New year is typically a time to review one’s life and to set new goals through resolutions. But whilst many will focus on personal goals such as going the gym or spending time with one’s family, financial goals can be just as important: setting targets around saving for retirement, education or a down payment for a first home.
As such, ensuring that your portfolio continues to produce the best balance of risk and returns for your circumstances is vital. With this in mind, we’ve identified the key investment trends and themes for 2018 to help you in your decision-making:
1: Look to emerging markets for opportunities
The baton of growth momentum has passed from the advanced to the emerging economies. Despite previous concerns, emerging market growth remained strong in 2017. Global stock markets and emerging markets recorded robust returns in 2017, driven by simultaneous growth across all major economies, low inflation and strong corporate results. Macroeconomic factors created a favourable business environment and this should continue to support corporate profits in 2018.
Investors should focus on the balance of risks and returns in 2018 and allocate assets to markets that are undervalued and can benefit from the economic environment, such as China.
2: Equities set to perform well in 2018
Equities across the board look attractive when compared with other asset classes. Meanwhile, valuations for emerging market equities remain more attractive than their developed market peers despite the strong rally in 2017 and as such we expect emerging markets to outperform developed markets once again in 2018. However, HSBC does not believe that developed market equities are overvalued and they still have a place in a globally-diversified portfolio.
3: Asia to offer best equity investment opportunities
The main investment opportunities we see for next year in equity markets are in Asia and especially North-Asian markets such as South Korea and China. Asia looks set to continue growing at a faster clip than the rest of the world and that will in turn benefit Asian equities. We see opportunities particularly in the technology, banking and consumer goods sectors.
4: Best bond opportunities will also be in Asia
Emerging market bonds, particularly Asian bonds, remain our preferred investment for bonds: their medium-term performance is expected to be positive thanks to better risk-reward and relative valuation profiles. Asian bonds in particular will benefit in particular from China’s belt and road initiative as a key driver of activity in coming years.
5: Keep an eye on inflation
Investing is not without risk and the value of investments can go down as well as up. The major risk that HSBC sees is if inflation starts to build to the point where it forces central banks to raise interest rates faster than expected. The way many asset classes are priced today would mean there would have to be a significant adjustment in financial market prices. If this were to happen there may not be many safe haven options for investors to retreat to. Watching the economic indicators on global growth and inflation will be critical.
No matter what your personal ambitions are, it is important to have a financial plan that can generate long-term and sustainable returns to finance those needs. When planning, always look to understand your investment needs: based on your targets work out how much money you will need and when. Moreover, consider how much risk you are willing to take to achieve those goals.
When constructing a portfolio, asset allocation and diversification are key. It is very unlikely that a single asset class will deliver the highest return all of the time. Combining different asset classes in a portfolio can diversify the risks and improve returns over the longer term. Review and rebalance your plan as personal circumstances change. It can be a good idea to review your portfolio once a year and consider rebalancing your plan whenever you go through major life events, such as getting married or having a baby.
2017 was a good year for many markets but 2018 will offer its own set of opportunities and challenges. With the start of a new year, now is a good time to start or review your plan and portfolio with a trusted advisor.
(Bill Maldonado is Chief Investment Officer, Asia Pacific at HSBC Global Asset Management)
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