CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Chris Watling: the fear factors to watch in 2018

Central bank tightening will not stall the equities rally in 2018, according to Chris Watling of Longview Economics. He suggests the opportunities, and risk factors to monitor in the coming year.

anonymous

Publication date : 2017-12-27T11:17:04+0000

As US stock markets repeatedly extend to new records, fear is building in the market, according to Chris Watling, chief executive and chief market strategist at Long View Economics. He tells IGTV about the risk factors for 2018.

Red flags for the bulls

Two red flags for the markets are the Shiller PE and the unprecedented level of margin debt.

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The Shiller PE, a cyclically adjusted price-to-earnings ratio popularized by Yale professor Robert Shiller, is at a level only seen twice before – at the 1929 peak before the Wall Street crash and the dot com bubble of late 1999.

Shiller chart

Shiller chart

Shiller chart

Three factors to watch

Timing is key to investing and Watling tells IGTV’s Jeremy Naylor that the Shiller PE and margin debt flags do not help with that. Better to keep an eye on three factors – tight money, a US recession and potential market shocks.

The US Federal Reserve has already begun to tighten its balance sheet, and by 2019 it’s expected that all the world’s major central banks will be tightening monetary policy and running down their own balance sheets.

HSBC, in its outlook for 2018, put central banks behind a few of its potential red flags – from the US Federal Reserve tightening driving a dollar bull run, through a potential bursting of the property bubble discouraging further rate rises, to a shock ECB (European Central Bank) rate rise. Other potential risks to the markets include protectionism and a no-deal Brexit.

Where to invest?

In terms of where to invest, Watling suggests equities, particularly western equities ahead of emerging markets because of a strengthening dollar and concerns over the stalling of credit creation in China.

Are the FANGs (Facebook, Apple, Netflix, Google) too expensive? He also looks at whether to plump for growth or value stocks as money gets more expensive.

SP500 chart

SP500 chart

SP500 chart

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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