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Monthly market update: December 2017

When we look back at 2017, it’s fair to say that it went much better than many had expected. What does this mean for financial markets in 2018, and how could global politics and policy impact your investments?

Despite a number of geopolitical concerns around US policy, North Korea and European elections, the financial markets hardly batted an eyelid, taking it all in their stride. The underlying fundamentals triumphed over the broader political concerns.

Fuelled by the perfect storm of buoyant economic growth, higher corporate earnings, subdued inflation, and record low levels of volatility, risky assets like equities were driven to record highs.

The US S&P 500 index had the ‘perfect’ year, recording positive growth in each calendar month – for the first time ever.

It’s also worth noting that 2017 was characterised by record levels of low volatility – which isn’t normal and is unlikely to continue to the same extent.

Low inflation was a crucial ingredient in the mix last year, allowing Central Banks to embark on a slow and gradual return to normal monetary policy. If inflation picks up higher than the experts have forecast, this could have negative implications for monetary policy and financial markets.

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This momentum has continued into the new year, but the question for 2018 is whether this backdrop will continue to translate into strong earnings and cash flow for corporations and whether inflation will continue to be low as we move further into 2018.

The underlying message is likely to be the same as the year unfolds, with good profitability, decent economic growth and subdued inflation providing a good backdrop for markets to perform well.  

Moneyfarm portfolios

All Moneyfarm model portfolios delivered positive returns in December, which secured positive portfolio performance of between 1-10% for the year.

Moneyfarm achieved this performance despite sterling’s appreciation. The reason? Equity.

Not only did the bull market in all the major equity indices continue its marathon sprint across the 12 months, but our overweight exposure to Emerging Markets also paid off. Emerging countries outperformed their developed counterparts by around three times.

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