Benign outlook but caution still necessary

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The outlook for investment markets is positive for 2018, but investors need to remain on full alert, according to a report by Legg Mason, published today.

The ‘Outlook 2018 Report’, representing the combined view of Legg Mason’s affiliate managers, says the outlook for this year can be neatly summed up by that old adage: “focus on the fundamentals”.

Andy Sowerby, the Australian head of Legg Mason, says the consensus of the report is that our affiliates find few reasons to expect the positive investment environment to deteriorate, but don’t believe investors should adopt the “rising tide” philosophy.

“On the contrary, given current valuations gains, this year could well require the kind of selective approach to sectors and securities that is practised by active managers.

“The report states that economic conditions appear positive in nearly all regions – the first time that global growth has been this synchronised since 2011, with no major economies mired in recession.

“This expansion has yet to provoke a major uptick in inflation, and for 2018, the International Monetary Fund projects it to average 1.7% in advanced economies before converging on 2% over the medium term.

“This benign scenario reflects in part the finesse major central banks have shown in gauging the pace of recovery and effectively communicating their planned monetary policy changes to financial markets,” he says.

Key take-aways from the report include:

  • Unconstrained fixed Income specialist Brandywine Global says: “The dominant trend at the commencement of 2018 is the breadth, depth and strength of the current economic expansion.”
  • Specialist equity investor Martin Currie says: “We appear to have moved from a low-growth, low-inflation environment to the so-called ‘Goldilocks’ scenario of higher growth and low inflation.”
  • Global fixed income manager Western Asset Management says: “US growth in the coming year is likely to exceed 2 per cent and we see positive developments in China following its attempts to tame its bond market and increase its integration with the global financial system. China’s currency is ceasing to deteriorate, and now beginning to improve.”

Download the full report here.

 

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