In this report, we offer our house view on the economy and selected public markets for the year. Despite a generally very bullish outlook, we believe investors should remain prudent, and focus on quality investments and anti-cyclical opportunities - even if it means relinquishing some short-term performance.
“The most hated bull market in history” is a label commentators often use to describe the persistent reluctance of investors in taking on risk, given the unsolved structural problems and sluggish economic growth. Almost nine years later, “hate” has morphed into grudging “acceptance,” and we suspect it will soon turn into outright “love,” the kind that makes people blind. And yet, it is exactly at these times that investors should keep their eyes wide open and have an extra sharp focus.
Adhering to a disciplined, proven investment approach can prevent you from being carried away by the exuberance that will very likely surface in this arguably late stage of the cycle.
For that purpose, long-term investors should maintain a quality bias and become even more selective, whether this pertains to private or public market investing. Avoiding popular themes and “hot” sectors is similarly important. This may mean relinquishing some short-term performance, but the race is long and in the final analysis, we strongly believe that the prudent approach will prevail.
We hope that you find the following pages insightful, and we invite you to share your views and ideas with us.
The world economy may have finally reached “escape velocity,” meaning that the inherent dynamics are strong enough for central banks to tentatively withdraw extraordinary stimulus, and thus normalize monetary policy. Inflation, while still largely absent, may re-emerge to some extent as wage and pricing pressures slowly build.
Despite the upward trend getting long in the tooth, the fundamentals support asset prices at these levels and may lift them higher still. But as investors become more risk-tolerant and investment discipline starts slacking, we are likely to experience exaggerations that are not uncommon in the late stage of a bull market.
Note: The next edition of the LGT Beacon is scheduled for mid February 2018.