At the beginning of 2018 the stage looked set for synchronized economic expansion. The immediate question was however how long the “goldilocks” conditions would continue i.e. strong global economic growth with low inflation supporting risky assets such as equities and emerging market assets?

Growth assets closed weaker over the quarter as the FAANG giants (Facebook, Apple, Amazon, Netflix, and Alphabet's Google) lost around $400 billion in market cap as investors took profits. Furthermore, the broader market reacted negatively to the potential US and China trade war. Locally, investors were rattled by the passing of a motion to amend the Constitution to explicitly allow the expropriation of land without compensation. Furthermore, scathing allegations reports about Resilient (a large local listed property share) bruised the local property sector performance.

Local growth assets such as the listed property market and the equity market lost 19.61% and 5.97% over the quarter, and global listed property and equity markets also sold off by 4.60% and -0.96% in Dollar terms. For the 12 months ending March 2018 the local property market had now lost 7.09% whilst the All Share Index was still positive with a 9.60% return. Global listed property and equities remained in positive territory for the 12 months yielding a 2.85% and 14.85% return in USD terms. Whilst the equity market correction at the start of the year was greater than anticipated, it was not unexpected. The first quarter was simply a strong reminder that albeit those global conditions for risky assets remained favorable that returns don’t come in a straight line.

The concern going forward remains that global equity valuations remains extended (especially in the US), There are also potential warning signs that the business life cycle of the equity market may likely slow down in the next 12 to 18 months. Despite these concerns, we maintain our optimistic outlook for growth and for risky assets as we see more potential investment opportunities than challenges. We remain bullish on Emerging Market Equities as their earnings and valuation profiles look more attractive than their developed market peers. Further, post the recent sell off of listed property have we increased our allocations to an overweight position.

Of course, we remain vigilant as continued trade uncertainties between the US and China may reduce our positive outlook for risky assets. Hopefully, the initial trade actions between the US and China are simply an opening gambit for further negotiations rather than a trade war. Furthermore, we continue to monitor the FED closely as it faces a tricky task to further tighten policy without triggering a downturn in the economy.