and Dow Jones hitting new all-time highs two days running last week. And the OECD is forecasting that global growth will continue to improve to 3.7% - up from 3.6% in 2017.

In terms of where to invest, stock markets in Europe and the emerging economies will produce the best returns in 2018, according to a survey by the Association of Investment Companies (AIC).

Research from Bank of America Merrill Lynch comes up with similar results, with 45% of global fund managers saying they hold a greater percentage of their money in Europe than would be suggested by the region’s share of global markets.

Despite a good performance in 2017, the US stock market has slipped in popularity. It was perceived as the most attractive region going into 2017 but has slipped to third place for 2018.

In terms of themes, after the powerful performance of growth stocks in 2017, led by the FAANGs (Facebook, Apple, Amazon, Netflix, Google), some professional investors believe 2018 could see value stocks come back into fashion. It is certainly quite feasible that the markets will not be as narrowly led as last year and so investors could look to active fund managers who take a high conviction approach and focus on company fundamentals.

Another theme to watch will be ‘digital disruption’, as companies look to artificial intelligence, robotics and automation to open new markets or serve existing customers more efficiently. The interconnections of the online world will create many investment opportunities and some fund managers are gearing up for this.

The year could also see the return of volatility to the markets. 2016 saw wild swings but 2017 was a pretty placid year. Many expect to see more volatility in 2018, possibly driven by bond markets which look expensive if interest rates rise more quickly than expected. This would offer an advantage to active managers who can use dips to buy oversold, high-quality companies.

Talking of bonds, a further risk to them could be the winding down of quantitative easing by central banks at a time when interest rates are rising. Some corporate bond fund managers are re-positioning their portfolios in anticipation.

Obviously, the above is just a brief summary of current thinking on how the markets could play out in 2018 and how it could impact upon investment decisions generally. All investors have different reasons to invest, different goals and different attitudes to risk.

If you are looking to review your investment portfolio at the start of 2018 and need professional financial advice, then contact Kellands.

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