Investors could be disappointed by equities in 2018, say Manulife Asset Management experts in new report
In “Global Intelligence: Outlook 2018,” Megan Greene and Bob Boyda outline views on risk, volatility, tax cuts, trade
TORONTO, Dec. 19, 2017 /PRNewswire/ — Manulife Asset Management today released its report, “Global Intelligence: Outlook 2018,” summarizing the near-term outlook of its investment experts. The report and an accompanying video are available at www.manulifeam.com (full link below).
Market Volatility Could Stay Low In 2018, But Risks Aren’t Going Away
Bob Boyda, Head of Capital Markets and Strategy, and Megan Greene, Chief Economist, note that while the broader environment might be defined by the absence of volatility and a synchronized global recovery, risks remain.
“The abundance of capital and the easing monetary conditions across the globe have allowed us this period of time where we’ve seen remarkably low volatility and our forecast for 2018 shows continuing easing conditions,” says Boyda.
However, he notes that the prospect of rising costs, unexpected market response to Fed actions and unresolved geopolitical tension could hurt U.S. corporate profits. “If profit margins come under pressure from rising wage costs, interest costs and potential cost increases in areas like energy – with equities having been priced for perfection, investors could be disappointed.”
Greene agrees, adding that the world remains in a low growth, low inflation and low rate environment, despite the global synchronized recovery. “The IMF upgraded its global economic forecast for the first time in years,” she says, “but we believe the downside risks outweigh the upside risks and the markets have not priced it in.”
Proposed U.S. Tax Reform Unlikely to Spur Growth
Greene says while the tax debate has been necessary, she does not think the outcome will move the needle for the U.S. economy. “The administration has been right to argue that the U.S. badly needs tax reform. It is also right to argue that, whereas the focus for the past two tax cuts have been on income taxes, this tax bill should focus on corporate tax change. But given how the proposals for this tax bill seem to be structured and – more importantly – funded, we do not think this tax bill will fundamentally shift U.S. growth from its potential GDP growth rate of around two percent.”
“Most importantly,” Greene continues, “this tax bill will increase the national debt burden. Not only will this be a drag on growth in the medium- to long-term, but measures will have to be taken to address this – including a possible tax hike.”
Uncertainty Over NAFTA Negotiations
Greene thinks there remains a risk that the US will unilaterally withdraw from NAFTA. If this were to happen, she believes it is likely the U.S., Canada and Mexico would revert to WTO rules and that the U.S. and Canada would reprise the bilateral trade deal they had before NAFTA.
“There would be immediate disruptions to trade and firms are likely to pass on the higher costs to consumers, contributing to rising inflation in the U.S. and a stronger U.S. dollar,” says Greene.
“It is also possible that the U.S. will avoid withdrawing from NAFTA cleanly and instead, turn it into a messy, uncertain half-way house. This could result in a series of legal challenges, not only over how the U.S. could withdraw from NAFTA (logistically), but also businesses suing the government over the ambiguous arrangement.”
The full report and an accompanying video are available at www.manulifeam.com (full link below).
Link to Report:
About Manulife Asset Management
Manulife Asset Management is the global asset management arm of Manulife Financial Corporation (“Manulife”). We provide comprehensive asset management solutions for investors across a broad range of public and private asset classes, as well as asset allocation solutions. We also provide portfolio management for affiliated retail Manulife and John Hancock product offerings.
Our investment solutions include public and private equities and fixed income, timberland, farmland, real estate, power and infrastructure, oil and gas, renewable energy, and mezzanine debt. We operate in the United States, Canada, Brazil, the United Kingdom, New Zealand, Australia, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Thailand, Vietnam, Malaysia, the Philippines, as well as through a China joint venture, Manulife TEDA. We also serve investors in select European, Middle Eastern and Latin American markets. As at September 30, 2017, assets under management for Manulife Asset Management were approximately C$477 billion (US$383 billion, GBP£286 billion, EUR€324 billion). Additional information may be found at ManulifeAM.com.
Manulife Financial Corporation is a leading international financial services group that helps people achieve their dreams and aspirations by putting customers’ needs first and providing the right advice and solutions. We operate primarily as John Hancock in the United States and Manulife elsewhere. We provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions. At the end of 2016, we had approximately 35,000 employees, 70,000 agents, and thousands of distribution partners, serving more than 22 million customers.
As of September 30, 2017, we had over $1 trillion (US$806 billion) in assets under management and administration, and in the previous 12 months we made $27.1 billion in payments to our customers. Our principal operations are in Asia, Canada and the United States where we have served customers for more than 100 years. With our global headquarters in Toronto, Canada, we trade as ‘MFC’ on the Toronto, New York, and the Philippine stock exchanges and under ‘945’ in Hong Kong.