Russell Investments’ 2018 Global Market Outlook: Golden-oldie bull market may face the music in 2018

  • Equities could push higher before facing headwinds later in 2018
  • Strategists expect Australian housing growth to slow in new year
  • Europe, Japan and emerging markets likely to outperform the U.S.

SYDNEY, 11 December 2017Russell Investments has released its 2018 Global Market Outlook as Australian investors head into the summer festive season, offering economic insights and market forecasts for the year ahead with tips on what to watch and why.

The firm’s investment strategists believe global growth momentum is likely to persist into 2018, pushing up equity markets over the first part of the year. Japan, Europe and emerging markets are likely to outperform the U.S. Similarly, the euro, Japanese yen, British pound and emerging market currencies may offer investors more potential upside in 2018 than the U.S. dollar.

“The scenario for global markets in 2018 is likely to be driven by the U.S., which still dominates and is further advanced in its cycle than other economies,” said Andrew Pease, global head of investment strategy at Russell Investments. “Second-hand growth from the global economy could drive a blow-out U.S. rally in 2018, but rising headwinds later in the year are likely to spoil this goldilocks scenario. With Europe, Japan and emerging markets performing well, we believe a globally diversified multi-asset investment strategy offers the best opportunity to find a path between euphoria and danger.”

The timing of the next U.S. recession will be a critical issue for the global economy in 2018. Further out, the strategists see the risk of a recession in 2019 if additional policy tightening by the Fed causes the yield curve to become inverted. The strategists believe the 10-year U.S. Treasury yield could rise towards its fair value before declining in the latter half of 2018 as recession fears grow.

In contrast to the U.S., the eurozone is amid a mid-cycle renaissance and at the early stage of its exit from a very loose monetary policy, which the strategists believe may keep core eurozone bond rates rangebound through 2018.

Looking specifically at Australia and the Asia-Pacific region, the firm’s two Sydney-based strategists offer a supplement to the global report, titled “What are we watching in 2018?” It touches on the ageing economic expansion in Australia, which is the longest on record, according to modern gross domestic product data collected since 1959; Australian housing; geopolitical uncertainty, including North Korea; and other key issues impacting the 2018 outlook for Australian investors.

In the global report, Senior Investment Strategist Graham Harman and Investment Strategy Analyst Alexander Cousley write that they expect the Asia-Pacific region to post another year of high growth in 2018, with good support from Australia and Japan, though with developing economies outpacing developed. Looking specifically at Australia, they continue to be constructive on the economy, pointing out that strong business confidence has been translating into solid payroll gains. They also see

signs of improving capital expenditure plan.

“We expect another strong year for the Asia-Pacific region, buoyed by an accommodative policy at the Bank of Japan,” Mr Harman said. “In Australia, although the economy may start well in 2018 with solid growth and a low inflation pulse, we expect to see signs of re-emergent wage and price inflation during the year, which we expect will see the Reserve Bank of Australia hike rates twice.”

Mr Harman added that while the Australian equity market has lagged global markets in 2017, there is potential for the market to catch up through 2018, driven by improving commodity prices.

“The question for investors in 2018 is how to make the most of late-cycle returns while preparing for the inevitable downswing," said Jeff Hussey, Russell Investments’ global chief investment officer. "Investors need to squeeze every basis point out of their portfolios using smart strategies, implemented in a cost-effective manner, and backed by a dynamic process that leans into opportunities and away from risks.

For more details on this report, please see the 2018 Global Market Outlook.

About Russell Investments

Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures— to help each achieve their desired investment outcomes. The firm has AUD$368.6 billion in assets under management (as of 30/9/2017) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally.

Headquartered in Seattle, Washington, Russell Investments operates globally with 21 offices, providing investment services in the world’s major financial centers such as London, Paris, Amsterdam, Sydney, Tokyo, Shanghai, Toronto and New York.  For more information about how Russell Investments helps to improve financial security for people, visit www.russellinvestments.com/au.

 

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