CIO Investment Outlook

The consequences of monetary tightening will define the 2018 investment landscape.

Twelve months ago, I worried 2017 could see markets come down to earth with a bump, triggered by rising populism and the clamour for protectionism. However, I underestimated central banks  being able to keep the liquidity taps aggressively turned on, supporting growth and asset values.

Despite low nominal GDP growth, loose monetary policy has kept volatility low, asset valuations high and structural problems such as poor demographic trends and high debt at bay. The key difference in 2018 is that central banks are now removing their support. As long as economic growth and corporate earnings remain robust, then equity and credit markets may maintain their lofty valuations. But as the tide of quantitative easing goes out, I suspect we may be surprised by how many have been swimming naked.