As 2017 fades into the distance with its ongoing Brexit negotiations, a falling pound and a rising Bitcoin, will there be more of the same for investors in 2018? I think so.
Perhaps another financial crisis, as the crypto-currencies topple the existing global banking infrastructure? Another rise in UK interest and a continued move away from QE to quantitative tightening (QT) by the global central banks?
So, what do the fund managers think?
The 2017 fund manager poll by the Association of Investment Companies (AIC) found managers remaining positive on the outlook for equities in 2018, but Brexit and interest rates are causing them concern.
Equities remain the asset class investment company managers think is most likely to perform best in the coming year. However, managers are more cautious, with 60% of managers thinking equities will perform best in 2018. This is down on the bullish 76% in last year’s poll. The majority (69%) think stock markets will rise next year but the remaining 31% say they don’t know if markets will rise.
Where do the investment opportunities lie in 2018?
Europe and Emerging Markets are the top two regions managers think will produce the best stock market returns in 2018, and they present the most attractive opportunity on a five-year view.
Thirty per cent of managers picked Europe as their region to produce the best stock market returns in 2018, while 23% chose Emerging Markets. The US, which was the most favoured region for stock market returns in last year’s survey, took third place (14%).
When it came to which sectors managers thought would perform best in 2018, a quarter (25%) chose Software & Computer Services, while 21% chose Banks.
Financial Services, which was the most favoured sector in last year’s survey, is the third most popular sector with 13%. On a five-year view, Software & Computer Services remained the most popular sector with 22%.
Where will the FTSE 100 close 2018?
Last year, a third (33%) of managers thought the FTSE 100 would end 2017 between 7,000 and 7,500 and, so far, the market is on track to do so. Managers remain optimistic towards the FTSE 100 with 64% believing it will continue to grow in 2018 and end the year between 7,500 and 8,000. 14% feel that the FTSE 100 will end 2018 as it started, between 7,000 and 7,500.
Walter Price, Manager, Allianz Technology says: ‘As 2018 approaches, the outlook for equities, and specifically tech equities, remains strong. We are seeing robust economic growth around the globe and technology is pivotal in driving a fourth industrial revolution. The US technology climate remains favourable and despite its recent strong run we believe the fundamentals of the sector have more to give.
‘New technologies are changing the way we work and driving efficiency and productivity growth across a broad range of sectors. Whilst there are dangers posed by a slowing Chinese economy, it is our belief that those technology companies who are truly innovative and offer a real benefit to users will continue to benefit from corporate investment, and continue to flourish.’
What will 2018 bring for savers?
In November of this year we had the first rate rise in 10 years. The fallout from this 0.25% rise to 0.5% was a damp squib and didn’t really make much difference to the 45 million savers in the UK. However, it was more significant to the 9.2 million households who have a mortgage, as their monthly mortgage payments increased.
Paul Richards, chairman of Insignis Cash Solutions says: ‘Some economic commentators point to two further interest rate rises in 2018, but protracted Brexit negotiations could delay this. If the Bank of England hikes rates again, it will once more be the government’s decision on NS&I rates that influences whether other banks will follow.’
The continued rise of the ‘Challenger’ banks
Richards adds: ‘No savings provider wants to pay more interest than they need to, as it has a direct impact on their profitability. Margins have been compressed heavily since the global finance crisis and banks don’t want to see them fall further. Challengers are [more] hungry to grow their balance sheets via retail deposits, so we’ll likely continue to see better rates from these players than the traditional larger banks.’
All in all, I don’t think investors or savers will be bored in 2018. Savers might, however, want to think of other means to achieve higher returns on their savings if the UK high street banks are anything to go by.
Andrew Bell, Chief Executive of Witan has some wise words about the ‘B’ word which might overshadow events in 2018: ‘People should not worry too much about politics – economic influences are usually more important for both economies and markets and globally these remain supportive of continued growth.
‘However, geographic diversification is sensible to dilute the effect of rogue politics affecting a country or region and to take advantage of an increasingly broadly-based upswing.
‘When the economic brakes are being applied, those without seatbelts (or airbags) are at risk of hitting the windscreen. The principal risks are a political misstep by a leading global actor leading to a general fall in confidence, or rapid rate increases, whether occasioned by inflation rising more than expected or a central bank misjudgement of the risks.’