The coming year is likely to be favourable for investors, but more volatile than 2017, according to AMP Capital chief economist Shane Oliver.
Dr Oliver said “Australian shares are likely to do okay, but with returns constrained to around 8 per cent with moderate earnings growth”.
The All Ordinaries, which passed 6,000 on 1 November, is likely to reach 6,200 by the end of 2018, he forecast.
Dr Oliver also made these forecasts about the Australian economy:
- Economic growth will be about 3 per cent
- Wages growth and inflation will remain low
- The Reserve Bank won’t increase the official cash rate “until late 2018 at the earliest”
- The Australian dollar will fall to around $US0.70
- Cash and bank deposits will continue to provide poor returns
- Property markets will cool in Sydney and Melbourne; bottom out in Perth and Darwin; post moderate gains in Brisbane and Adelaide; and boom in Hobart
Investors enjoying a “sweet spot”
Looking internationally, Dr Oliver said global economic growth would increase – although he cautioned that conditions were almost as good as they could possibly get.
“Overall, this should mean continuing strong global profit growth, albeit momentum is likely to peak,” he said.
Dr Oliver also forecast that the US Federal Reserve would increase interest rates four times in 2018, which is more than markets expect.
According to Dr Oliver, “there is still no sign of the sort of excesses that drive recessions and deep bear markets in shares”, because:
- Share markets are “not unambiguously overvalued”
- Global monetary conditions are “easy”
- There has been no major global bubble in real estate or business investment
- “Bitcoin mania” is too limited to pose significant global risks
- World inflation is unlikely to rise fast enough to cause major problems
“So arguably the ‘sweet spot’ remains in place, but it may start to become a bit messier,” he said.