The latest edition of Credit Suisse's Investment Outlook forecasts solid and broadly sustained growth for the global economy in 2018, even in the face of less expansionary monetary policy. Global GDP growth is expected to accelerate slightly to 3,8%, while global inflation is expected to reach a positive 2,7%. Furthermore, in the corporate sector we see a recovery in capital expenditure, compared to recent years, investments that are a fundamental driver for future growth. Against this supportive backdrop, investors can still expect solid returns for risky assets in 2018, albeit more limited after the exceptionally strong 2017 results.
According to the Credit Suisse Investment Outlook 2018, economic growth will remain robust in the coming months and will be supported by both developed and emerging markets. The continuation of this positive phase means a lower risk of a global recession.
- In United States growth in corporate investment, a recovery in productivity and a likely fiscal stimulus should extend the strong economic cycle for another year. (2018 GDP forecast on an annual basis: + 2,5%).
- In 'Eurozone the newfound cyclical vigor should continue, except in the unlikely event of a political crisis or a substantial appreciation of the euro. (2018 GDP forecast on an annual basis: +2,0%).
- La Switzerland will most likely benefit from the favorable outlook for exports resulting from stronger global growth and a weakening franc. The two main drivers of national growth in recent years – immigration and the real estate cycle – are ebbing away. (2018 GDP forecast on an annual basis: +1,7%).
- Le emerging economies they are set to remain a pillar of growth for the global economy, with limited upside risks to inflation and interest rates as long as their currencies remain stable.
- La China it will continue to play a vital role, and its contribution to the growth of the world economy should further increase, given the country's growing weight. As the country's leaders remain highly stability-oriented, Credit Suisse expects a gradual adjustment process with currency stabilization. Looking further ahead, high levels of corporate debt will remain a concern. (2018 GDP forecast on an annual basis: +6,5%).
“An increase in capital expenditure, M&A activity and therefore increasing debt: these are the topics we will hear the most in 2018,” he notes Michael Strobaek, Global Chief Investment Officer of Credit Suisse. “We believe 2018 will be a relatively good year for economic growth, and growth-sensitive assets will still perform well. We remain aware of potential political, economic, geopolitical or regulatory risks."
This year, Credit Suisse's Investment Outlook takes a special look at the next generation of investors, the Millennial generation, with a focus on their priorities. With 50% of the world's population under the age of 30, this generation is becoming an influential force around the globe. The Investment Outlook identifies energy efficiency, sustainable consumption and the blockchain as the three key priorities for the millennial generation.
“Our focus is on the influence of Millennials. We believe 2018 will be remembered as the year this new generation of investors make major strides in taking a decisive role in key areas of life,” he says. Nannette Hechler-Fayd'herbe, Head of Investment Strategy & Research at Credit Suisse.
Prospects for the financial markets
- Even after a year of exceptionally positive returns for risky assets, global equity markets still have upside potential in 2018 according to Credit Suisse Investment Strategists. Solid economic growth is boosting earnings and confidence. This environment should further support inflows into equities. The withdrawal of liquidity by central banks will be the most important challenge, especially in the last months of 2018.
- Credit Suisse tends to favor the actions compared to debt securities. Emerging market equities should generate total returns slightly above 2018% in 10, with good prospects especially for small caps. In developed markets, Japanese and Swiss equities have the best potential. At the sectoral level, healthcare, telecommunications, industrial and financial sectors are favoured. Eurozone real estate equities also offer attractive opportunities for investors given their still high yields.
- In the sector of fixed income Credit Suisse expects bond yields to grow modestly in most developed markets, and stabilize at around 2,7% in the United States. Local currency debt in particular is favored in emerging markets due to still high carry and the potential for further cuts in local interest rates.
- Regarding Currencies, the Federal Reserve's monetary tightening actions could stabilize the dollar but, given the likely upward correction in European yields, the euro could add to its gains.
- In the sector of raw material solid economic growth should continue to support demand and prices, while a trading range scenario is expected for oil.
What matters in 2018
Credit Suisse's Investment Outlook identifies a number of key factors that will impact financial markets over the next year.
- Investments. Across all sectors, companies should increasingly use abundant liquidity, thus aligning with the strong trends already present in the manufacturing, transport and utilities sectors. Capital expenditure (“capex”) is therefore set to become an important driver of overall economic growth in 2018.
- Quantitative exits. In 2017, the Federal Reserve took further steps to roll away from its still accommodative monetary policy. Other developed market central banks will follow this trend towards normalization in 2018. While Credit Suisse expects policy to proceed cautiously supporting the favorable trend in financial markets, the abandonment of stimulus measures could generate pockets of volatility in foreign exchange markets as as on equity and credit ones.
- Eyes on China. The Chinese economy benefited from the global recovery thanks to the increase in exports and the devaluation of the renminbi. However, there is concern about the increase in debt by companies. Credit containment measures and a political bias towards stability are encouraging signs, but not without risks for asset values. Nonetheless, a continued process of adjustment and stability on the currency front is expected.
- In the footsteps of the Next Generation. The so-called Millennials are growing and starting to make their influence felt in all areas of life: as investors, consumers and generators of new trends that will open new opportunities for investors, while their preferences as consumers will likely challenge traditional sectors.
Investment themes 2018
Based on these considerations and opinions, the Credit Suisse Investment Outlook identifies the following five investment themes for clients. Their implementation is implemented with individual securities and investment products.
- Emerging markets: the winners. Thanks to a favorable growth environment, 2018 will also in all likelihood be a positive year for emerging markets. Actively managed solutions and targeted investments will enable you to make the most of opportunities.
- Rebirth of the Eurozone. After an initial recovery in the Eurozone in 2017, a second phase of recovery should favor certain European assets and currencies.
- Corporate Investments. The corporate investment picture is finally expected to improve in 2018, as companies channel their large cash reserves to investments in areas such as security or mergers and acquisitions.
- Equity supertrends. Supertrends are Credit Suisse's five high-conviction equity themes based on robust long-term social trends. Despite their long-term nature, many catalysts should favor related stocks as early as 2018.
- The rainbow of fixed income. According to Credit Suisse, successful bond investing in 2018 will require a colorful variety of solutions (fixed or floating rate, duration, credit risk, etc.).
