Central bank tightening will create the biggest risks and opportunities in 2018. Read more...
The main risks and opportunities in 2018 will arise from central bank tightening: The risks will arise from the impact of a number of central banks tightening at the same time, and the opportunities will come from increased volatility and differentiation between markets.
Systematic risk factors do not currently offer good value for money because rates are low, credit is tight, and volatility is muted. One way of responding to this is to allocate more to idiosyncratic risk assets that are sufficiently driven by their own stories to behave differently than the broader market.
Insurance positions have not offered value for money in 2017 because the markets have not been moving sufficiently when negative events have occurred. However, this may change in 2018, and we think there are risks that would require some form of insurance.
The 2008 financial crisis forced regulators to take actions that they would previously never have considered in order to save the global economy. As a result, they will be psychologically better prepared to respond to the next one.