Given how strong markets were in 2017, it’s only natural to ask if they can continue their rise in 2018. So far, the answer has been an emphatic yes.
All of our economic, sentiment, and risk indicators continue to indicate a favorable environment for risk assets, as they have for the last several months. Our global leading economic indicators are in the expansion regime globally and across all major regions. Further support comes from our market sentiment and momentum indicators, and from the continued low level of stock market volatility. In short, all of our key near-term measures remain positive.
Outside of equities, we maintain our overweight to emerging market debt, where real yields remain significantly positive. We are neutral to duration from developed market bonds, broadly diversified across the major regions.
Among currencies we are underweight the U.S. dollar, and overweight emerging market currencies and select developed currencies, including the euro and the Japanese yen.
Finally, in November we added a small exposure to oil in the portfolio. This decision was informed by evidence of strong demand growth and tightening supply. So far this has been a positive contributor to the portfolio, and we are monitoring the position closely given the volatility of oil prices.
Overall, I would be surprised if markets can deliver another year as strong as 2017. But at this point in the year, the global backdrop, with strong growth and rising earnings, remains quite positive in our view.
Non-U.S. investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall. Event-linked securities otherwise known as Cat Bonds are fixed income securities for which the return of principal and interest payment is contingent on the non-occurrence of a trigger event that leads to physical or economic loss. If the trigger event occurs prior to maturity, event-linked securities may lose all or a portion of its principal and additional interest. Diversification does not guarantee profit or protect against loss.
These views represent the opinions of Mark Hamilton and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on January 18, 2018 and are subject to change based on subsequent developments. This material is provided for general and educational purposes only, is not intended to provide legal or tax advice, and is not for use to avoid penalties that may be imposed under U.S. federal tax laws. OFI Global is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.