Investment Outlook , Published Jan 18, 2018
Gary Dugan is an investment professional with over 35 years of experience, who advises Sanctum on global macro economic trends. He has worked with some of the world’s largest asset managers and investment banks including JPMorgan, Barclays and Merrill Lynch. As a Chief Investment Officer, he has managed money and advised the world’s largest sovereign wealth funds and private clients.
In recent years he has worked in the Middle East as a CIO. He also spent time in Singapore as CIO for Coutts International. He is currently the CIO for Namara, a multi-family office based in Dubai.
Gary has for many years been regularly quoted in the media, spoken at international conferences, and appeared on TV and radio.
2018 may start well if only because the global economy has maintained reasonable momentum into the end of the year. However, in our view, the ongoing lack of structural reform in many of the world’s largest economies will inevitably weigh on long-term growth. Debt levels are very high, labour markets are showing skill shortages, and productivity gains are well down on previous levels. Over the longer term, many of the largest economies are likely to struggle to get out of the 0.5% to 2% range of annual GDP growth.
The primary challenge for global markets in 2018 is that we are likely to see many central banks reversing at least part of the very accommodating policies of low-interest rates and quantitative easing.
The US Federal Reserve is already raising interest rates, and is expected to increase interest rates more aggressively in 2018. Other central banks could join the Fed on a path of moving rates higher or reducing their quantitative easing.
2018 will likely see some shape of correction in global asset markets.
Volatility has been unnaturally low and must inevitably revert, which will hurt those investors that over-exposed to what they believed to be safe assets. As central banks rein in their quantitative easing, there will most likely be some negative consequence for asset prices. US equity valuations are at some of the highest levels seen in history, and credit spreads at some of the tightest. The volatility of financial markets has been the lowest in history giving investors a false sense of the degree of risk in financial assets. We fear that many investors have been lured into taking inappropriate risks with their capital. Even a modest sell-off of markets could lead to a more significant correction as many investors seek to re-balance their portfolios to a more cautious strategy.
Given the backdrop of higher US interest rates, the US dollar is likely to recover modestly from its weakness in 2017. That said, we would be surprised to see any sharp movements in the major currency crosses. Even though geopolitical issues could still disturb the markets, the dollar has not always been a beneficiary; investors are tending to prefer buying gold or indeed cryptocurrencies rather than the dollar.
In commodity markets, there is room for some modest appreciation of prices with reasonable global growth in 2017 having taken some of the slack in markets away. Oil prices are expected to remain in the range of $60-70. We expect metal prices to hold onto their recent gains (around +20% for the year).
For international investors, the Indian asset market will continue to be seen in a favourable light.
Where the rest of the world offers low growth and insufficient structural change, India, by contrast, is seen as a reforming economy with the prospect of strong long-term growth. India also benefits from a favourable contrast to other emerging markets. In particular, the fact that China is downshifting to a slower pace of growth.
Investment Outlook 2018