INVESTMENT INSIGHTS, OUR CONVICTIONS - JANUARY 2018

Find out the monthly market macroeconomic and product overviews :

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EDITORIAL : GOLDILOCKS AND THE THREE BEARS

In the (not so) modern tale of Goldilocks and the 3 bears, a young and brazen girl, exhausted from a long walk in the forest, enters a house that is briefl y empty and breaks furniture that is “too fragile”, steals food that is “too hot or too salty” and falls asleep in beds that are not all to her liking. Tired from this rather cavalier behaviour, the girl falls into a deep sleep unaware of the drama that is unfolding. Indeed, a family of anthropomorphic bears, out on a constitutional walk, return home as the young intruder is still fast asleep, and find her in their house. Over the years, this tale advocating the respect of private property has been revised, twisted and watered down: the old shrew gobbled up by the bears was turned into a naughty but likeable young girl afraid of her hosts.

However it is in the world of fi nance that the tale takes on a particular signifi cance, where it is known as the “Goldilocks Principle”. This principle describes an economy that is not too hot, unlike the Daddy bear’s soup (reasonable growth) and is not too salty, unlike the Mummy bear’s soup, but is just right, like the Baby bear’s soup. This combination – which we enjoyed during all of 2017 – is ideal for markets, as it allows central banks to maintain their accommodative monetary policies, which de facto captures the potential for interest rate increases and ensures that financial conditions remain favourable.

If this situation continues during 2018, which our central scenario anticipates (50%), equity markets could potentially record two-digit growth across the world’s regions. Rates would increase smoothly and inflation would continue to recover, albeit slowly. However the balance is fragile and many risks could weigh on this environment. If inflation were to accelerate sharply (15% probability), investors may believe that central banks are lagging behind in their interest rate hike cycle. This would lead to self-perpetuating fears of a sharp rise in interest rates during the year, which would have a heavy impact on equity markets. Similarly, if economic growth slows down severely due to a financial crisis in China (10%), then all world markets would suffer. Of course, one should not forget political risks in Europe (25%) which could, disparately, impact the global economy.

Cyrille Geneslay, asset allocation portfolio manager
 

• ASSET ALLOCATION STRATEGIES - Review of 2017 and outlook for 2018

      By Malik Haddouk, Director asset allocation and Thomas Page-Lecuyer, investment specialist

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• MACRO ECONOMIC ENVIRONMENT - A look back at 2017 and our outlook for 2018

By Philippe Weber, Co-head of Research and Strategy

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3-MONTHS FINANCIAL SCENARIO - END JANUARY 2018
 

• CENTRAL SCENARIO: POSITIVE GLOBAL ECONOMIC MOMENTUM CONTINUES.
• ALTERNATIVE SCENARIO 1: RISING RISK AVERSION FUELLED BY GEOPOLITICAL TENSION AND BY DOMESTIC POLITICAL TENSION IN THE U.S.
• ALTERNATIVE SCENARIO 2: STRONG POLITICAL TENSION IN EUROPE. 
• ALTERNATIVE SCENARIO 3: RISING INFLATION PERCEPTIONS. 

Our next publication will be in February 2018. Our experts are available for any further information. Best regards.