Guard against real-world inflation

SINCE the depths of the global financial crisis, central banks have supported financial markets and the economies that they serve through expansionary monetary policies, increasing their balance sheets to previously unheard-of sizes. Strong growth in corporate profits and diminishing fears of deflation show that this approach has worked, and central banks will be careful not to stifle current gains.

While we anticipate that the scale of central bank support will diminish in 2018 - led by the US Federal Reserve - we expect the overall shift to be slow, and the precise actions to vary across central banks. Interest rates will stay low overall. Consequently, investors should continue to be wary of financial repression and keep a careful eye on inflation, not least because official data appear to understate rises in real-world costs. In addition to macroeconomic considerations, several dominant investment themes - including geopolitical risk and business disruption - will persist in 2018. We encourage investors to take a fresh look at these themes, and the far-reaching implications for portfolios.

Six key themes for 2018