2018 will continue to ride out the waves of solid economic and earnings growth from 2017 but see a higher level of volatility introduced, according to AMP Capital's chief economist Shane Oliver.
In Dr Oliver’s latest Weekly Market Update, investment returns in 2018 will be protected by “continuing strong economic and earnings growth” and “easy monetary policy”.
But he also suggested new factors needed to be considered in the upcoming year.
“Stirring US inflation, the drip feed of Fed rate hikes and a possible increase in political risk are likely to constrain returns and increase volatility after the relative calm of 2017,” he wrote in his report.
Nonetheless, “apart from the likelihood of a correction early in 2018 and more volatility through the year, global shares are likely to trend higher through 2018.”
The report showed AMP Capital favoured Europe and Japan above the US, which looked “likely to be constrained by tighter monetary policy and a rising US dollar”.
Global banks and industrials were also tipped as asset classes to look out for over tech stocks which had had a “huge run”.
Contrary to the rosy view of emerging markets held by other investment officers and fund managers, Mr Oliver said emerging markets would underperform if the US dollar was to rise “as expected”.
Australian shares would “do okay”, but returns would be “constrained to around 8% with moderate earnings growth”.
“Expect the ASX 200 to reach 6300 by end 2018,” Mr Oliver wrote.
Regarding the Australian dollar, the currency would drop to US $0.70 but see minimal change against the Japanese Yen or the Euro as the gap reduced between the Federal Reserve’s interest rate and the RBA’s cash rate minimised.