# Investors will need ‘risk assets’ to beat inflation in 2018 Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2018-01-08 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Investors urged to support risk assets to beat inflation in Meta Description: Explore expert insights from deVere Group's Tom Elliott on boosting yields through equities and non-core bonds in the current market climate. URL: https://financedigest.com/investors-will-need-risk-assets-to-beat-inflation-in-2018html ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd080118-1-1-1736843094890-compressed.jpg) Investors now have little alternative but to support risk assets if they want to beat inflation, affirms one of the world’s largest independent financial advisory organisations. The assertion from Tom Elliott, International Investment Strategist at deVere Group, comes as global stock markets enter 2018 with positive momentum, including the Dow Jones which has surpassed 25,000 for the first time in history. Mr Elliott explains: “Market confidence is supported by a reasonably strong cyclical upswing in world GDP growth. This is being translated into corporate earnings growth, by a belief that central banks will not significantly tighten monetary policy unless justified by growth and [inflation data](https://www.financedigest.com/shares-drop-yields-shoot-up-after-u-s-inflation-data.html "Shares drop, yields shoot up after U.S. inflation data"), and by the U.S. corporate tax cuts announced in December which will boost [Wall Street corporate earnings](https://www.financedigest.com/disney-streaming-beats-wall-street-targets-earnings-miss.html "Disney streaming beats Wall Street targets, earnings miss"). “In the face of continuing low interest rates and [bond yields](https://www.financedigest.com/german-bond-yields-give-up-rise-after-u-s-price-data.html "German bond yields give up rise after U.S. price data"), investors now have little alternative but to support risk assets such as equities and non-core government bonds, if they want a yield that will beat inflation.” An acronym is currently being popularised that describes how many [investors see](https://www.financedigest.com/analysis-weary-investors-see-little-respite-to-fed-hike-gloom.html "Analysis-Weary investors see little respite to Fed hike gloom") markets unfolding in 2018: MOTS, standing for ‘more of the same’. That is to say, solid returns for stock markets with continuing low volatility, and positive returns from investment grade [corporate bonds](https://www.financedigest.com/bank-of-england-sets-out-plans-to-sell-23-billion-corporate-bond-stockpile.html "Bank of England sets out plans to sell billion corporate bond stockpile"). “The risks to the MOTS scenario include [central bank](https://www.financedigest.com/central-banks-ease-off-on-rate-hike-push-in-october.html "Central banks ease off on rate hike push in October") policy error, Trump turning America away from its traditional support for free trade, a credit crunch in the Chinese financial system and from geopolitics such as North Korea and the Middle East. However, as supporters of MOTS would argue, none of these [risks are particularly new and they failed to de-rail markets](https://www.financedigest.com/iran-deal-a-wild-card-for-oil-market-strained-by-supply-risks-reuters-poll.html "Iran deal a wild card for oil market strained by supply risks – Reuters poll") in 2017,” confirms the strategist. He continues: “We favour a long-term multi-asset approach to investing, whereby investors choose a suitable combination of [global equities](https://www.financedigest.com/global-equity-funds-attract-inflows-for-second-week-in-a-row.html "Global equity funds attract inflows for second week in a row") and bonds – depending on their risk profile and investment horizon – and leave the portfolio unchanged. Regular re-balancing ensures [winners are sold and losers](https://www.financedigest.com/the-pound-gilts-and-stocks-likely-winners-and-losers-from-uk-budget.html "The pound, gilts and stocks: likely winners and losers from UK budget") are bought – which financial history, and common sense, supports but which is so hard for us to do in practice.” Mr Elliott goes on to say: “Looking forward to 2018, Japanese and emerging market [stock](https://www.financedigest.com/yes-winning-the-euros-really-can-help-your-stock-market.html "Yes, winning the Euros really can help your stock market") markets appear to some commentators to offer most value, the U.S. less so. The Japanese economy, which grew at an annualised rate of 1.4% in the [third quarter](https://www.financedigest.com/delivery-hero-sees-higher-gross-merchandise-value-in-third-quarter.html "Delivery Hero sees higher gross merchandise value in third quarter") 2017 (despite a shrinking population), continues to benefit from a weak yen and the upturn in global demand for its exports. Fiscal reform, in particular lower [corporate tax](https://www.financedigest.com/irish-corporate-tax-boom-breaks-more-records-in-november.html "Irish corporate tax boom breaks more records in November") rates for companies that increase wages by 3% or more, comes into effect in April. It is hoped that this will [lead to improvements in household demand growth](https://www.financedigest.com/chromatography-accessories-and-consumables-market-booming-demand-leading-to-exponential-cagr-growth-by-2023.html "Chromatography Accessories and Consumables Market Booming Demand Leading to Exponential CAGR Growth by 2023"), which has been weak in recent years. Emerging market equities [continue to look undervalued relative to their developed](https://www.financedigest.com/southampton-development-continues-to-excite-local-investors.html "SOUTHAMPTON DEVELOPMENT CONTINUES TO EXCITE LOCAL INVESTORS") market peers on most valuation measures, despite their outperformance in 2017. “Wall Street is the most overvalued of the major stock markets, with the attractiveness of [equities against bonds diminishing as Treasury yields](https://www.financedigest.com/world-equities-fall-u-s-treasury-yields-rise-after-hawkish-fed.html "World equities fall, U.S. Treasury yields rise after hawkish Fed") creep up. However, the increase in yields is likely to be modest and U.S. corporate [earnings growth will remain strong](https://www.financedigest.com/strong-earnings-dividend-bonanza-push-ftse-100-higher.html "Strong earnings, dividend bonanza push FTSE 100 higher"), limiting any pull-back in share prices. The weak [dollar boosts](https://www.financedigest.com/sterling-slides-as-bets-for-aggressive-u-s-tightening-boost-dollar.html "Sterling slides as bets for aggressive U.S. tightening boost dollar") export earnings, while strong consumer confidence supports domestic-focused sectors. [Tax cuts](https://www.financedigest.com/exclusive-indian-car-makers-propose-tax-cut-on-imports-in-trade-deal-with-britain.html "Exclusive-Indian car makers propose tax cut on imports in trade deal with Britain") will be a net benefit to U.S. corporate earnings, but the [impact of changes](https://www.financedigest.com/ngunu-tiny-discusses-how-covid-19-has-changed-the-future-of-impact-investment.html "N’Gunu Tiny discusses how COVID-19 has changed the future of impact investment") to the tax code on individual sectors is as yet unpredictable. Fourth quarter [earnings statements and outlook](https://www.financedigest.com/henkel-trims-earnings-outlook-on-raw-material-price-spike.html "Henkel trims earnings outlook on raw material price spike") comments, from mid-January, will hopefully offer clues.” Mr [Elliott is not so confident](https://www.financedigest.com/go-for-it-think-positive-believe-in-yourself-and-do-what-you-love-says-dawn-elliott-of-sew-confident-chorley.html "“Go for it, think positive, believe in yourself and do what you love” says Dawn Elliott of Sew Confident Chorley") about fixed income.  He concludes: “Once again we begin the year with commentators generally nervous of bonds, fearing that an [inflation problem](https://www.financedigest.com/explainer-why-does-the-uk-have-such-a-painful-inflation-problem.html "Explainer-Why does the UK have such a painful inflation problem?") is around the corner. Some [fear that central banks will tighten monetary policy faster than is priced](https://www.financedigest.com/oil-prices-slip-as-economic-fears-offset-tightening-crude-supplies.html "Oil prices slip as economic fears offset tightening crude supplies") into the market in an accelerated effort to ‘normalise’ policy. “It seems prudent to heed such warnings, even while acknowledging that the fear of imminent inflation has been voiced by monetarist hawks – and proved wrong- ever since [central bank’s policies of quantitative easing and ultra-low interest rates](https://www.financedigest.com/czech-central-bank-vice-gov-unlikely-to-vote-for-rate-cut-newspaper.html "Czech central bank vice-gov unlikely to vote for rate cut -newspaper") began nearly 10 years ago. This suggests favouring short duration core government [bond](https://www.financedigest.com/traders-ramp-up-bets-on-75-basis-point-ecb-sept-hike-bond-yields-jump.html "Traders ramp up bets on 75 basis-point ECB Sept hike, bond yields jump") s, since the cash can be re-invested in a few years in higher bond yields.” --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---