2017 has been fascinating in terms of what has and hasn’t performed well. Emerging markets have been the big success story driven by Chinese tech stocks and synchronised global growth. Alibaba, Tencent and Baidu have had a phenomenal impact, partly because of their near monopoly status, but also due to innovation.

With global growth appearing to be synchronised, and Trump’s tax cuts getting closer to implementation, 2018 could be another good year for markets; there is potentially another leg to go in this bull market. If US corporate taxes are cut substantially this will provide extra stimulus to the markets both in the US and globally – the US consumer still drives the world and with unemployment still falling there, and house prices still rising, confidence is pretty strong. However, many developed markets do look expensive.

There are many who say this time is different, and whilst I don’t necessarily subscribe to that theory, whilst there is still QE in some parts (Europe and Japan) this will feed through to asset prices. In Asia, still my favoured region, Chinese growth seems ok, India is still motoring on and markets, whilst they’ve had a good run, are below historical averages. However, that doesn’t mean you should go gung ho! We look for managers and funds that historically outperform in flat or falling markets as you don’t necessarily need to capture all the upside.

Japan is probably the cheapest developed market and Abe’s recent election victory will aid the three arrows. Inflation and wage growth are coming through and company profits and balance sheets look good.

My picks for 2018 are in the higher risk areas of Japan, Asia and Emerging Markets. There are many good funds in all three areas, but First State Asia focus is the one to look at in Asia, Man GLG Japan Core Alpha in Japan and Lazard Emerging Markets.

The UK market

The UK market is slightly unusual at the moment, it’s a market with two distinct elements with international earners priced relatively highly and perceived domestic earners close to the bargain basement. The former group appear to be driven by Sterling and the latter by the state of Brexit negotiations. If Sterling weakens due to Brexit negotiations being poorly perceived then the FTSE could push higher during the year. On the flip side if Brexit negotiations seem to be going ok, political uncertainty recedes and the economy chugs on with steady growth then you could see sector rotation with some selling down of international earners in favour of domestics, meaning the FTSE treads water.

There are various ways to play the theme of a cheap UK, a fund such as JO Hambro UK Equity Income is loaded with cheap stocks such as Lloyd’s, Aviva, and Kingfisher. Interest rate rises play into the hands of the first two, Lloyd’s would be a beneficiary of any further rate rise. What could potentially derail any positivity on cheap domestic UK is if Labour came to power under Corbyn and McDonnell. Their proposed policies could spook Sterling and the stock market and potentially result in most decent investments returns being overseas at that point. If the Tories implode, and Labour ends up in power, expect a run on the pound and a potentially falling domestic stock market.

For what it’s worth I’m going for a flat FTSE 100 over the year and will say it will end at about 7400 – unless there is a big Sterling depreciation, without a Corbyn government in which case it would top 8000. All bets are off though if there is another general election!

I wish all clients of SFP a Merry Christmas and prosperous New Year.

Ben Yearsley December 2017

This article represents a personal view from Ben Yearsley, and is based on his opinion of economic data from the UK and across the globe. It should not be used for investment purposes and does not constitute advice. For investment advice please refer to your financial adviser. No party should act or refrain from acting on anything contained in this material. Relevant primary materials should always be consulted at all times for all purposes. No statements or representations made in this material, document or at the presentation are legally binding on Shore Financial Planning (Plymouth) Ltd or the recipient and no liability is accepted in connection with this material. This article may not be reproduced or circulated without prior permission. Issued by Shore Financial Planning (Plymouth) Ltd, authorised and regulated in the UK by the Financial Conduct Authority.

© Copyright 2017 Shore Financial Planning (Plymouth) Ltd.

A Christmas message from Shore Financial Planning’s Ben Yearsley
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