2017 was a momentous year in financial markets with both New Zealand and global share markets enjoying gains of around 20%.
This year, we expect more modest returns. But that doesn’t mean a sell-off is on the cards. We’re seeing a synchronised expansion in global economic growth. This means none of the major economies are contracting and we no longer have to rely as much on the US economy for global growth. At the same time, modest inflationary pressure and the recently passed tax reforms in the US should provide a supportive backdrop for share markets.
That said, there is also cause to be slightly cautious. Much of the positive outlook for global growth is already priced into markets. Investors have bought shares in companies in anticipation of the growth they expect to see in 2018. This means there’s little room for error.
Central banks are also expected to move forward with their plans to return interest rates to more ‘normal’ levels. That means they’ll reduce some of the support that was put in place in the wake of the global financial crisis. So we can expect interest rates to rise.
While rising interest rates might limit the returns from investments such as bonds (which pay a fixed rate of interest), we don’t believe interest rate rises will derail equity markets. The good news is the world’s central banks have made their intentions well known, so there shouldn’t be any surprises.
Making predictions is always fraught, which is why our experienced Investment Management team continues to monitor markets closely as the year unfolds. As markets shift, the team makes well calculated decisions to adjust the investment approach. That’s why, at ANZ Investments, we believe people are better to focus on their own long term savings goals rather than trying to predict when markets will turn.
Whether you’re invested in KiwiSaver or in an investment fund, there are two key actions to take:
It’s worth remembering that KiwiSaver and other investments are generally for the long-term. So keep focused on your long term goals, and review your fund choice and contributions regularly to suit your changing circumstances.
If you’re looking for advice on how to manage your savings, we have a team of experts available who can provide personalised financial advice, free of charge.
Published January 2018