Outlook 2018: 2017 Was A Challenging Year, What Will Next Year Hold?

  • Market Overview

2017 can definitely be considered as one crazy, yet interesting year... from North Korea's missile testing; The ANC's newly elected President Cyril Ramaphosa; the re-emergence of global populism which this past year included Donald Trump’s first year as president of the US; the UK’s continuing, muddled Brexit negotiations; the ascent of Catalan separatism and recent Euroskeptic election victories such as Sebastian Kurz’s People’s Party in Austria, not to mention the weak outlook for a variety of nationalist-leaning parties in South and Central America—but global markets remained exuberant, with US markets at the forefront, though shares in South Korea (up 20.4% YTD), Brazil (+24.8% YTD) and Hong Kong (+34.4%) outpaced US gains (19.8% for the S&P). The best performing index this year however was Vietnam's Hanoi 30, up a whopping 50.5% on the year so far.

At the beginning of 2017 many wondered if the Dow Jones Industrial Average, which started the year at 19872.86, would hit 20K. As of the Friday before Christmas it closed at 24,754.06—25.2% higher on the year and 23.7% above that 20K ‘fantasy.’ Oh, and during the course of 2017 so far it’s hit over 70 new record highs, the most record closes for a year ever, surpassing the previous record of 69, made in 1995.

The S&P 500 wasn’t exactly a laggard either: it began 2017 at 2251.57 and closed before the holiday weekend at 2683.34, up 19.8%. The NASDAQ Composite also outperformed expectations, gaining 29.2% over the course of the year so far, propelled higher by tech sector shares which are currently up 33% on the year (using iShares US Technology (NYSE:IYW) as our benchmark).

Oil appears to finally have recovered from its swoon after the 2016 slump, but the dollar continues to look unsteady. Volatilityremains practically non-existent, but cryptocurrencies have been on an eye-popping tear, barreling past other assets this year in terms of percentage gains: Bitcoin hurtled higher by 1200% for 2017, having started the year at $999; Ethereum rocketed from $8.17 to $624.3, up 7541%, and Ripple rallied from $0.00652 to $0.90, or 13,700%.

The South African economy this past year has created an exciting yet challenging environment for both traders and investors from unpredictable exchange rates to concerning employment numbers. Many claim they’re happy to see 2017 in the rearview mirror, but from a markets perspective it was indeed a very good year. Will 2018 be as good (or perhaps better) for investors? We asked some of our most popular contributors, including some Investing.com analysts, how they see the markets performing as 2018 begins.

This installment covers this year's outperformers, Stocks, Market Overview and Cryptocurrencies. Part 2, which will be published later this week, will cover gold, silver, oil, the rand and dollar as well as major central bank policy direction in 2018.

John Maynard: So what can investors look forward to in 2018?

Well on the international front. A million new tweets from US president Donald Trump is not a bad bet. But on a serious note we suspect Bitcoin will rule the market related news in 2018. Is it a bubble, if so when will it burst. Will it reach $15 000 dollars or will it trade at $0.15 by the end of the year? Well no one knows but sure is exciting watching the story unfold. We personally think that “crypto” currencies will be regulated by governments across the world in time as it is an easy way to launder cash. Once regulation kicks in prices will decline. We also expect loads of new “crypto” currencies to hit the market as people look to “get rich quick” with the craze and buzz around digital currencies. We also expect the Fed to raise interest rates as the US economy is showing signs of it being close to full employment which will push up inflation and provide the room for the Fed to raise interest rates.

On the local market front (South Africa), the South African Rand is set to remain as volatile as it has been during 2017, with politics, state capture, corruption and poor economic growth all having an impact on the performance of the Rand. The South African Reserve Bank (SARB) has indicated in their latest Monetary Policy Committee (MPC) forecasts they their forecast up to 2019 is for interest rates to be 75basis points higher than it currently is. So South Africans can expect interest rate increases in 2018, with moderate to high levels of inflation and low to no economic growth to continue into 2018. South Africans can also expect higher taxes to be announced in the 2018 budget speech, while company tax rates are sure to increase too. Ideal would be for National Treasury to increase VAT too but this would be a highly unpopular move among the ruling party’s support base, so we doubt that will happen.

South Africa’s stock market is sure to be driven by Naspers (NPN), Richemont (CFR) and British American Tobacco

Maura Feddersen: Outlook for South Africa's economy in 2018

All eyes are on the ANC elective conference in December 2017 and the February 2018 fiscal budget speech for a clearer view of the direction for politics, policy and the economy at large. In the interim, high levels of uncertainty prevail, with investors pressing pause on key investment decisions, and business and consumer confidence languishing in negative territory.

In an environment of uncertainty and low growth, real private sector fixed investment has shrunk for nine consecutive quarters, contributing to an 8.8% reduction in real private sector fixed investment in the third quarter of 2017 compared to two years ago.

On a positive note, softer inflation trends should give South African consumers some relief in coming months. Inflation slowed to 4.8% year-on-year (y-o-y) in October, compared to 5.1% y-o-y in September. However, the South African Reserve Bank (SARB) expects inflation to reach a turning point in coming months, with inflation to tick up to averages of 5.2% and 5.5% in 2018 and 2019, respectively. A global glut in maize crops and locally favourable weather conditions that contributed to a record maize harvest will keep grain prices low and help ease inflation in coming months.

On interest rates, SARB Governor Lesetja Kganyago introduced the central bank’s in-house modelling findings in November, which suggest three interest rate increases of 25 basis points (bps) by the end of 2019, compared with only one previously. However, he also stressed that “this does not mean an unconditional commitment to change policy rates”, indicating that the implied path is “a broad guide to policy” and that the SARB can choose to divert from the suggested interest rate path. Bondholders will not be happy to hear that the likelihood of a tighter monetary policy stance for 2018 and 2019 has increased notably in recent weeks. The next decision on interest rates is expected in January 2018, by which point, the SARB may give additional clarity as to the timing of various interest rate hikes in coming months. Much will hinge on the rand’s resilience and response to the outcomes of the ANC electoral conference in December.

Consumption spending growth is likely to remain modest due to tighter monetary policy, low economic growth (at around 1.2% and 1.5% in 2018 and 2019, respectively) and structurally high levels of unemployment. Pro-growth reforms, fiscal discipline and political and policy certainty are arguably key ingredients for improving the growth outlook and reigniting consumer and business confidence.

Investing.com CryptoCurrency Team: Mania Moderates and Connoisseurship Takes Hold

Without doubt, 2017 was the year of crypto mania. Bitcoin , which grabbed headlines early and often this past year, saw heart-stopping gains, but other digital currencies, such as Ripple and Litecoin , had even better returns from a percentage point of view.

Merely owning an asset labeled cryptocurrency could have yielded thousands of percent of added value for an investor, regardless of the digital currency's technological protocol. During the final days of 2017 however, a massive wave of cryptocurrency selling took hold, which appears to still be in progress.

We believe this signals that sentiment toward Bitcoin and all sister alt-currencies is moderating. And that moderation will most likely characterize trading in 2018.

As well, we're seeing significant ‘conventional economy’ entities getting in on the crypto action; just this month both CME and CBOE have started issuing Bitcoin futures contracts; there's talk of retailers, financial organizations and even central banks adopting various technologies and officially supporting (or even issuing) a variety of major cryptocurrencies. As mainstream adaption becomes a reality we can expect to see a calming of the crypto storm.

In that way, we expect the crypto investor mindset to shift from ‘all you can eat’ to something more akin to technology connoisseur, wherein serious digital currency investors will seek out the most promising and groundbreaking of digital technologies. In the wake of this shift, smaller investors will likely also attempt to gain relevant and appropriate understanding of the differences between the various alt-currency technologies.

In our opinion, one outstanding, currently available asset that we believe will garner more attention in 2018 is IOTA (the name is derived from Internet of Things), which we wrote about here. Its founders have taken it quite a way in terms of its technological achievement and have done so outside the blockchain protocol, using something called 'Tangle' instead. Indeed, it's the first cryptocurrency to develop a non-blockchain technology but also remain decentralized.

Because the Tangle doesn’t rely on miners to verify transactions, it also doesn't necessitate transaction fees, allowing even micro transactions. And unlike most blockchain-based currencies, the IOTA network requires a minimal amount of GPU/CPU (computing power) so can be managed on any home device. We believe that sets IOTA on a path to become “the next Bitcoin,” but with more stability and less volatility. During 2017 IOTA 'only' gained 450% in value but managed to sustain a relatively solid pace of growth with restrained highs and measured lows. Currently the sixth most popular alt-currency based on its $10.25B market cap, we believe IOTA will climb into the top 5 by the end of 2018.

Tafara Tsoka: Stocks To Possibly Focus On This Year

The PSG Group is an interesting company to look out for in the New Year, the group’s strategy and philosophy clearly makes it a winner as it has an uncomplicated business models with attractive growth prospects and they are led by talented and hardworking people. It has the first mover advantage in the industries that it goes into and so far the track record of their investments have been so excellent with only Zeder reporting negative results as according to the groups interims. Also the fact that they co-invest with management means that managers will be dedicated and focused to continue growing the business.

Another company that will be interesting to look at is Mediclinic International , the healthcare group has had a not so good 18 months but going forward the future looks bright. Margins in South Africa are stable and the Swiss regulatory headwinds seem to be prized in already in the share price plus management has been building stability in the UAE. All this coupled by the fact that it is a good rand hedge makes it a good stock to have in the portfolio.

Clement Thibault, Investing.com

When looking at the stock market in general, I believe we're in borderline, never-before-seen territory. The only two red month this year for the S&P were March and August, when the S&P lost 18 and 6 points, respectively. That’s -0.7% and -0.2% for the worst months of the year. The Dow is up 25.4% in 2017, while the S&P is up "only" 20.1%.

Amazon (NASDAQ: AMZN ), Facebook (NASDAQ: FB ) and Netflix (NASDAQ: NFLX ) are all up over 50% this year. That type of double-digit growth is unusual for larger, mature companies, which each of these is… they’re clearly past their start-up phases. So expectations related to promising, early stage growth prospects cannot account for the tremendous increase in their share prices.To each company its own reasons, of course, but they all indeed continued to grow over the year. Of course, the Tech sector in general enjoyed positive momentum and sentiment throughout the year, which helped propel market leaders higher.

Overall, however, the market seems stretched. The last uninterrupted bull run took place from 2012 to 2014 and was the result of a recovery following a crash. This isn't where we are now. I believe we will witness a 15-20% correction in the first half of 2018. Corrections are, after all, a natural part of every market cycle, regardless of any reforms enacted by the Trump administration.

However, I do not see an apocalypse scenario on the horizon. The U.S economy does seem to be strengthening, albeit slowly. As well, the closest thing we've had to a correction this year was a 3.25% drop in March. So it’s inevitable that this impressive no-real-correction streak will come to an end. Afterward, the reasonably expensive tech stocks (such as FB or GOOG) will be one of the most attractive investments for the second half of the year.

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