Global economy rises simultaneously in 2018

After the adoption of the US tax reform plan since the end of 2017, American enterprises have strengthened industrial investment from 2018, and the economic of Europe and Japan has gradually increased since 2017. In the last issue of our magazine, it has been predicted that under the influence of the tax reform by Donald Trump, the idle capacity in the US labor market will completely disappear in the next three years. By then, the unemployment rate will reach a record low of 3.3% in decades, far lower than the current point 4.1%.

Affected by these issues, it is estimated that the global economic growth rate will reach about 3.5% in the next three years. In general, the growth of the euro zone will continue. The United States will continue to benefit from strong fiscal measures. In addition, emerging countries, led by Russia, Brazil and India, are ready to go ahead. Almost all the major investment institutions in the world predict that the global emerging economies and development economies will go hand in hand in 2018.

Global stock markets continue to boom, but bond markets languish

Under such a strong momentum of economic development and the huge wave of the United States driving global central banks to raise interest rates, although there are still differences between major emerging economies and development economies in 2018, it is predictable that both economies will raise the interest rate for the development within these two to three years.

The US Federal Reserve is likely to raise interest rates four times this year. The monetary policies of other developed countries, such as the United Kingdom, Canada, Sweden and other countries, have faced the situation of overheated labor markets. These countries and New Zealand, Australia and other countries will follow up raising the interest rate. And central banks in Europe and Japan have said that they have begun to consider raising interest rates.
 

As for the monetary policies of major emerging countries, the situation in China is quite special. Due to the strict implementation of the industrial and financial policies of reducing leverage and pollution, the interest rate policy of the PBC is to maintain stability and slightly reduce. Russia is likely to cut interest rates because of lower inflation. India and Brazil are recovering faster and are likely to consider raising interest rates in the second half of the year. The wave of raising the interest rate led by the United States has less impact on emerging economies.

The wave reflects the shaky plight of global bond markets. The rise of short-term interest rates can sometimes effectively curb the rise of long-term bond yields, which is beneficial to bond prices. But most of the time, short-term interest rates don't rise fast enough. Instead, the market reflects that bond prices are declining faster. Therefore, in the huge wave of raising the global interest rate within next two years, investors should reduce the proportion of bond asset allocation in the process of rebalancing the asset allocation.

Core allocation of emerging stock market funds

The writer believed that it is better to be more cautious on the high yield ratio in American stock market, and suggested to invest in American stock market with individual high-yield stocks rather than an American fund with overall market risk. One year after the Trump‘s tax reform, it will be clearer which stocks have accumulated more cash to pay dividends due to the tax reform.

As for the focus of equity funds investment in 2018, it is advised to focus on emerging market equity funds, mainly in Brazil, India, China, Russia and other major emerging economies, with India and China as the main core allocation. There will be a presidential election in Brazil this year, and the results will affect whether Brazil’s economy can have a high growth in 2018; and Russia's stock market will be affected by the level of global oil prices this year. Therefore, the funds of Russia and Brazil are more suitable for short-term investment.

The investment strategy in 2018 can be more aggressive. For those who are familiar with the operation of fund investment, the rate of return on investment should be set at about 10%, and the risk should not exceed 8%.