Review of 2017, outlook for 2018

December 11th 2017

Boy flying dragon kite on the beach

Key points

If you want to prepare for what’s to come in 2018, talk to one of our advisers today.

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2017 – a relatively smooth year

By the standards of recent years, 2017 was relatively quiet. Sure there was the usual “worry list” – about Trump, elections in Europe, China as always, North Korea and the perennial property crash in Australia. And there was a mania in bitcoin. But overall it has been pretty positive for investors:

The “sweet spot” of solid global growth and low inflation/benign central banks helped drive strong investment returns overall.

Investment returns for major asset classes

Total return %, pre fees and tax 2016 actual 2017* actual 2018 forecast
Global shares (in Aust dollars) 7.9 15.5 11.0
Global shares (in local currency) 8.9 17.4 9.0
Asian shares (in local currency) 6.7 33.6 5.0
Emerging mkt shares (local currency) 9.7 27.3 5.0
Australian shares 11.8 9.8 8.0
Global bonds (hedged into $A) 5.2 3.4 2.0
Australian bonds 2.9 3.3 2.0
Global listed property securities 6.0 7.1 5.0
Aust listed property trusts 13.2 5.5 5.0
Unlisted non-res property, estimate 11.0 11.0 10.0
Unlisted infrastructure, indicative 14.0 13.0 10.0
Aust residential property, estimate 8.5 5.0 1.5
Cash 2.1 1.6 1.5
Avg balanced super fund, ex fees & tax 7.3 9.5 6.5

Yr to date to Nov. Source: Thomson Reuters, Morningstar, REIA, AMP Capital

2018 – looking okay but expect more volatility

2018 is likely to remain favourable for investors, but more constrained and volatile. The key global themes are likely to be:

Global business conditions PMIs point to stronger growth

graph comparison for Global Manufacturing PMI and World GDP growth annual change
Source: Bloomberg, IMF, AMP Capital

Fortunately, there is still no sign of the sort of excesses that drive recessions and deep bear markets in shares: there has been no major global bubble in real estate or business investment; there is the bitcoin mania but not enough people are exposed to that to make it economically significant globally; inflation is unlikely to rise so far that it causes a major problem; share markets are not unambiguously overvalued and global monetary conditions are easy. So arguably the “sweet spot” remains in place, but it may start to become a bit messier.

For Australia, while the boost to growth from housing will start to slow and consumer spending will be constrained, a declining drag from mining investment and strength in non-mining investment, public infrastructure investment and export volumes should see growth around 3%. However, as a result of uncertainties around consumer spending along with low wages growth and inflation, the RBA is unlikely to start raising interest rates until late 2018 at the earliest.

Implications for investors

Continuing strong economic and earnings growth and still-low inflation should keep overall investment returns favourable but stirring US inflation, the drip feed of Fed rate hikes and a possible increase in political risk are likely to constrain returns and increase volatility after the relative calm of 2017:

What to watch?

The main things to keep an eye on in 2018 are:

Want to review your year and prepare financially for 2018? Speak with an adviser today.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.


Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.