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Summing Up 5 Key Predictions For Global Markets in 2018

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Despite being roughly nine years into the second-longest bull market in history, recent headwinds have cropped up to make the start of 2018 an interesting one for markets.

As investors re-evaluate their portfolios and exposure, it’s worth exploring some of the major themes and trends that are expected to drive markets in 2018.

Predictions for 2018

Today’s infographic was done in collaboration with Swissquote, a Swiss banking group, and it highlights their five most important predictions for the rest of the year ahead.

Taken from their 2018 Market Outlook Report, which can be downloaded for free, the following graphic discusses key themes of the year such as central bank policy, European unity, China, cryptocurrencies, and emerging markets.

Summing Up 5 Key Predictions For Global Markets in 2018

Enjoy the infographic? Get the full report for free from the Swissquote 2018 Market Outlook page.

Swissquote’s Predictions

Here are the high level points of Swissquote’s predictions:

1. Fed in Inflation Fighting Stance

Despite a strong economy, specifically tight labor markets, inflation has perplexingly not appeared. In Swissquote’s view, expansionary monetary policy by central banks is the primary reason for the current stretched valuations.

And of the central banks, the Fed is not only the most important – but also the most active. Expecting a sudden kick from ultra-tight labor markets to boost wage growth and consumer inflation, the Fed is again ready to act in 2018.

As a result, Swissquote sees U.S. GDP growing 2.2%, the labor market tightening, and annual core PCE inflation hitting 1.8%.

Prediction: The Fed will hike three times.

2. Unified Europe Will Emerge from Spain

The start of 2017 brought fears of the EU’s demise, as rising political populism suggested an end to EU federalism. However, despite recent events in Catalonia, Swissquote sees Europe actually emerging from 2018 more united.

Heading into 2018, economic sentiment in Europe is at 10-year highs. Further, the election of Macron in France – and the re-election of Merkel in Germany – will mean a continued push for deeper EU integration.

In 2018, Swissquote sees the following headwinds in Europe: uncertainty around independence in Catalonia, the Italian elections, and austerity in Greece.

Prediction: The powerful trio of Macron, Merkel, and Draghi will weather the storm – and their unity will have a profound effect on pricing in events such as Brexit and the Italian elections.

3. China Grabs the Political Void

China’s economy will slow in growth slightly in 2018, but the country’s regional economic dominance is undisputed. With a GDP (PPP) of $21.5 trillion, it even dwarfs India ($8.7 trillion), Japan ($5.3 trillion) and Russia ($3.4 trillion) combined.

And empowered by the volatile behavior of President Trump, China has embraced its new role as regional and global leader. Judging from the 2017 World Economic Forum in Davos and the Chinese Communist party congress, Xi Jinping and China are ready to step into the light.

Prediction: China will step up efforts to further entrench its hybrid model, which includes politics and economics.

4. Cryptocurrencies are the Real “Populist” Vote

While the Brexit and Trump votes represent the protest of existing systems – there’s also a monetary component to that populism that is hiding in plain sight.

Central banks have created trillions of dollars out of thin air since the 2008 crisis, and people no longer trust the government to protect their money and wealth. As a result? People have been pouring money into bitcoins and altcoins instead.

Prediction: This “populist” vote against the monetary policy of global central banks will continue in full form.

5. Emerging Markets Lead the Growth Charge

GDP growth in emerging markets for 2017 is expected to be 4.5% – its highest point since 2015 – versus 2.1% for developed markets.

Although protectionism will continue to make the headlines, any real action will be limited, even by the Trump administration.

Prediction: The story for EM in 2018 will be a further increase in international trading. Following a trend, China has reached 15 free-trade agreements with 23 countries and regions. And like in 2017, emerging markets will continue to have more growth and higher returns as a result.

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Visualizing Portfolio Return Expectations, by Country

This graphic shows the gap in portfolio return expectations between investors and advisors around the world, revealing a range of market outlooks.

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Visualizing Portfolio Return Expectations, by Country

Visualizing Portfolio Return Expectations, by Country

This was originally posted on Advisor Channel. Sign up to the free mailing list to get beautiful visualizations on financial markets that help advisors and their clients.

How do investors’ return expectations differ from those of advisors? How does this expectation gap shift across countries?

Despite 2022 being the worst year for stock markets in over a decade, investors around the world appear confident about the long-term performance of their portfolios. These convictions point towards resilience across global economies, driven by strong labor markets and moderating inflation.

While advisors are optimistic, their expectations are more conservative overall.

This graphic shows the return expectation gap by country between investors and financial professionals in 2023, based on data from Natixis.

Expectation Gap by Country

Below, we show the return expectation gap by country, based on a survey of 8,550 investors and 2,700 financial professionals:

Long-Term Annual
Return Expectations
InvestorsFinancial
Professionals
Expectations Gap
🇺🇸 U.S.15.6%7.0%2.2X
🇨🇱 Chile15.1%14.5%1.0X
🇲🇽 Mexico14.7%14.0%1.1X
🇸🇬 Singapore14.5%14.2%1.0X
🇯🇵 Japan13.6%8.7%1.6X
🇦🇺 Australia12.5%6.9%1.8X
🇭🇰 Hong Kong SAR12.4%7.6%1.6X
🇨🇦 Canada10.6%6.5%1.6X
🇪🇸 Spain10.6%7.6%1.4X
🇩🇪 Germany10.1%7.0%1.4X
🇮🇹 Italy9.6%6.3%1.5X
🇨🇭 Switzerland9.6%6.9%1.4X
🇫🇷 France8.9%6.6%1.3X
🇬🇧 UK8.1%6.2%1.3X
🌐 Global12.8%9.0%1.4X

Investors in the U.S. have the highest long-term annual return expectations, at 15.6%. The U.S. also has the highest expectations gap across countries, with investors’ expectations more than double that of advisors.

Likely influencing investor convictions are the outsized returns seen in the last decade, led by big tech. This year is no exception, as a handful of tech giants are seeing soaring returns, lifting the overall market.

From a broader perspective, the S&P 500 has returned 11.5% on average annually since 1928.

Following next in line were investors in Chile and Mexico with return expectations of 15.1% and 14.7%, respectively. Unlike many global markets, the MSCI Chile Index posted double-digit returns in 2022.

Global financial hub, Singapore, has the lowest expectations gap across countries.

Investors in the UK and Europe, have the most moderate return expectations overall. Confidence has been weighed down by geopolitical tensions, high interest rates, and dismal economic data.

Return Expectations Across Asset Classes

What are the expected returns for different asset classes over the next decade?

A separate report by Vanguard used a quantitative model to forecast returns through to 2033. For U.S. equities, it projects 4.1-6.1% in annualized returns. Global equities are forecast to have 6.4-8.4% returns, outperforming U.S. stocks over the next decade.

Bonds, meanwhile, are forecast to see 3.6-4.6% annualized returns for the U.S. aggregate market, while U.S. Treasuries are projected to average 3.3-4.3% annually.

While it’s impossible to predict the future, we can see a clear expectation gap not only between countries, but between advisors, clients, and other models. Factors such as inflation, interest rates, and the ability for countries to weather economic headwinds will likely have a significant influence on future portfolio returns.

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