09 January 2018
The world economy is strong and Europe has found its sweet spot, while equities should maintain their upward trajectory, outperforming bonds for the seventh straight year.
That is the view of KBL European Private Bankers (KBL epb), the Luxembourg-headquartered private banking group, which today released its 2018 Global Investment Outlook, covering the economy, financial markets and key asset classes.
Supported by forecast global GDP growth of 3.7%, the outlook for Europe is now brighter than it has been in a decade – despite political uncertainty in Germany, worrying upcoming Italian elections and the potential Brexit fallout.
“European investor and corporate confidence is solid, business activity is rising at a rapid clip, private-sector hiring is at a 17-year high, and unemployment continues to fall steadily,” said Jean-François Jacquet, Chief Investment Officer, Luxembourg, KBL epb. “Barring unexpected shocks, the eurozone is poised for a second consecutive year of real GDP growth in excess of 2%.”
Meanwhile, despite aggressive monetary policies, strong economic growth and low unemployment, inflation remains well below central bank targets. That could change in 2018, Jacquet said, as policy normalization may lead inflation to pick up faster than expected in key markets such as the United States and Germany.
Turning to the investment outlook, Ilario Attasi, KBL epb’s Head of Group Research, expects worldwide equity markets to remain buoyant in 2018. “European earnings prospects look especially impressive amidst accelerating profitability and monetary support from the European Central Bank, benefiting in particular cyclical stocks such banks and industrials,” he said.
Attasi noted that Japanese equities appear poised for another stellar year and that emerging-market equities are thriving, too, thanks to rising global demand and rebounding commodity prices.
In this bullish environment, he said that key market risks include the potential impact of monetary policy normalization, excessive Chinese debt and a range of political developments, including important upcoming elections in the United States and Europe.
While the fixed-income segment continues to hold limited appeal, alternative strategies should offer significant diversification benefits as part of a balanced portfolio.
According to Attasi, commodity prices should continue to climb, slowly but steadily, over the course of 2018. Base metals, in particular, should trend upwards; oil and gold are likely to remain largely stable.
Concluding with currencies, he said that KBL epb expects the US dollar to continue its slide versus the euro, and the yen and Swiss franc to remain weak. Sterling’s fortunes, unsurprisingly, will hinge upon Brexit negotiations.