2018 will be a key year of transition from the QE era that has dominated financial markets since the global financial crisis to more ‘normal’ post-QE monetary policies.
We are past the zenith for the ‘goldilocks’ investment regime of positive growth surprises and inflation surprising to the downside that allowed central banks to tip toe on the path to policy normalisation. In my view, 2018 is much more likely to be accompanied by upside surprises to inflation that along with another year of strong growth will accelerate the pace of transition to the post-QE monetary and investment regime. I expect that financial markets will be more volatile, asset and credit dispersion will rise, and active investors will be better placed to enhance QE-diminished beta returns with alpha from fundamental analysis of idiosyncratic risks.
BlueBay is committed to doing what it can to help our clients navigate the investment challenges they face. Hopefully this 2018 Outlook offers a modest but useful contribution in that ongoing effort.