MARKET OUTLOOK

2018 Looking glass outlook: Global growth with room to run

We see a synchronised global economic expansion with room to run in 2018 and beyond, albeit with less scope for upside growth surprises.

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All data in this sourced from Bloomberg, as at 6 December 2017, unless otherwise specified.

Expansions come and expansions go. We see this one hanging around for longer than many expect. Yes, the US, Germany, the UK and Canada are running near full capacity. Yet when growth is only slightly above trend, economies can run beyond potential for a long time before peaking, our analysis shows. Japan and Emerging Asia may be hard-pressed to repeat 2017’s surprisingly strong earnings showing, though steady global growth, robust trade and commodity price stability should be supportive. Spare capacity in parts of Europe also gives us conviction that the global expansion’s peak is likely years away, not quarters.

Japanese and Eurozone Equities
Japanese and eurozone equities

We see the economic and earnings backdrop as positive for equities, with fuller valuations a potential drag, especially in the US. Equities in Japan, the only major region to see multiple contraction in 2017, look well positioned. A strengthening yen would be a risk. This year's euro strength is still playing out in eurozone company results, but it should become less of a headwind, we believe.

iShares MSCI Japan USD Hedged UCITS ETF (Acc) (IJPD)

iShares MSCI Japan EUR Hedged UCITS ETF (Acc) (IJPE)

iShares Core MSCI Japan IMI UCITS ETF (IJPA)

iShares MSCI EMU UCITS ETF (CEU)

iShares EURO STOXX 50 UCITS ETF (EUE)

iShares Core EURO STOXX 50 UCITS ETF (CSX5)

Emerging markets
Emerging markets

We believe emerging market (EM) economies can withstand a moderate slowdown in China, and see growth momentum. Many are in an earlier stage of expansion than developed markets. Brazil and Russia have emerged from recession, while we see India bouncing back from a reform-induced slowdown. This should provide cyclical support for EM equities, in addition to structural factors. In EM debt, we expect coupon-like market returns as 2017’s positives – low US rates and a weak dollar, accelerating Chinese growth, and EM monetary easing – reverse or fade.

iShares Core MSCI EM IMI UCITS ETF (EIMI)

iShares MSCI EM UCITS ETF USD (Dist) (IEEM)

iShares MSCI EM Asia UCITS ETF (CEMA)

iShares MSCI Brazil UCITS ETF USD (Dist) (IBZL)

iShares J.P. Morgan EM Bond UCITS ETF (IEMB)

Emerging markets
Commodity producers

Strong global growth momentum lifted industrial metals prices until recently. We see capex discipline and China’s supply-side reforms propping up metals prices in 2018. We prefer commodities exposure via related equities. These have lagged the growth in underlying spot prices, and a number of resource firms are sharpening their focus on profitability.

iShares Oil & Gas Exploration & Production UCITS ETF (SPOG)

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.

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