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
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
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
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
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