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Geopolitical concerns set to rule in “crabbish” 2018

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I thought that I should provide everyone with some thoughts on what is possibly in store for investors in 2018.  I have therefore decided to provide an insight into what investment managers are thinking at Redmayne-Bentley.  Needless to say this is only their opinions but it will at least provide a basis for a conversation if anyone wishes to talk about investments with me.

It was predicted to be a year of global turbulence, yet 2017 saw markets power through the political noise as the Dow Jones rose nine months in a row and the FTSE 100 closed the year at a new high. Whilst global equities are expected to deliver further returns, subdued UK economic growth and ongoing Brexit negotiations are expected to hold back UK equity markets in the New Year, according to investment management and stockbroking firm Redmayne Bentley.

Key predictions:

  • The ‘crab’ is expected to rule the FTSE 100 for the third year running.
  • Overseas equities expected to see the most gains in 2018.
  • Scottish Mortgage Investment Trust named as the favoured FTSE 100 stock for the year ahead.
  • UK GDP growth expected to be below expectations.
  • US and emerging markets predicted to see most gains with UK equities seeing most losses.
  • Technology identified as favourite sector with retail named as area to avoid for the second year running.
  • Interest rates to meet analyst expectations, but inflation expected to rise above forecasts.

For the third consecutive year, investment managers and stockbrokers at the firm said they expected the movements of the FTSE 100 to be “crabbish” – that is, neither moving significantly upwards or downwards over the next 12 months. Investment manager Bill Keen said: “Geopolitical risk is likely to remain high. “Risks include the ever-quickening pace of technological change and re-emergence of serious tensions within the EU. A worse-than-expected slowdown in China would not be entirely a surprise.”

The majority expected economic growth to be below the Organisation for Economic Co-operation and Development (OECD)’s forecast of 3.7%. Interest rates are expected to remain at around 0.7%, the level mapped for the end of 2018 in the Bank of England’s latest Inflation Report. However, half of those surveyed said they believed inflation would rise above the Bank’s forecast of 2.3%. Technological advancement featured heavily in 2017, with the rise of cryptocurrency Bitcoin and the launch of electric vehicles amongst other innovations. Optimism is still strong around technology as it was named as the favoured investment theme for 2018. Furthermore, blockchain projects and artificial intelligence are just two technologies expected to continue their march forward during 2018. It is perhaps unsurprising, therefore, that technological advancement was named the top ‘bull’ issue for markets in 2018. However, more than 90% of those questioned said they believed the withdrawal of central bank stimulus would be among the “bear” issues expected to drag on markets in 2018. Investment manager Tony Oxley said: “’If we see global growth strengthen, I think stock markets will struggle as stimulus will be withdrawn. However, I do not see strong global growth. Alternatively, if it stays around current levels I think central banks will still do their best to normalise rates but it will take longer. The second half of 2018 may be a tough time due to this.”

The predictions put forward in this year’s survey were varied and it is worth bearing in mind that these are ideas, rather than recommendations to buy or sell shares in any investments or areas mentioned. Furthermore, investments, and income can fall as well as rise in value and you may lose some or all of the amount you have invested. The performance of the stocks and sectors mentioned, and forecasts for the year ahead, are not a reliable indicator of the future results or performance. Which asset class do you think will see the most gains during 2018?

 

Rank Asset class
1. Overseas equities 78%
2. UK equities 10%
3. Alternatives 8%
4. Cash 2%
5. Property 2%

Which equity market will see the most gains during 2018?

Rank Market
1. US 25%
2. Emerging markets 23%
3. Japan 21%
4. Asia-Pacific (exc. Japan) 13%
5= Europe 9%
5= UK 9%

Which equity market will see the most losses during 2018?

Rank Market
1. UK 37%
2. US 25%
3. Europe 17%
4. Emerging markets 12%
5. Japan 6%
6. Asia-Pacific 3%

Top ranking global Bull and Bear issues

Rank Bull % Rank Bear %
1. Technological advancements 92% 1. Withdrawal of central bank stimulus 92%
2. Chinese consumer growth 82% 2. Alternative Trump-related global crisis 65%
3. Stimulative Trump policy 75% 3. North Korea 63%

In general, how do you feel about the prospects for the UK economy in 2018?

Optimistic Neutral Pessimistic
17% 54% 29%

GDP Growth

Forecast: 3.7% (Organisation for Economic Co-operation and Development)

Above expectations Meet expectations Below expectations
12% 21% 67%

Sterling/USD

Current Level: 1.3 (Nov 2017)                  

Above current level Remain the same Below current level
35% 37% 28%

Bank of England base rate

Forecast: 0.7%; current: 0.5%

Above expectations Meet expectations Below expectations
27% 56% 17%

House prices

Forecast: 2% increase (Countrywide)

Above expectations Meet expectations Below expectations
30% 35% 35%

Inflation

Forecast: 2.3% (Bank of England)

Above expectations Meet expectations Below expectations
50% 36% 14%

Wage growth

Forecast: 2% (CIPD)

Above expectations Meet expectations Below expectations
8% 50% 42%

Jobs/employment (ILO Unemployment Rate)

Forecast: 4.6%

Above expectations Meet expectations Below expectations
13% 66% 21%

Which three UK sectors do you expect to show the most growth in 2018 – and which are you going to avoid?

Rank Favoured Rank To avoid
1. Technology 77% 1. Retailers 75%
2. Pharmaceuticals 42% 2. Travel and leisure 58%
3. Banking 35% 3. Banking 33%
4. Oil and Gas 25% 4. Media 23%
5. Mining 23% 5. Mining 21%

How do you think the FTSE 100 will perform during 2018?

Bullish Bearish Crabbish
13% 30% 57%

Last year, 34% of those surveyed classed themselves as ‘bulls’, holding an optimistic view of the year ahead. This year, just 13% said they were bullish.

Despite the gloomy outlook, however, when asked how high the FTSE 100 would reach during 2018, respondents came back with an average predicted high of 7763. For 2018, the average predicted low point for the index is 6739.   The Favourite FTSE 100 Companies for 2018

Rank FTSE 100 Companies
1. Scottish Mortgage Investment Trust (SMT) 29%
2. GlaxoSmithKline (GSK) 17%
3= BT Group (BT.A) 13%
3= Imperial Brands (IMB) 13%

Favourite investment themes for 2018

Rank Theme
1 Technology 75%
2= Infrastructure 33%
2= Emerging market equities 33%
2= Inflation proofing 33%
3 Japanese equities 29%

I would of course be delighted to be contacted either by email at Rupert.harvey@redmayne.co.uk or my mobile 07711 710 628 should anyone wish to discuss either their investments or how to go about investing in the markets.  Finally, let’s hope that we all have a prosperous 2018.

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Equity Insight

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Not only are we having to contend with the ever present and seemingly endless Brexit negotiations but we are now having to suffer lurid press headlines in regard to vast hordes of politicians who can’t seem to keep their hands under control.  No doubt we shall hear more about the do’s and don’ts from Clive and Caroline and possibly what are the consequences from Chris!

We have today received notification from the Monetary Policy Committee of the Bank of England that interest rates have risen by 0.25% to 0.5%.  For some this is historic as not only will it be the first time that rate have risen in over 10 years but also possibly the first time ever that they have doubled in a single day!

Given all these changes I thought that you should have a read of the latest Equity Insight – Issue 660.  There are some views on what is happening to the markets but also some thoughts on how business is reacting and positioning itself for a number of potential outcomes.

Feel free to contact me if there is anything of interest in the Equity Insight that you might like to discuss on either my mobile 07711 710 628 or my email address Rupert.harvey@redmayne.co.uk.

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Equity Insight

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We continue to live in volatile times and global equity markets are reflecting this.  We have seen geopolitical tensions rise as North Korea continues to ‘tease’ the Donald and the on-going drama of the Europeans and British negotiators speaking in foreign tongues making the perfect antidote for insomniacs.  Even mother nature is getting a little restless by sending a few ‘gusts’ around the world!

Given all of the above I thought it worthwhile to add another bit of useful information about shares and the rights of shareholders in the this link Equity Insight – Issue 656.  As always feel free to get in touch if there is anything that you might feel inclined to talk about.

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Equity Insight

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It’s amazing as just when you think you have mastered the complications of using a new IT system and that you can put your feet up, relax and read articles or blogs from other members up pops another post.  Hopefully you will all find my latest offering Equity Insight – Issue 655 well worth a read.

This documents provides some thoughts on the on-going concept of Quantitative Easing particularly in United States as well as reviewing old and new thoughts on particular shares and markets.

This is the ideal reading material for those quieter moments over the bank holiday weekend!

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Thoughts on investments and stock markets

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Please find the latest quarterly newsletter from Redmayne-Bentley that might be of interest.  Areas that are covered within the newsletter include:

  • The great unwind – US interest rates v US equities.
  • Top Trades.
  • Do you need help with your investments?
  • The future for oil.
  • The early bird catches the worm.
  • Important information for clients.
  • FTSE Reshuffle
  • Hot property.

I would be very happy to answer any questions that you might have arising from reading the newsletter.

The Quarterly – Summer 2017

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