In 2017, global equities were well supported by global earnings growth after years of stagnant corporate profits in US dollar terms. 2018 needs further profit growth to support equities, and at the moment the market does expect that to come through. I think there is a good chance we will see this profit growth, albeit at slower rates than we saw in 2017.
There is a lot of scope for surprise in 2018. One of the most surprising things about 2017 was how calm markets were and how they trended up gently.
This year, we could see more geopolitical uncertainty with a larger effect on markets than this year, but the nature and intricacies of such uncertainty are very difficult to predict.
The market could also be surprised by rising inflation. At the moment, inflationary pressures do appear under control but that could change if economies start to run too hot.
Regionally, Japanese equities are still well below the levels of the late 1990s, but in 2017 they reached a 25-year high. Earnings growth in Japan is expected to reach 20% in 2017, but consensus forecasts that rate to slow sharply in 2018, although it is still expected to remain in positive territory. I think there is potential for Japanese profits to surprise investors on the upside in 2018, resulting in another leg up in that market.
In 2017, most of the good new opportunities were outside of the US, and so I have been tilting the balance a little towards other regions.
In 2018 I will be concentrating on three disciplines:
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in small and emerging markets can be more volatile than those in other overseas markets. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.