With continued uncertainty over trade wars, potential interest rate rises and geopolitical risks such as the ongoing Brexit negotiations Olaf van den Heuvel, chief investment officer of Aegon Asset Management (Netherlands), looks to what the remainder of 2018 holds for investors.
As we expected, the one standout investment feature of 2018 so far has been the return of market volatility across most asset classes.
Volatility is generally good news for active fund managers as it provides us with an opportunity to provide add value through fundamental analysis and good stockpicking. And despite this volatility, most economies continue to steadily grow.
The year so far has been marked by a continuously flow of different events, such as equity market volatility spikes, widening LIBOR spreads, Italian politics and emerging market currency weakness all of which have taken centre stage at one point.
These events have all moved markets, sometimes rather dramatically, only to be forgotten again in a matter of days.
Trade policy has now come to the forefront and this will continue if US President Donald Trump continues to pursue tariffs on the trade coming out of China.
The Chinese economy itself is looking relatively soft, with both the currency and equity markets recently falling sharply.
I believe that worries on the sustainability of the Chinese growth model will become top of mind at some point this year as will the potential fallout of any Brexit deal or no deal.
Central bank impact
Monetary policy changes by the Bank of England (BoE), European Central Bank (ECB) and US Federal Reserve will no doubt have an impact going forward have been well flagged, with the market pricing in a hike by the BoE in August. But after that, it will find it very hard to convince the market of the need for future hikes.
The ECB has intimated its expectation is that policy rates will remain at their present levels at least through the summer of 2019, while the continued underlying resilience in US growth is supportive of the Fed continuing with its gradual hiking path.
And of course, we will have our usual dose of unknown unknowns.
It is important to realise that all this noise happens against a background of strong economic growth globally. For the remainder of the year, this should continue to support earnings growth above the long-term average.
Given that in general the price you pay for those earnings is still acceptable and we think equities are still a relatively good place to be invested.