2018 Global Investment Outlook

Transcription

1 2018 Global Investment Outlook This document is for information purposes only and does not constitute investment recommendation. For professional clients only. December 2017

2 Contents - Our macro outlook p.3 - Our market outlook p.5 - Risks to watch out for p.7 - Our investment style outlook p.8 2

3 2018 Global Investment Outlook Macro GROWTH Diffused and globally synchronized growth. Growth acceleration may have peaked. Positive momentum will depend upon the productivity and CAPEX growth. INFLATION We believe low inflation is more structural than temporary, with a flatter Phillips curve (demography, digitization, etc.). Core inflation will remain persistently below central bank targets. MONETARY POLICY Central banks will remain accommodative but in transition toward normalization (balance sheets and rates) requiring precise communication. A financial tightening should be avoided. POLITICS US trade policy is very likely to focus on bilateral agreements and will impose their authority within the WTO. Amid populist movements in Europe and beyond, we expect low Eurosceptic risk in Italy. GEOPOLITICS Geopolitical risk could generate some noise (North Korean conflict and tensions between the Trump administration and Iran). The defeat of ISIS could create a power vacuum in the Middle East. Key takeaway We believe the pace of the recovery might be at its peak, but growth trend should persist as more countries participate. Central banks remain accommodative wile normalizing. ABN AMRO Investment Solutions: This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

4 Macro Outlook World Economic Growth Diffusion (Number of countries in recession out of 191) Global growth is relatively diffuse: IMF expects only 6 countries to be in recession (negative real growth) in 2018 (after 13 in 2017). 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% % of countries in recession (left) Nb of countries in recession (right) IMF Forecast % Sources: Datastream, IMF World Economic Outlook, annual data (and IMF forecasts for 2018). Countries in recession for 2018 are: Venezuela, Puerto Rico, Equatorial Guinea, South Sudan, Swaziland, Nauru (0.20% of world GDP in USD). ABN AMRO Investment Solutions. This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

5 2018 Global Investment Outlook Markets EQUITIES Equities remain our preferred asset class, but the 2017 run-up has further tempered our global return expectations. Earnings revisions are likely to be the primary driver regarding valuations. STYLES Large/Small capitalization positions will be driven by data/news and relative valuations (expensive smallcaps in Europe). The macro environment and relative valuations are generally more favorable to value investments. INTEREST RATES The risk of higher interest rates with the favorable macroeconomic environment and the monetary policy normalization is capped by the structural factors behind the low yield environment. CREDIT Tight spreads reflect business cycle conditions, leaving us cautious on credit spreads. We believe it is still too early to derisk, but appropriate to be more selective on signature quality. VOLATILITY Low volatility reflects the macroeconomic stability, but may be highly vulnerable to temporary exogenous shocks, such as geopolitical tensions or earning/activity disappointments. Key takeaway We believe macro conditions remain supportive for risky assets, even if valuations suggest moderate return potential and increased tail risk. Single digit equity performances are expected. ABN AMRO Investment Solutions: This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

6 Market Outlook Equity and Macroeconomic Volatilities Equity volatility can be analyzed through two components: a short and longer-term one. Inflation and real growth volatilities are the first drivers of the long-term component with the level growth of activity and the level of inflation. VIX and real GDP growth volatility in the US VIX and inflation volatility in the US 48 VIX (left) US real GDP growth std deviation - rolling 8 quarters (right) 1,3% 48 VIX (left) US inflation std deviation - rolling 8 quarters (right) 1,0% 41 1,1% 41 0,8% 34 0,9% 34 0,6% 27 0,7% 27 0,4% 20 0,5% ,3% 13 0,2% ,1% ,0% Sources: Datastream, quarterly data from 01/01/2000 to 30/11/2017. ABN AMRO Investment Solutions. This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

7 Risk Outlook What will we track in 2018? MACROECONOMICS Euro Area Slowdown Activity growth is likely to remain solid. However the risk of disappointment is high with the gradual tightening of financial conditions and after catching up on bad times. Maturing US Business Cycle The current expansion period is the thirdlongest in US history. Even if US business cycles are carried over, the US recession risk could be one of the major 2018 challenges. China s Rebalancing and Deleveraging China has to achieve sustainable consumption-driven growth while private debt exploded. Zombie firms and debt-ridden stateowned enterprises are an increasing drag. MONETARY POLICY ECB tightening ECB officials opinions differ regarding the future of the quantitative easing: some want a concrete end-date for their bond purchases others recommend acting according to the prevailing situation. Fed Governance After J. Powell (as chairman), R. Quarles (bank supervision) and M. Goodfriend, the President D. Trump could appoint up to three new US central bank board members in China s Monetary Tightrope Under its new prudent and neutral policy, the People's Bank of China has adopted a modest tightening to cool torrid credit expansion. M2 money growth reached an all-time low. POLITICS Italian Elections A recent change in electoral law allowing alliances to be formed before elections could penalize the Eurosceptic 5-Star Movement, which rejects to build coalitions. The US Fiscal Reform We remain skeptical regarding measures that can permanently raise growth. Fiscal stimulus in good times can only fuel the external deficit. At best, it can improve company margins. Reversing Brexit? By the end of 2018, 3 months will remain before the UK officially leaves the EU. Reversing Brexit is still a plausible scenario. Any scenario starts with T. May's own exit from the scene. This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

8 Style Outlook 2018: the year for Value? Value vs Growth in financial history Value versus growth is one of the oldest investment styles. Value-buying stocks (that are underpriced, according to some fundamental metrics, such as price-to-book ratio) were popularised under Ben Graham and David Dodd in Value vs Growth today Growth sectors are currently: Technology, Consumer Discretionary and Health Care. Value sectors are Financials and Energy. A past decade favorable to Growth The past decade represents the longest period of growth outperformance stocks that have above-average earnings growth in history. We believe that the pendulum will swing back. Value vs Growth and the business cycle Historical value-growth cycles show that they mainly depend upon the business cycle. Value tends to outperform growth in the second phase of expansion, when the recovery is sufficiently robust and accompanied by a monetary tightening. Current conditions in favor of Value The combination of a steady economic growth, a gradual tighter monetary policy and attractive relative valuations makes us suggest that value is well-positioned for outperforming the coming year. Our positioning Consequently, we prefer Value over Growth both in Europe and the US. This document is for information purposes only and does not constitute an investment recommendation. For professional clients only December

9 Disclaimer ABN AMRO Investment Solutions - AAIS Limited company with Executive and Supervisory Board capital of 4,324,048 Euros registered with the RCS Paris under number , Head office: 3,avenue Hoche, Paris, France, Approved by the AMF, dated 20/09/1999, as a portfolio management company under registration number GP99-27 This promotional document prepared by ABN AMRO Investment Solutions ( AAIS ) does not constitute a solicitation to buy, an offer to sell or legal or tax advice. On no account does it constitute a personalised recommendation or investment advice. Before making any investment decision, the investor is responsible for assessing its risks and for ensuring that the decision is consistent with his objectives, his experience and his financial circumstances. The investor s attention is drawn to the fact that information on the products featured in this document is no substitute for the completeness of the information contained in the fund s legal documentation that you have been given and/or that is available free of charge on request from AAIS or on the website Before making any investment, the investor must pay particular attention to the risk factors and carry out his own analysis that takes into account the need to diversify investments. All investors are encouraged to take advice on this matter from their regular legal, tax, financial and/or accounting advisors before making any investment. The information and opinions contained in this document are for general information only. They are taken from sources that AAIS considers trustworthy, but no guarantee can be given as to their accuracy, reliability, validity or completeness. Past performance is not a guide to the future performance of the fund and/or the financial instruments and/or the financial strategy described therein. Performance data do not take into account any commissions paid on the subscription or acquisition of financial instruments. No guarantee can be given that the described products will achieve their objectives. Investing in financial instruments carries risks and investors may get back less than the amount of their investment. When a financial investment is denominated in a currency other than your own, the exchange rate may have an impact on the amount of your investment. The tax treatment differs according to each client s particular circumstances. It is therefore strongly recommended that, before investing, you take advice on the appropriateness of the investment to your objectives and your legal and tax circumstances. It is your responsibility to ensure that the regulations to which you are subject, depending on your status and your country of residence, do not prevent you from investing in the products or services described in this document. Access to products and services may be restricted for certain persons or in certain countries. For additional information, you should contact your regular advisor. Complaints may be sent free of charge to the AAIS customer service department using the following address: aais.contact@fr.abnamro.com This document is intended only for its original addressees and may not be used for anything other than its original purpose. It may not be reproduced or distributed, in whole or part, without the prior written consent of AAIS and AAIS shall not be held responsible for any use made of the document by a third party. The names, logos or slogans identifying AAIS s products or services are the exclusive property of AAIS and may not be used for any purpose whatsoever without the prior written consent of AAIS. 9