The Swiss banking house has a broadly positive view on the direction for markets next year, coming as indices chalk up strong gains so far in 2017.

Switzerland’s second-largest bank is broadly positive about the economic and investment outlook for 2018, favouring equities over debt and seeing further upside potential to stocks even though most indices have risen this year.

Credit Suisse expects a slight acceleration of global gross domestic product growth to 3.8 per cent next year, and forecast inflation to come in at 2.7 per cent. Additionally, corporate capital spending will increase and become a more positive driver of growth in future. 

Global equities have risen strongly this year. Among developed countries, the MSCI World Index of shares shows total returns of 19.33 per cent (capital plus reinvested dividends). For the MSCI Emerging Markets index, the figure is 36.2 per cent. (Figures are in dollars.) Despite talk of geopolitical risks and worries around Brexit, or discomfort among the political and media chattering classes over the election of Donald J Trump in the US, the equity market has rallied strongly. A talking point among investors, however, is whether a bull market in equities – lasting since 2008-9 – can continue for much further. Credit Suisse appears to think that this rally has further to run. 

In fact, “if there is a risk to the global economy it is that central banks could accelerate rate rises next year in response to a faster-than-expected pickup in inflation,” Chief investment officer, international wealth management, told this news service. 

In its report, the Zurich-listed banking group said: “Given this favorable [business and economic] backdrop, investors can expect still robust returns for risk assets in 2018, albeit more limited after the exceptionally good investment year in 2017.”

The bank said emerging market equities are expected to generate low double-digit total returns in 2018, with good prospects for small caps in particular. In developed markets, Japanese and Swiss equities are seen as offering the best potential. Sector-wise, preferences include healthcare, telecoms, industrials and financials. Eurozone real estate equities also offer attractive opportunities for investors given still high yields.

In fixed income, the banks expects bond yields in most developed markets to rise moderately, while they should plateau in the US, at around 2.7 per cent. In emerging markets, a particular preference is for local currency debt given the still high carry and potential for further local interest rate cuts.

In currencies, the US Federal Reserve’s tightening steps may stabilise the dollar, but the likely upward adjustment in European yields suggests that the euro could extend its gains.

In commodities, robust economic growth should continue to support commodity demand and prices, with oil seen trading in a range, it said. 

“In the US stronger corporate capital spending, a recovery in productivity and a likely fiscal boost should extend the strong business cycle for another year,” the bank said, making a US GDP forecast of 2.5 per cent. The eurozone, it said, is likely to see a continuation of the newfound cyclical strength barring an unlikely political crisis or a sharp appreciation of the euro. (It forecasts US gross domestic product to rise 2.0 per cent.)

Switzerland is expected to benefit from a positive export outlook given stronger global growth and a weaker Swiss franc.

On China, the bank said the Asian giant will continue to “play a vital role, with its growth contribution to the world economy seen as rising further given the country’s increasing weight”. 

“As China’s leaders remain strongly focused on stability, Credit Suisse expects a fairly smooth adjustment process with currency stability. In the longer term, high corporate debt levels remain a concern,” it said. The bank sees GDP growth in China next year coming in at 6.5 per cent.

The report also examines priorities of Millennial investors. With half of the world’s population under the age of 30, this generation is becoming an influential force in the world, it said. The report highlights energy efficiency, sustainable consumables and blockchain technology as three key priorities for the Millennials.

“Our focus is on the impact of the next generation of investors, the Millennials. Our sense is that 2018 will be remembered as the year in which they take important strides to becoming the decisive force in key realms of life,” Nannette Hechler-Fayd’herbe, head of investment strategy and research at Credit Suisse, said.