It is safe to assume that world asset markets will not be as fruitful or as calm in 2018 as they have been in 2017. Every major stock market registered strong gains for the year amid record low volatility. Corporate profit growth was strong almost everywhere, by the standards of the post-crisis era. Despite all this, bonds and precious metals also made a little money. Signs of the euphoria that precedes the bursting of a bubble were largely confined to the increasingly bizarre world of cryptocurrencies.
What is to be expected in 2018?
It is hard to predict but the truth is that the period of constant rise in stock markets with massive QE is going to be finished. And there is another new phenomenon which is likely going to happen after February 2018: US companies will be able to repatriate massive volumes of US dollars from abroad. Some are expecting an even bigger rise in the S&P 500.
The 19% rise in the S&P 500 last year and the 25% gain in the Dow Industrials have fuelled expectations for more volatility in 2018. Stocks have risen sharply in the past year, and valuations have become increasingly stretched as a result. After climbing 19%, the S&P 500 now trades at 18.4 times expected earnings versus a forward price-earnings ratio of 16.8 at the outset of the year, according to FactSet. That is the richest it has been in 15 years.
For example, Byron Wien, the Blackstone Group L.P. vice chairman who’s been making a widely-watched list of year-ahead predictions for more than three decades, said in his newest list Tuesday that he believes there will be a correction of at least 10%.
Probably it can be even higher, up to 25 – 35 %, because it is too good to be true… Companies and people were permanently investing into shares due to cheap funding and the circle is repeating itself year by year as from 2008. It has nothing to do with productivity and on other end companies like Apple sit on more than one-third of tech’s offshore cash pile. It’s a considerable sum- the nine tech companies with the biggest offshore bank accounts are currently sitting on a combined $632 billion, which is about 15% of their combined market cap.
Following a tax holiday in 2004, U.S. companies put 94 cents of every new dollar toward buybacks or dividends, according to a study National Bureau of Economic Research. So how it will be in 2018? The real question is: ” Are they going to make buybacks at prices of their shares which are at historic high levels?” or will they wait and see if there will be unexpected pull back in the market sentiment?
One way or another the worrying factor is that every such decline will wipe out considerable amounts of funds which were invested. These funds could have been spent in supporting the growth of SME businesses where clear results will be created. Investing into productivity and job creation which are sustainable is the best possible long term investment.
I am truly convinced that everybody has freedom of choice to invest even into cryptocurrencies like bitcoin, etc. With what goal? Simply to get richer, to possess larger amount of money each year and to feel happier from it? Safer perhaps? Why people do not try to create their own businesses or even if they have them they prefer to gamble with virtual assets? Anyhow these are difficult questions to be answered. My answer was the creation of software as a service platform www.finance4project.com.
With my co-founder, we receive every day new projects to be financed. Some are bankable, some not, sometimes they come only as projects ideas but anyhow it is good. We are seeing a wish to create, to be independent, to become “rich” from the work that these people like to do, and in this way to contribute to the prosperity of community, the country where they live.
Every month we are targeting some country in our campaigns to see how project holders react and post their projects. Last month it was Kenya and we were really surprised by the activity and interesting projects we received. So far we are testing the public zone of platform where project holders can present their projects to private investors registered in F4P.
Later we expect to get at least 3 banks from each country to register and in this way to facilitate and widen the possibility to get the best available financing from those registered banks. This will be as well a relief for the banks: They will get properly prepared documentation pack for projects which we (f4p banking team) intend to help to coordinate via our digital platform. Not to mention the cross-selling opportunities for each new client that can be originated via our platform. Project holders can save considerable time not running from bank to bank and concentrate in preparing quality and complete pack of documentation to send simultaneously to various banks fishing for new business.
With the changing business environment in the USA there can be changes following as well in Europe.
The ECB has been struggling to push up inflation in the currency bloc closer to its medium -term target of just below 2%. In forecasts issued earlier this month, the ECB said that even by 2020 inflation would average only 1.7%. Eurozone inflation was 1.5% in November.
In addition to rock-bottom interest rates, the ECB has been purchasing government bonds in a large scale for nearly three years. Starting this month it will lower its monthly volume of purchases to €30 billion from €60 billion through September.
So there is a lot to be considered and one thing is sure: the black swan effect can mix all predictions to completely unimaginable consequences for investors.