Global economy is on a roll. It is expected to register the fastest growth in 2018 since 2011 with our projected GDP of 3.6% and global trade volume to grow around 4.0%. Meanwhile, we believe the headline inflation would rise gradually in both advanced and developing economies in 2018.

We are of the view that 2018 will see a period of transition as growth moderates between expansion and contraction. With the central banks expected to normalise their monetary policy in 2018, room for volatility driven by the shortterm interest rate movements cannot be ruled out, especially as we expect inflation to normalise in countries that are still below their targets and stabilise in other countries.

Investors in fixed income will need to look beyond beta to meet their return requirements. It is becoming imperative to yield higher returns from fixed income portfolios through alpha sources, whether via asset allocation or security selection, while managing the risks ahead.

We see the 10-year yields in both the US and Europe as two-sided. The upside to the risk is the central banks’ normalisation policies. Meanwhile, the downside to the risk is if investors “more heavily into the global bond market searching for the high-yielding bonds.

We believe the improving global fundamentals will continue to support investment flows into Asian local bonds. It should favour countries with strong fundamentals and room for growth potential. We like markets with positive fundamentals and reform momentum, such as India. A positive cyclical outlook for China is supportive despite the US trade protectionism being a risk. Indonesia and Malaysia are expected to ride on the stronger global growth and commodity-sensitive and long-term valuations with some caution on the domestic noises.

Source: AmInvest Research - 12 Dec 2017