In early December last year (issue 823 to be precise), I looked at five big trends we thought would shape 2017. Making forecasts – particularly such short-term ones – is a mug’s game, of course. But having made them, it’s only fair to look at how they panned out.
Our first prediction was that the bond bull market was over, with 2017 set to mark a major turning point, helped by increased fiscal stimulus from a Donald Trump administration. It still seems likely that summer 2016 saw the lows for bonds. However, the path to reflation this year has not been smooth, with Trump achieving little, and his tax plan only now juddering through the US political system. And while central banks have switched their focus to tightening, they’re doing so at a leisurely pace. As a result, US Treasury yields have yet to breach the 3% mark as we predicted.
We were also concerned about the impact of China-US tensions on geopolitics, inflation, and global trade. Defence stocks have certainly done well (North Korea helped on that front), but gold barely moved in sterling terms (up about 2%) and protectionism was less of an issue than we feared. As a result, emerging markets generally didn’t suffer as we’d worried they might (though India, which we tipped as a fairly closed economy, had a great year, with a sterling-terms total return of about 26%).
Our big reflation play of the year was to bet on Japan. This turned out to be our best call – the Topix index (up 17%) beat both the US S&P 500 and the UK market this year, and Japanese investment trusts have done even better, rising by an average of more than 40%.
In the eurozone, we argued that France would likely reject Marine Le Pen due to fears over leaving the euro. We were wrong on François Fillon winning (Emmanuel Macron was barely on the radar), but a bet on the French CAC40 would have made a total return of 22% versus 13% for the FTSE 100. As for the UK, we wrote that the pound would bounce around with the Brexit headlines (true, although all in all it gained in 2017), the housing market would stall rather than collapse (correct), and that you should bet on the regions rather than London (the more domestically-weighted FTSE 250 did, indeed, beat the FTSE 100, although the specific stock we tipped – Real Estate Investors – only made 14%, in line with the UK market).
So overall, not a terrible set of predictions – and I suspect we’re early, rather than wrong, on the bond market. However, we did, of course, miss out on by far the biggest trade of the year – buying bitcoin. This week, we’ve got a range of views on the ubiquitous cryptocurrency. We’ll have more on our forecasts for 2018 in our next issue, which is out on 5 January (we skip next Friday). It just remains for me to wish you a very Merry Christmas, and here’s to a prosperous New Year for us all.