2018 Midyear Outlook: Long-term perspective on markets and economies | Capital Group Canada | Insights

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ARTICLES  |  JULY 2018

2018 Midyear Outlook: Long-term perspective on markets and economies

Midway through 2018, virtually all countries find themselves in the midst of an economic upswing. But the spectre of tighter monetary policy, trade skirmishes and other factors may leave investors wondering, “What‘s next?” In our 2018 Midyear Outlook, our investment professionals offer their perspectives.

Not-so-easy money: The tide is turning from QE to QT


The chart shows that central banks have reached an inflection point. Expect more volatility as the U.S. Fed unwinds its massive balance sheet.
 

Central bank assets (USD trillions)

Central_bank_assets

Sources: Capital Group, U.S. Federal Reserve, Thomson Reuters. People's Bank of China assets are as of 4/30/18. Other data and projections are as of 5/31/18.

Attractive valuations abound in international equities


International equities remain attractive, given steady economic growth in Europe and Japan, central bank stimulus measures and lower valuations compared to U.S. equities.
 

Forward price-earnings ratios

Forward_price_earning

Sources: IBES, MSCI, Standard & Poor's, Thomson Reuters. As of 5/31/18. Forward price-earnings ratios are for the S&P 500, MSCI World ex USA, and MSCI Emerging Markets indices.

Emerging consumers are leapfrogging the developed world


The rapid adoption of mobile devices is driving consumption trends around the world, but even more so in fast-growing emerging markets. Technology corporations based in emerging markets are now among the largest companies by market capitalization in the developing world.

Total value of goods purchased on mobile devices (USD billions)

Total_value

Sources: Capital Group, Euromonitor. As of 9/30/17.

Unintentional risks lurk in bond strategies and markets


Some bond strategies have return profiles that may be vulnerable during stock market declines. Investors should ensure their bond investments are aligned with the four primary roles of fixed income: diversification from equities, capital preservation, income and inflation protection.

89% of top-quartile funds in Morningstar‘s Short-Term Bond category have had returns over time that may not be what you expect

Scope_creep

Sources: Morningstar. As of 3/31/18.
*According to Morningstar's Best Fit Index, applied to Morningstar Short- Term Bond category. Reflects funds available in the U.S. Funds examined are the top quartile for trailing three-year average annual returns. Morningstar's Best Fit Index definition: The market index that shows the highest correlation with a fund's excess returns over the most recent 36 months. For example, this analysis indicates that 33% of top-quartile short-term bond funds were most highly correlated to the high-yield bond market (not short-term bonds).


Get the Whole Story


Read our 2018 Midyear Outlook to learn more about the challenges and opportunities ahead for investors in the global economy.

 

 


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