ABN AMRO: Investment climate to remain favourable in 2018

Press release -

Despite geopolitical uncertainties and the associated likelihood of more volatile markets, ABN AMRO believes that the investment climate remains favourable. In its new Investment Strategy for June 2018, ABN AMRO argues that equities will continue to drive portfolio returns during the second half of 2018. The bank also suggests gradually building up bond positions, though for the present it remains cautious about this asset class.

ABN AMRO assumes that overall the global economy will grow by 3.9% this year, with 2019 adding at least 3.5% more. One question mark, however, is how the increased geopolitical uncertainties might impact the growth rate. This is a reference to issues such as the introduction of new tariffs by the US, in particular on Chinese import products: those tariffs could potentially lead to a major trade war. Nevertheless, ABN AMRO believes that matters will not escalate to that point, as a full-blown trade war would not benefit the US or its trade partners. Nor does the bank expect the political troubles in Italy to trigger a euro crisis.

Greater fluctuations

Uncertainties such as the threat of a trade war carry over to the financial markets, and ABN AMRO expects share prices to continue to fluctuate more strongly than they did in 2017. It is probable that the market will undergo major fluctuations until the end of 2018 at least. Nevertheless, the investment climate remains favourable. Returns on equities are expected to remain significantly higher than returns on savings and government bonds. The bank expects that equities will continue to drive portfolio returns during the second half of 2018, though investors should not expect them to yield double figures. The regional vision is neutral, meaning that no preference is expressed for equities from any particular regions. At the sector level, energy, consumer discretionary and industrials are preferred.

Read ABN AMRO Investment Strategy for June 2018.

Market to continue its upward trend

Richard de Groot, Global Head of ABN AMRO Private Banking’s Investment Centre, explains, “Since the end of the financial crisis, the recovery of economic growth has gradually been picking up pace. This recovery has continued for an exceptionally long time, and on occasion has shown itself to be surprisingly resilient. The economy is in a good position just now. Growth is expected to continue and is boosting companies’ profitability. Profitability is an important factor in how they perform on the stock markets. This leads us to believe that the market is likely to continue its upward trend.”

Government bonds: build up positions gradually

ABN AMRO suggests that investors should use this period to gradually rebuild their positions in government bonds. This will add to the diversification of broad investment portfolios. The bank has already made a first move in this direction, but for the present remains cautious about bonds as an overall asset class. Where the bond portfolio contains a large proportion of corporate bonds, it is important to diversify. Economic growth is in a more mature phase, and the ECB will gradually stop buying corporate bonds. As such, ABN AMRO suggests that investors should consider diversifying by increasing international bond exposure. Another possibility is to consider bond segments with different risk characteristics that still promise good returns.

No eurozone rate hikes until 2019 at the earliest

Richard de Groot adds, “With the economy growing worldwide, inflation forecasts increasing and central banks moving toward more normal monetary policies, in general terms we expect bond yields to rise. The recent drop in yields on government bonds of Europe’s core countries illustrates that this will not happen in a straight upward line. All in all, the market environment is still challenging for bond portfolios. As such, it is important to be agile and alert. We suggest using each wave of higher yields to gradually increase bond holdings. This strategy will assist in restoring the traditional protection and diversification that bonds can provide to portfolios.”

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