2017 Stock Market Returns Ring the Bell of Caution

Outsized gains that are not accompanied by improvements in the fundamental value of assets can indicate that we are merely borrowing returns from the future

Cyrique Bourbon 8 January, 2018 | 6:35AM
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2017 was a great reminder that markets move in cycles of variable speeds, inclines and durations, with the extremely strong recent performance among risk assets looking more akin to an energetic sprint than any kind of long-term marathon.

The UK battles slower investment growth and rising inflation

To put this into context, global equities delivered an astounding 25% in local currency terms over 2017, with China delivering 45%, India 41%, the US 22%, Europe 15%, and the UK 13%. These returns may not be in the same stratosphere as Bitcoin, which delivered over 1,000% in 2017 in US dollar terms, but they are at the outer bounds of normality. While positive returns are a pleasing investor outcome, for contrarian investors they ring the bell of caution as outsized gains that are not accompanied by improvements in the fundamental value of assets can indicate that we are merely ‘borrowing’ returns from the future.  

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Cyrique Bourbon  is multi-asset portfolio manager for Morningstar Investment Management EMEA

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