PHILADELPHIA, PA, January 12, 2018 – FIS Group, a manager of U.S. and global developed, emerging and frontier markets equity portfolio strategies, today issued its latest Q1 2018 Market Outlook, ‘Goldilocks need not fear the bear in 2018… but her respite will be more fitful,’ which provides a review of a nearly perfect market for risk assets in 2017, and predictions for what is to come in the year ahead.
“As we turn the page to 2018, there are a few obvious clouds on the horizon for the world economy,” says Tina Byles Williams, CEO and CIO of FIS Group. “Nonetheless, we expect 2018 to be a transition year. Stretched valuations and extremely low volatility imply that risk assets are vulnerable to the consensus macro view that central banks will not be able to reach their inflation targets, even in the long term.”
According to the Q1 2018 Market Outlook, in the U.S., tax cuts will give business outlays and overall GDP growth a modest lift in 2018, boosting real GDP growth by 0.2 to 0.3 percentage points. While US equities are due for a correction, Byles Williams doubts that they will plummet into bear market territory in 2018, instead anticipating that the S&P 500 will only slide into bear territory in 2019.
Meanwhile, global emerging markets have been turbocharged by both external and internal forces, according to the Q1 2018 Market Outlook. The initial spark was Chinese reflationary policies, followed by a growth uptick in the U.S. and Europe and a weak US dollar in 2017. EM equities have been supported by improving earnings momentum, rebounding export growth, and strengthening balance sheets.
Byles Williams states: “We believe that Emerging Markets will continue to outperform in 2018, but will be challenged over time by China’s changing growth strategy, which will gradually remove a powerful tailwind for EM economies that most directly benefit from its historical capital-intensive growth emphasis.”
“On the positive side,” she adds, “the earnings rebound for many EMs are lagging the cyclical upswing more broadly and is still supported by mostly accommodative bank policies.”
FIS Group also believes that Japanese and Eurozone equities will once again outperform U.S. equities, and that late-cycle and Capex-exposed sectors will benefit from synchronized global growth ensuing for the first time since the Great Financial Crisis.
2017 saw a mountain of geopolitical concerns which turned out to be either red herrings or were overcome by positive market fundamentals, including tensions in North Korea, according to the Q1 2018 Market Outlook.
In terms of geopolitical risks for the year ahead, “Of greater concern is the risk of increased foreign policy adventurism, as well as the ratcheting up of protectionist trade policy by the Trump Administration both to distract from domestic political troubles and feed red meat to the President’s base. It is in this context that we are keenly monitoring the recent ratcheting up of tensions in Iran,” says Byles Williams.
About FIS Group
FIS Group is an investment management firm that provides customized manager of managers investment solutions for institutional investors. For 20 years, we have delivered risk-adjusted returns by conquering the complexity of identifying high skill, high active share entrepreneurial managers that have gone largely undiscovered by the institutional investor community. Unique among our peers, FIS Group enhances risk-adjusted returns by using macro strategy insights to allocate capital among the managers and/or through a global macro tactical completion strategy. Our culture is a fusion of relentless curiosity and a scientific, disciplined process.