25 December to 1 January: Ringing in the New Year

After a perfect year for passive investors (positive returns across asset classes and low volatility), 2018 is likely to be more discriminating. Economic momentum is strong and provides a positive impetus, but will play against a tightening in monetary conditions and rich valuations across developed markets. There are also a number of dynamics that will divide opinion. These include:

• In the US, whether tax reform will provide a boost to demand or simply redistribute wealth, whether new leadership at the FED will change the course of interest rate policy and whether low unemployment will finally force wage growth.
• In commodity markets, whether oil can continue its recent resurgence (Brent and WTI up 18.8% and 16.9% respectively in Q4) after OPEC members agreed to a 9-month supply cut extension.
• In Italy, Russia, Mexico and Brazil, the outcomes of general and presidential elections.

We believe a number of emerging markets remain well positioned on a relative basis. Of particular note, the election of Cyril Ramaphosa as President of the ANC, has a chance of reversing a decade long decline in South African business confidence and unemployment.

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