Kleinwort Hambros, the wealth division of Societe Generale thinks that equity investments will rise in 2018 amid signs that the global economy is improving.

 In its 2018 investment and macroeconomic outlook conference on Thursday the private bank said that, “bullish markets” were likely to continue, mainly due to strong economic fundamentals.

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Kleinwort Hambros Chief Investment Officer Mouhammed Choukeir said: “The economy is supporting a continuation of [a global] bullish market.  Now central banks are more interested in normalising than providing liquidity.”

Choukeir was referring to the Bank of England’s recent interest rate hike that took place last month. Interest rates increased from 0.25% to 0.5%, the first rate hike in almost a decade. This gave investors some hope that the economy was faring better than anticipated. 

Kleinwort Hambros identifies three phases that central banks are facing as they move closer to monetary policy normalisation. The quantitative easing reduced to zero, small interest rate hikes and winding down securities.

The European Central Bank announced that it would halve its quantitative easing programme per month from €60bn to €30bn. Kleinwort Hambros said these were all signs that the economy was improving, and central banks can begin to embark on monetary policy normalisation. 

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Using an investment approach called ‘VaMoS’, that considers economic, valuation, momentum and signals to predict the future direction of asset classes,  Kleinwort Hambros made a number conclusions.

EQUITIES

The bank said it expected a rally in most equities to continue, though it warned that further upside in US equities will be “constrained by valuations”

For Europe, it expected strong year-to-date performance to continue, and the outlook would depend on trends in earnings forecast revisions. An expected strength in the euro could exert downward pressure on earnings. Despite this, it was overall bullish on European equities. 

However, the bank was less optimistic on UK equities. “We are cautious on UK equities, the domestic economy is slowing, interest rates have risen and companies have little clarity on the outcome of Brexit negotiations.

Kleinwort Hambros said it preferred Eurozone equities, but that ‘gap’ between Eurozone and US equities was narrowing.

“While global conditions are supportive for equities across the board, we continue to expect some underperformance from the US and the UK.”