Better-than-expected economic growth, prolonged low inflation and stable financial conditions are a strong foundation for markets in 2018. But high growth also implies economic fluctuations. ABN AMRO advises its clients to start 2018 by being modestly overweight in stocks, to be alert to opportunities and to use cash as a buffer against risks. This can be read in the bank’s 2018 Investment Outlook which has been published today.
Didier Duret, Chief Investment Officer, ABN AMRO Private Banking, said: ‘In 2018, we face a restored business cycle, which means a more dynamic environment with ups and downs. The ultimate goal for our clients in 2018 should be to build a resilient international portfolio and to be aware, as the economic recovery matures, that there is the possibility of market valuations becoming excessive’.
ABN AMRO favours the industrials and consumer discretionary sectors that can benefit from the solid growth momentum underway. Thematic investing requires finding a balance among stocks exposed to renewable energies, emerging consumers and innovative companies active in modernizing manufacturing. Firms related to the Interconnected Factory thematic, based on the internet of things, will likely gain relevance in 2018.
Asian emerging-markets equites are preferred for valuation and earnings prospects. In addition, ABN AMRO expects green bonds, bonds funding climate solutions, to comprise an increasing proportion of investor portfolios in 2018. ABN AMRO expects sustainable investing to move from being a niche to the norm over the next few years.
Commodity markets can be used for portfolio diversification against geopolitical risk. For oil, ABN AMRO expects global demand growth to remain solid and for oil prices to rise. The forecast for the average oil price is USD 70 per barrel (Brent) in 2018.
In currencies, ABN AMRO has shifted the expectation of a stronger EUR/USD into 2019. ABN AMRO expects the US Federal Reserve to hike interest rates more aggressively than what is now expected by the market. Two 25-basis point Fed Funds rate hikes are forecast in 2018.