This time last year we worried about stockmarkets. Most had been going up for too long and were too expensive. We figured the great bond bull market must be near an end. And we felt the inflation that we had long been sure quantitative easing (QE) would deliver was beginning to appear in the real world (it's been apparent in asset markets for years). We also worried about politics: the QE-driven rise in wealth inequality was having consequences most obviously Corbynism and Trumpism. We expected to see growing state interference in the economy as governments tried to shift profits from managers and shareholders to workers. We were especially concerned that the monopolistic US tech stocks would end up at the centre of that storm.
We were, as usual, a bit early. Last year offered a fair amount of political turmoil but outside the imaginations of newspaper columnists not that much drama. We have the same prime minister as in January last year. Brexit is turning out, as we suspected, to be more of a tricky administrative unwind than a social or economic disaster. Donald Trump has not (yet) started a war. Bonds wobbled mid-year, but recovered. The FTSE 100 gained 7.6% over the year. The only asset class that really started to move as the fundamentals suggested it should was prime London property down 4%, according to Savills.
So what of this year? Turn to our cover story and you will see that the things that concern us, that concern our experts, and that should be concerning you, really haven't changed. Tech stocks are still vulnerable to shifting sentiment (they were the goodies now they are tax-avoiding, worker-exploiting monopolies); and also to the realisation that some of those on very high valuations don't have the networking effects that make the likes of Facebook so valuable. You have to be on the same social networking site as your friends, but any electric car manufacturer that makes good cars will do.
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The US market is still horribly overpriced. Inflation remains the big risk: workers are demanding a bigger part of the global pie (quite rightly) and governments are increasingly onside. Finally, the reversal of extreme monetary policy is now a real possibility. We are all for that, given the economic distortions it has produced. But just as taking interest rates to record lows had unexpected side effects, raising them will too.
The good news is there are still great opportunities out there. Vietnam is cheap. Japan still looks good. The march of digitalisation suggests that sharp rises in productivity (and profitability) lie ahead. And, in a rare bout of consensus (perhaps an indication that we may be at the beginning of the end of the great financial crisis), all our experts agree that financial stocks are worth looking at. Maybe they finally are.
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