Star stockbroker makes predictions for 2018

Market activity should pick up in 2018, believes Seven Investment Management's Justin Urquhart Stewart. Here's what else he told us recently.

What is your view on markets in general as 2017 draws to a close?

2017 has been a remarkable year. You've seen the optimism in the market: bond markets are doing well, equity markets doing well, just about everything apparently seems to be doing well, considering all the bad news we've had.

Whether it's Brexit, whether its issues over Mr Trump, whether it was the Rocket Man, all the other issues which all meant that markets had this air of complacency. What's going to knock it off? So, it's done very well, but increasingly there's a concern that this period of low volatility and quietness is going to change, but not in 2017.

Has Brexit fear created value in UK equities and Trump made the US expensive?

The Brexit issue has created a level of concern about what's happening with British equities. That's quite difficult to tell when you look at the FTSE 100. As we all know, the FTSE 100 is about 70% overseas, so not in sterling, so it doesn't really reflect it. If you look to one of the few domestic markets, and the local UK index, that's virtually flatlined this year; it tells you the story that people are concerned about anything very domestic indeed.

So, yes, it has had an impact on it. The main issue it's going to be is waiting for clarification about what Brexit is actually going to be like, or is it just going to be a Dogs Brexit!

The issue with Trump is we had Trump promise over tax returns, over infrastructure payment and companies being able to bring back money from overseas. So far, absolutely nothing has happened. So, the Trump bump hasn't turn into Trump dump, but it has added to the position of a rather strange air of complacency. That, despite all these worrying things going on and potential QE starting to be withdrawn, there is no volatility yet.

What are the key macro themes to shape the UK markets in 2018, and should investors tweak portfolios?

Key themes in 2018 we should be looking at are really going to be whether this era of complacency and low volatility can continue. We know for well we're going to see, probably rising rates in the States, not by very much; probably not in the UK. You're going to see Brexit having more of an impact and you'll see some tax changes just going through Congress in the States. Those are the key elements, but really overriding that is what's going to happen to portfolios when this low volatility ends.

Remember, we have been in a period of high equities, high bond prices and very little volatility. That will change. Therefore, investors must be looking for other asset classes to try to give them something which isn't connected or correlated to those. That could be commodities, it could be currencies and all those elements which give some defence against that volatility. It will come at some stage.

2017 was a case of buy the dips. Do you expect a greater volatility in 2018?

In many ways, I hope we're going to see some volatility. Because we've had virtually nothing. It's been about as exciting as going downhill skiing in Norfolk this year! What you're going to be seeing is, I think, quite a lot quite a lot of volatility in the economy. As I said before, I don't know what's going to trigger it. This volatility may not necessarily mean markets move forwards very much, but dips would provide opportunity so long as you like the underlying value of those asset classes.

So, yes, I think there could be some exciting dips which, for the courageous, no, more for the good planners, to take advantage of those. Because I think the global economy is in better shape, just give me a bit of a discount and I'll buy it.

What's top of your Christmas list this year?

Top of my Christmas list is the opportunity to stay in Europe. I'm very concerned because my family is European, I think the economy in Europe is getting better and I want the UK still to be part of it.

However, we voted for Brexit for all sorts of variations that we're going to see within Brexit, and I hope we have one which means we're still linked to the economy of Europe. And also socially as well because we are a very strong block when we are working together. Previously, when Europe doesn't work together, its normally rather dangerous.

This is the transcript of a video filmed in December. To watch the original video, please click here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.