Christian Nolting, Chief Investment Officer for Deutsche Bank Wealth Management, looks again at our 10 Themes for 2018 in the light of recent economic and market developments.
Theme #1 for 2018 was Forewarned is forearmed – investors should be prepared for an increase in volatility. This has happened and it is not difficult to see the causes: U.S./China trade tensions, Italy and the Eurozone, higher rates and their implications for emerging markets.
Our investment approach, portfolio positioning and security selection should reflect the fact that we are now late in the investment cycle.
Some reassurance should be provided by Theme #2, Growth gazumps geopolitics. Strong economic growth, led by the U.S., shows few signs of faltering and will push along Theme #3 Central banks in transition. This process of monetary policy normalization is necessary but carries risks.
Against this background, Theme #4 Flashlight fixed income – be selective – is still highly relevant. Gradual rising rates and a flattening yield curve will be accompanied by a modest tightening of spreads on corporate and EM bonds.
We expect further equities gains – Theme #5 Still some oxygen for equities. But stock/sector selection and continued active management will be important as dispersion returns to more normal levels. We also continue to see long-term positives in The “new” emerging Asian equity market, Theme #6.
Recent market volatility has underlined the case for Theme #7, Explore investment alternatives. Liquid or illiquid alternative investments may provide useful diversification properties for portfolios.
Theme #8 is Dynamic FX drivers and a range of factors have supported our successful stronger USD call. Theme #9 is Oil déjà vu and we still expect oil prices to slide back towards previous lower levels as production increases. Theme #10 Tomorrow’s themes today continues to provide selected long-term ideas based on social, demographic and technological change.
In this late-cycle environment, we think that it makes a lot of sense to stay invested, but hedge – in other words, to safeguard your portfolios through a range of measures.