The consensus view among professional investors is relatively optimistic about the outlook for 2018, but that could breed complacency, warns Natixis Investment Managers.
Natixis, which shares the consensus view that synchronised global economic growth is likely to play out positively for markets throughout 2018, has released its top 10 biggest risks for the new year.
According to Natixis investment specialist Esty Dwek-Roditi, the top risk is that "everything is consensus".
"Very few views (including ours) diverge from consensus – how long can we all be right? If the market is complacent, what happens when it wakes up?" Ms Dwek-Roditi said.
The driving force behind recent market rallies – particularly in equities – has been the conviction in ongoing robust economic growth, she said.
That self-fulfilling momentum could come to an end if cracks in the global growth outlook appear, or if one of the world's top economic regions falters, Ms Dwek-Roditi said.
A central bank misstep by tightening monetary policy too quickly remains a risk, she said – and a drop in liquidity could expose over-leveraged entities that have been "swimming naked".
Volatility is also likely to rise from its current "extremely low" levels, she said.
"Markets have become somewhat complacent, and if markets suddenly see much more violent swings, the rally could be at risk. And there are plenty of events ahead that could cause higher volatility [including a resurgence of populism and rising geopolitical threats]."
Finally, valuations are stretched with "no markets", be it in equities or bonds, currently cheap, she said.
"Right now, growth is underpinning equity markets, as profitability continues to improve – that is, markets are ignoring valuations because profits are strong – but if the growth support falters, markets may become less sanguine," Ms Dwek-Roditi said.