2017 was a long year but an amazing one. ‘Tech disruption’ became the buzz word of the year and investors did well by selecting high quality stocks in sectors that not only outperformed but became the flavour of the month. Energy, resources, consumer staples and industrials were the sectors that outperformed whilst REITs, banks and telcos underperformed. Small caps were chosen over blue chips as stock picker’s skills were put to the test. Those that got in early reaped the rewards from riding thematics such as baby formula, medicinal marijuana and materials used in electric vehicles. We saw a rush of capital into the cryptocurrency markets and 2018 will be much the same, as millennials keep the craze going. It was the dawn of a new era. A new way of doing things driven by innovative technology that continues to uproot the old ways in which we think, behave and do business. Disruption is starting to displace and shake up existing markets. It’s creating a brand new world without boundaries. What next you ask? We think this is just the beginning of what’s about to come. In this article we’ll share with you our predictions for 2018 and where we think your money is best invested. Whilst we don’t have a crystal ball, we can bet our bottom dollar that the disruption theme will play big into 2018. Some of the themes under this banner include: Artificial Intelligence, Amazon Go’s Machine Learning, Bitcoin, Solar energy, Tesla cars, Uber’s driverless car fleet, NBN Co, 5G, IOT, social media regulations, green tech, streaming services, robotics and robo-advice. The global economy continues to display signs of improvement, with stronger than anticipated growth predicted in countries such as the EU and US. With heightened political tensions and the potential for 3-4 interest rate rises in the US together with tax reform, we can see a transition underway. Here are our thoughts: Can the bull-run continue? Yes we think so. The MSCI All-Country Local Index has rallied for the fourteenth straight month in a row and is up more than 16.0% year-to-date. In the US, the Nasdaq Composite Index past the 7,000 point and the Dow Jones Industrial Index past the 25,000 mark for the first time. Both are trading at record highs driven in part by a long-awaited tax bill together with three US Federal Reserve interest rate rises. US stocks have done well boosted by positive earnings, rising oil prices and to top it off the Santa Claus rally that delivered on point. The Dow Jones Index closed the year up almost 25%. Not a bad year after all. Australian markets followed suit with the ASX 200 Index recording one of its best years in stock market performance delivering healthy gains in almost every asset class. The ASX 200 Index was up 7.4% last year. 2018 is set up as a bullish continuation of 2017. Recent activity highlights further strength in the global manufacturing cycle. What started off as just a technology and energy upsurge is expanding to other parts of the market such as investment and goods. To add to this, financial conditions are highly accommodative with US companies and Australian companies operating in the US becoming beneficiaries of tax cuts. Most corporate earnings estimates don’t take into account these corporate tax cuts. There is significant upside potential due to the direct impact tax cuts will have on margins, as well as higher capital expenditure. These should help drive US growth. What is propping up our economy? Whilst our economy seems to be in good shape, there are a few things to consider. By all indications, we can safely say that the great Aussie housing boom is over. The Australian housing market that was once the engine fuelling growth, is starting to cool amid tighter lending restrictions. Household incomes have been relatively flat whilst debt levels are sky high. It’s a dangerous mix. In our view Sydney and Melbourne will continue to fall. There are some reports saying Sydney and Melbourne property prices will fall by 5% this year whilst Hobart and Brisbane should see an increase in dwelling prices. Home building construction is slowing but all indications are for a soft landing rather than a hard. On that note, interest rates will stay as is. Inflation is low. Despite the US Fed adopting a contractionary monetary policy stance, our RBA is more than likely to stay on hold for quite some time. Nonetheless, if the Fed does raise rates three times this year it will have a snowball effect. Our dollar will fall. Bond yields will rise. Banks may increase mortgage rates out of sync with the RBA to make up the difference from wholesale funding costs. The Australian dollar could move either which…

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