Volatility and the first meaningful lift in inflation coming from the United States will likely be the main differentiating features in global financial markets in 2018 compared to this year, according to Dr Shane Oliver, AMP Capital’s Head of Investment Strategy and Chief Economist.
The dips in share markets experts anticipated in 2017 are more likely to materialise in the new year, Oliver notes.
But with global growth continuing – as emerging market economies begin to join the United States in its growth recovery – these dips could present reasonable buying opportunities for savvy investors, Oliver says.
“The big thing in 2018 will be volatility. Twenty seventeen was a pretty smooth year; 2018 is likely to see a pickup in volatility. Investors should be looking out for corrections as a buying opportunities,” he says
Another big theme in 2018 will be the divergence between US monetary policy and the actions of central banks in Australia and in other countries around the world, Oliver points out.
The US Federal Reserve is likely to hike four times in 2018 and will to continue with quantitative tightening while other central banks including the Reserve Bank of Australia are likely to lag, Oliver points out.
Investment returns across most asset classes were superior in 2017 compared to the previous year, Oliver notes. He points out investors should modify their expectations for returns in the year ahead in 2018.
It’s possible political risks may have more impact in 2018 after a relatively benign 2017, Oliver notes.
US political risk is likely to become more of a focus again with the ‘Mueller inquiry’ continuing and the November mid-term elections playing out, which is likely to see the Republicans cede power in the House of Representatives to the Democrats. This may result the possibility President Trump could resort to populist policies like protectionism to shore up his support, Oliver predicts.
Meanwhile, the Italian election is likely to see the “anti-Euro” movement do well; North Korean risks continue to remain unresolved; and there is also a risk of an early election in Australia, he points out.
“Fortunately, there is still no clear sign of the sort of excesses that drive recessions and deep bear markets in shares; there has been no major global bubble in real estate or business investment; there is the bitcoin mania but not enough people are exposed to that to make it economically significant globally; inflation is unlikely to rise so far that it causes a major problem; share markets are not unambiguously overvalued and global monetary conditions are easy,” Oliver explains.
“So arguably the ‘sweet spot’ remains in place, but it may start to become a bit messier,” he says.
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.
This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.