Goldman Sachs Asset Management Sees Further Stock-Market Gains

(Bloomberg) -- While global stock valuations are relatively high on an historical basis, a “remarkably benign” macroeconomic environment means equities can keep rising, according to Goldman Sachs Asset Management.

“When we look at low global rates, steady gross domestic product and non-threatening inflation, we believe they should translate into high equity valuations,” Kane Brenan, co-CIO, global portfolio solutions at Goldman Sachs Asset, said in a video accompanying the company's 2018 investment outlook. “Within equities we prefer emerging markets over developed markets.”

Although global stock returns will be positive next year, they will be “much more moderate” than in 2017, Goldman Asset says in the report. In fixed income, the picture looks different, with the asset manager saying it prefers stocks over credit and credit over rates. Goldman said it was expecting three Federal Reserve hikes next year.

“Risks are probably weighted a little bit more than that as a result of accelerating inflation,” Michael Swell, co-head of global portfolio management for fixed income, said in a separate video clip. Rates will rise faster than what its currently priced-in and asset classes that benefited from easing, such as corporate credit and mortgage-backed bonds, are set to sell off, he said.

Here are some of Goldman's forecasts and recommendations for 2018:

• The dollar could strengthen “significantly” with U.S. rates rising, which could strain the U.S. economy at some point
• Goldman Asset sees better value in European and Japanese stocks than for U.S. equities
• Consumer staples companies could get “dis-intermediated” by e-commerce companies and autos are also set to face disruption with the growing penetration of electric vehicles

To contact the reporter on this story: Narae Kim in Hong Kong at nkim132@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Andrew Janes

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