Investment Outlook (Q1/2018)

The Investment Outlook for the first quarter of 2018 has been published.

“Price is what you pay. Value is what you get.”
Warren Buffett

Macro Environment

Inflation pressure in developed markets is picking up slightly
European recovery maintains momentum – Italian elections could add to political turmoil again
US sentiment & confidence remain robust while hard data is catching up
Emerging markets show no signs of growth weakening

Risks for equity markets increases further as valuations become even more stretched, especially in the US
Investor complacency is manifesting itself in historically low volatility
Fed still on track to tighten further and might be forced to step in more resolute
ECB and BoE continue to change wording to prepare markets for an exit of their loose monetary stance
Productivity growth continues to be located in emerging markets rather than in developed economies

Remain cautious and keep a neutral position of the return and income portion in the model portfolio
Increase cash allocation to neutral
Equities over Sovereign Bonds
Emerging over Developed Equities
EMD and Investment Grade Credit over Sovereign Bonds
TIPS as an (unexpected) inflation hedge

Global trade war initiated by erratic and extreme protectionist measures by the Trump administration
Risks of missteps as China continues the attempt to rebalance its economy
from an unsustainable export-orientedone to a more domestically
supported one and impose too strict regulatory frameworks on banks
Higher than expected inflation in the US, coupled with substantially increased
spending lead to more than theexpected rate hikes by the Fed and choke
of economic momentum, leading to a possible recession
The global economy is “driving without a spare tire” ahead of the next recession,
whenever it happens, as mostcentral banks are not far removed from the
zero lower bound
The potential for the long-held geopolitical equilibria in the Korean Peninsula and Middle East to be shaken up

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