2017 Investment Review

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Stock Market Showed the Greatest Return to Investors

2017 was a nervous, eventful, and rather productive year. The recovery of the world economy has gradually gained momentum, and this fact did not fail to affect the profitability of the investments.

The undisputed leader among the investment assets was the stocks market. Investors have managed to set aside the political factors such as missile launches by North Korea, complicated negotiations on the Brexit terms between the UK and EU, and the referendum on the independence of Catalonia and focused on the economy growth.

In fact, you may call 2017 the year of the stocks markets, because many of them have renewed historic and multi-year highs. For the first time in many years, the stocks markets in the US, Japan, Europe and Asia grew at the same time.

Let’s look at the numbers. The table below shows that profitability of the stocks markets on the different regions and the world were rather decent.

However, every country has its nuances, which must be taken into account.

In Japan, the main drivers of the market were rising corporate profitability, positive economic environment, and re-election of the reformer PM Shinzō Abe in the October 2017 general election. Looking ahead, we may say that in 2018 the main risks for Japan markets are the US exit from the Trans-Pacific Partnership and possible involvement in the probable conflict between the USA and North Korea. Still Japan stocks market remains one of the most attractive for the investors. Asian stocks, having posted the best result since 2009, and even after beating American stocks last year, have actually remained cheaper relative to their U.S. counterparts.

The UK market in 2017 has shown the decent results, but still, the Brexit uncertainty clouds its perspectives. As other countries’ economies gained steam, UK’s results somewhat disappointed investors with growth deceleration due to the protracted Brexit negotiations with EU.

The European Union was able to recover after political and economic turmoil. Populists, which were rather vocal during the year, have lost the elections in France, Denmark, and Germany. European economy continued to grow and even accelerated its pace by the end of the year.

US markets, despite having set the multiple records during the year due to the optimism about Trump’s tax reform, finished 2017 with relatively modest results.

The case is that the US stocks prices are now above the historical average. For example, the emerging market equities are as cheap against their U.S. counterparts as they were after the Asian financial crisis in 1997.

Overall, in 2017 world stocks markets gained due to the accelerating global economy and weaker US dollar. Worthy of note is the jump of the hi-tech companies.

Commodity prices that cheerfully grew in 2016 paused somewhat in 2017. Still, weaker US dollar and rising demand by the growing world economy produced decent returns on the commodity investments.

Investors viewed real estate in 2017 as a mere portfolio balance instrument.

Despite a reduction in asset purchase programs by central banks, some inflation pressures and possible tax relaxation, Government bonds yields left much to be desired.

Generally, the perspectives of the fixed-income instruments do not thrill investors.

Consumer lending market as usual reacted on the changes in the monetary policy. From this point of view, the US market has maintained its leadership as Fed raised its main rate three times and Fintech industry continued its evolution. Recall that personal loans market in 2017 netted 10. 8% gain (Source: TransUnion consumer credit database 2017).

This is what concerns traditional investment tools. It is impossible to bypass the new trend of 2017– the cryptocurrencies. Not all the countries recognize them, but crypto fever spreads fast all over the financial markets.

Still, in the beginning of the 2018, the situation has changed and not for the better. However, more about it next time. It is worth remembering though, that cryptocurrencies are one of the most risky investment tools without any guarantees and any distinct regulation.

Besides, there are more traditional alternative investment tools, which have proven to be rather profitable. The vintage wine by the end of the year has risen in price by 5.1%, precious metals by 12.52%, but girls’ best friends – diamonds – have failed to become investors’ friends and lost in value during the year by 1.32%.

Finally, one more significant trend should be mentioned– the change of behavior of the professional investors.

Actually, this change has been observed for the last few years, but in 2017 it accelerated and began to grow into a trend. Before that, investors mostly focused on the analysis of the fundamental picture of the economy and the valuation of companies’ shares, but now ESG (Environmental, Social and Governance) factors added weight. These new factors may not only significantly affect the profitability of investments but also change one’s usual view of things.

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