Date
23 January 2018
The US equity market is expected to go up further next year thanks to rising corporate earnings and tax reform. Photo: Reuters
The US equity market is expected to go up further next year thanks to rising corporate earnings and tax reform. Photo: Reuters

Reality check for my 2017 forecasts

It’s time to check how my 10 forecasts for this year worked out.

1. Global economic growth to pick up. Correct.

The world’s major economies have maintained their growth momentum over the last 12 months, and this is reflected in improving corporate earnings growth. Various leading economic data and corporate earnings indicate that the global economic growth track remains intact for the first two or three quarters of next year, and the US tax cut may even fuel economic growth.

Yet, global inflation has started to edge up since the second half of this year, and has returned to the five-year average. Whether this trend will continue deserves attention.

2. Metal/raw materials prices to keep rising. Correct.

Commodity prices have extended their rally into this year, as shown by S&P GSCI, S&P GSCI All Metals Index and spot oil prices. The three indices have risen 9.8 percent, 28 percent and 11.6 percent respectively as of Dec. 26.

3. US Treasury market to suffer heavy sell-off. Wrong.

The 10-year US Treasury yield has been hovering between 2.15 percent and 2.5 percent over the course of this year. The US treasury market has yet to end the bull cycle, which may have something to do with the stable inflation during the period.

Does that mean the US debt market will continue to do well or it’s just a matter of time for bond yields to shoot up?

Technical analysis shows that 10-year US Treasury yield is threatening to break out of the multi-year downtrend. If a clear breakout happens, that would confirm a trend reversal.

4. The Federal Reserve may hike interest rates by three times or more. Correct.

The Fed has raised rates three times this year, and the Fed fund target rate has increased to 1.25-1.5 percent from 0.5-0.75 percent from the year start.

5-7. US dollar to enter super-cycle, renminbi to weaken further and emerging markets to suffer capital outflow, which would trigger financial turmoil. Wrong.

The biggest mistake I’ve made last year is about US dollar strength. The US dollar index has actually slumped over 12 percent to a low of 91.01 from 103.82 seen early this year, despite market consensus on a strong dollar.

Nonetheless, the Fed may accelerate its pace in hiking rates next year. And the market is now generally bearish on the US dollar. Does that mean the greenback may again surprise the market and prove the consensus wrong next year?

8. Hong Kong housing price to move higher in the first half before reaching an inflection point. Half-right.

The Centa-City Leading Index edged up in the first half, and moved sideways between mid-June and October. After months of consolidation, home price started to pick up again in November and set new highs. Therefore, the expected turning point has not come.

9. The Hang Seng Index to move in the range of 18,800 and 24,400 points. Half-right.

The Hang Seng Index exceeded expectations and began accelerating its upward surge in the second quarter.

Nonetheless, I’ve revised my forecast by the middle of the year from the profit alert figures, and predicted that the Hang Seng Index may snap 30,000 points.

10. US equities have an upside of nearly 40 percent. Correct.

The three major US equities indices have rallied 22 to 30 percent this year. Going forward, the US market still has upside room next year thanks to rising corporate earnings and tax reform.

I believe many asset classes might witness a super-cycle next year, and the boom may eventually come to an end.

I wish all my readers the best in 2018!

This article appeared in the Hong Kong Economic Journal on Dec. 28

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Hong Kong Economic Journal chief economist and strategist

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