Davy Private Clients Insights

Outlook 2018

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MarketWatch January 2018

Top Investing Ideas for 2018

david-hillery-author.jpg David Hillery
Senior Investment Strategist

At Davy we continuously analyse markets to identify the best investment opportunities for our clients. We tasked our team of analysts, economists and strategists to pinpoint trends in the sectors they think will do well next year and potentially be good long-term investments.

Global Outllok 2018

This article is from our latest edition of MarketWatch, an in-depth report focusing on the Global Economic Outlook for 2018.

 
 

At Davy we continuously analyse markets to identify the best investment opportunities for our clients. We tasked our team of analysts, economists and strategists to pinpoint trends in the sectors they think will do well next year and potentially be good long-term investments.


Global Infrastructure

According to the consultancy firm McKinsey, $57 trillion of infrastructure investment is required globally over the next 15 years. In the US, China and Europe there are major policy initiatives underway to increase spending on infrastructure. The long term benefits to the broader economy are clear and due to the length of the projects companies operating in this sector are attractive investment opportunities.


Healthcare

There are a number of demographic changes which should benefit the healthcare sector. These include the long term increase in demand for drugs from the aging population and the growing obesity epidemic. From a fundamental valuation perspective the sector trades at a discount to the market, which we think provides an attractive entry point for investors to build a long-term position.


Emerging market debt

The global economy is experiencing a synchronised expansion. In addition, the differential in growth between emerging market (EM) and developing market (DM) economies is picking-up. This generally bodes well for EM assets. As global growth improves it should be positive for local currency performance and debt spreads. The glossier macro backdrop means that local currency debt is increasingly attractive due to the weakness of local currencies since 2012. Also, a number of countries that were considered risks in the past have cleaned up their current account deficits. If the current economic cycle continues, the expectation is that the search for yield should drive investors into more diverse areas of the market.


Dividend paying stocks

The current low interest rate environment means that one of the greatest challenges for investors is income generation. The dividend yield on several blue chip stocks has risen in recent years, with several high quality names yielding around 5%. These high dividend-paying stocks tend to have lower volatility than the overall market. By selectively adding them to a well-diversified portfolio, investors can benefit from a pick-up in yield.


European recovery

The recovery in Europe was one of the more positive stories in 2017. Data continually surpassed expectations and gross domestic product (GDP) was revised up to 2.3%. A strategy to gain exposure to this trend is to invest in domestically focused mainland European companies. The European banking sector is a pure-play on this strategy and the expectation of rising yields should also benefit the sector which has underperformed substantially in recent years.


Emerging market consumer

The outlook for EM economies has improved dramatically over the past year. Having faced a number of headwinds including falling commodities and a stronger dollar, many EM countries look to be in a better place. As GDP increases, a middle class of several hundred million emerging consumers will change consumption patterns for decades to come. Companies that can serve the growing demand for goods and services which will improve diets, hygiene standards, transportation, technology and high-end luxury goods look set to benefit.


Brands

Inflation has not been a key feature of the current cycle, however, economists believe that we will see price increases in the year ahead. Companies that can pass on higher input costs will feel less of an impact on their margins. A successful brand can be a compelling driver of pricing power and ultimately profitability, which will be important over the next 12 months. In certain cases, a strong brand can generate consumer loyalty and products can become relatively price insensitive and attract a premium price.


Irish property

The Irish commercial property market has clearly been rejuvenated in recent years. The prospect of companies moving to Dublin following Brexit should maintain demand for new office buildings in Dublin over the next 12 months. While the current property boom will not last forever, we think demand for Irish property will remain strong next year. In addition, the general trends in the underlying economy remain very positive and Ireland looks to be one of Europe’s fastest growing economies again in 2018. We think Irish property continues to be one of the best ways to play the recovery and offers an attractive yield above 4%.

Warning: Past performance is not a reliable guide to future performance. The value of investments and of any income derived from them may go down as well as up. You may not get back all of your original investment. Returns on investments may increase or decrease as a result of currency fluctuations.
 
Warning: Forecasts are not a reliable indicator of future results.

 

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