Markets
Summing Up 5 Key Predictions For Global Markets in 2018
Despite being roughly nine years into the second-longest bull market in history, recent headwinds have cropped up to make the start of 2018 an interesting one for markets.
As investors re-evaluate their portfolios and exposure, it’s worth exploring some of the major themes and trends that are expected to drive markets in 2018.
Predictions for 2018
Today’s infographic was done in collaboration with Swissquote, a Swiss banking group, and it highlights their five most important predictions for the rest of the year ahead.
Taken from their 2018 Market Outlook Report, which can be downloaded for free, the following graphic discusses key themes of the year such as central bank policy, European unity, China, cryptocurrencies, and emerging markets.
Enjoy the infographic? Get the full report for free from the Swissquote 2018 Market Outlook page.
Swissquote’s Predictions
Here are the high level points of Swissquote’s predictions:
1. Fed in Inflation Fighting Stance
Despite a strong economy, specifically tight labor markets, inflation has perplexingly not appeared. In Swissquote’s view, expansionary monetary policy by central banks is the primary reason for the current stretched valuations.
And of the central banks, the Fed is not only the most important – but also the most active. Expecting a sudden kick from ultra-tight labor markets to boost wage growth and consumer inflation, the Fed is again ready to act in 2018.
As a result, Swissquote sees U.S. GDP growing 2.2%, the labor market tightening, and annual core PCE inflation hitting 1.8%.
Prediction: The Fed will hike three times.
2. Unified Europe Will Emerge from Spain
The start of 2017 brought fears of the EU’s demise, as rising political populism suggested an end to EU federalism. However, despite recent events in Catalonia, Swissquote sees Europe actually emerging from 2018 more united.
Heading into 2018, economic sentiment in Europe is at 10-year highs. Further, the election of Macron in France – and the re-election of Merkel in Germany – will mean a continued push for deeper EU integration.
In 2018, Swissquote sees the following headwinds in Europe: uncertainty around independence in Catalonia, the Italian elections, and austerity in Greece.
Prediction: The powerful trio of Macron, Merkel, and Draghi will weather the storm – and their unity will have a profound effect on pricing in events such as Brexit and the Italian elections.
3. China Grabs the Political Void
China’s economy will slow in growth slightly in 2018, but the country’s regional economic dominance is undisputed. With a GDP (PPP) of $21.5 trillion, it even dwarfs India ($8.7 trillion), Japan ($5.3 trillion) and Russia ($3.4 trillion) combined.
And empowered by the volatile behavior of President Trump, China has embraced its new role as regional and global leader. Judging from the 2017 World Economic Forum in Davos and the Chinese Communist party congress, Xi Jinping and China are ready to step into the light.
Prediction: China will step up efforts to further entrench its hybrid model, which includes politics and economics.
4. Cryptocurrencies are the Real “Populist” Vote
While the Brexit and Trump votes represent the protest of existing systems – there’s also a monetary component to that populism that is hiding in plain sight.
Central banks have created trillions of dollars out of thin air since the 2008 crisis, and people no longer trust the government to protect their money and wealth. As a result? People have been pouring money into bitcoins and altcoins instead.
Prediction: This “populist” vote against the monetary policy of global central banks will continue in full form.
5. Emerging Markets Lead the Growth Charge
GDP growth in emerging markets for 2017 is expected to be 4.5% – its highest point since 2015 – versus 2.1% for developed markets.
Although protectionism will continue to make the headlines, any real action will be limited, even by the Trump administration.
Prediction: The story for EM in 2018 will be a further increase in international trading. Following a trend, China has reached 15 free-trade agreements with 23 countries and regions. And like in 2017, emerging markets will continue to have more growth and higher returns as a result.
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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