The world economy is firing on all cylinders, with the US, Europe, and China simultaneously experiencing sustained economic growth for the first time since the 2008 Global Financial Crisis. And the markets – having thrived in an environment of ultra-loose monetary policy – continue to flirt with their all-time highs.

Yet declining unemployment has failed to reignite inflation, defying traditional economic models. History shows that the international monetary order undergoes a transformation every 40 years or so, and the apparent breakdown of traditional economic relationships lends weight to suggestions that the US dollar-based fiat money system is getting long in the tooth. The emergence of anti-establishment politicians across the western world further increases the likelihood that fundamental changes are afoot.

Have markets entered a period of “irrational exuberance”, and are they headed for a fall? Should investors prepare for a recalibration of asset prices? Or are the global economy and financial markets finally changing gears?

Markets Summit 2018 will help you better understand the key investment market and asset class opportunities (and risks) ahead, to aid your search for return and in building better quality investor portfolios.



Overview & registration  When, where, where to stay, who it's suited to | Registration options, terms and conditions

Program & Prep - Timetable, Faculty, Topics, and Prep materials (pre-reading, pre-viewing)

Why not also join us for Finology Summit?  Learning how to better relate to investors (the day after Markets Summit)



Markets Summit 2018 features 20+ international and local geopolitical specialists, economists, market/asset class experts, and investment strategists debating their best ideas on the key drivers of and medium-term outlook for the markets in the context of the theme - Changing gears? - and the implications for portfolios.


Changing Gears
Have markets entered a period of “irrational exuberance”, and are they headed for a fall? Should investors prepare for a recalibration of asset prices? Or are the global economy and financial markets finally changing gears?
- Graham Rich, Managing Partner & Dean, Portfolio Construction Forum (Sydney)
IMF World Economic Outlook Update (Jan 2018)
World Bank Global Economic Prospects (Jan 2018)
- World Economic Forum Global Risks Report 2018


Brace yourself for a global inflation shock
A combination of tight labour markets, ultra-loose monetary policy and a global economy firing on all cylinders is set to generate an unexpected inflationary shock to the financial markets. This will lead to significantly higher bond yields and a recalibration of relative valuations. To complete the perfect storm, we will see the velocity of money rise like a Phoenix from the ashes of a broken banking system delivering traction between money supply and the real economy.
- Jonathan Pain, Publisher, The Pain Report (Sydney)

Things (in the economics world) are broken
Every generation or so, things (in the economics world) break. As Charles Goodhart, professor at the LSE, reminds us "when an empirical regularity starts to be exploited as a basis for economic policy, it is liable to break down". We’re at/close to one of those once-in-a-generation moments. Increasingly economists, policy makers, opinion formers and the electorate (through the ballot box), are questioning the efficacy of the current system. At the heart of the problem is a failure of the current international monetary system and the associated economic policies of the past 20 to 30 years. Indeed the history of the world’s international monetary order is a history of change, with that change occurring on average every 40 years. This current system is, therefore, long in the tooth. Today’s problems are here to stay until the root causes of the problem are addressed. At the moment, other than changing political winds, there’s little concrete sign that any meaningful progress has been made on that front.
- Chris Watling, CEO & Chief Market Strategist, Longview Economics (London)
- Things break

Focus on what’s important!
Synchronised global growth, rising interest rates, the end of quantitative easing, tightening employment markets – global economies and central banks are certainly changing gear. What does this mean for markets? Should you be switching gear with your portfolios? To make these decisions, you need a laser focus on what is important for you – your process, your portfolio construction philosophy. Only then will you get the most out of this Summit.
- Tim Farrelly, Principal, farrelly's Investment Strategy (Sydney)

- Jonathan Pain, Publisher, The Pain Report (Sydney)
- Chris Watling, CEO & Chief Market Strategist, Longview Economics (London)
- Tim Farrelly, Principal, farrelly's Investment Strategy (Sydney)



Ignore the exit ramp, better conditions ahead
The US economy has shifted to a higher gear that should sustain for several more years. Since its inception, people have sought historical parallels that do not exist for the current US recovery. This backward-looking approach has led to a fundamental misunderstanding of the contour and duration of the recovery. The US might have three to five years of additional growth ahead, as the recovery has entered its third phase driven by the middle class consumer. There are risks that could derail this but global synchronised growth is likely to drive earnings growth to a higher gear that warrants current elevated valuations.
- Ronald Temple, MD, Head of US Equities & Co-Head of Multi-Asset Investing, Lazard Asset Management (New York)

Incorporate tech’s impact in your investment choices
Technological change is advancing with unprecedented speed and scale. Explosive growth in processing power, machine learning and AI has the potential to transform economies and societies. The impact of these changes is likely to accrue gradually at first – consistent with Amara’s famous law that “we tend to overestimate the effect of technology in the short run and underestimate the effect in the long run”. Nevertheless, the early effects of these technological changes on growth, labour, policy and trade will begin to be felt over a 10- to 15-year investment horizon and should influence investment choices now.
- Patrik Schöwitz, CFA, Global Strategist, JP Morgan Asset Management (New York)
- The impact of technology on long-term potential economic growth

- Ronald Temple, MD, Head of US Equities & Co-Head of Multi-Asset Investing, Lazard Asset Management (New York)
- Patrik Schöwitz, CFA, Global Strategist, JP Morgan Asset Management (New York)
- Chris Watling, CEO & Chief Market Strategist, Longview Economics (London)
- John Beck, Senior Vice President & Director of Fixed Income, Franklin Templeton Investment Management (London)

12.25PM-1.10PM: LUNCH


Featuring four concurrent breakouts – in each, three speakers present one after the other followed by Q&A.

The assumption of unendingly low interest rates is dangerous
Generational low long-term real yields and a gear shift in innovation mean that structural growth, as an equity style bias, has rarely been more pervasively expensive. Cyclical stocks appear cheaper and may be hiding the next crop of structural winners. Investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
- Jacob Mitchell, Founder & Chief Investment Officer, Antipodes Partners (Sydney)
- The blind assumption of unendingly low rates is dangerous

Bonds are no longer a reliable risk diversifier
The traditional assumption that bonds act as defensive risk diversifiers in balanced portfolios is no longer reliable. Years of extreme central bank stimulus have distorted valuations, eroded yield cushions and left bondholders with asymmetric risks of capital losses. Long-term data demonstrates that bond-equity correlations often become unstable when rate paradigms shift. We are currently experiencing such a shift as nascent inflationary pressures compel central banks to change gears from stimulus to policy normalisation. Simply holding bonds no longer diversifies your investment portfolio, with genuine risk diversification better achieved by exploiting currently under-priced risk premia in volatility and inflation markets.
- Gopi Karunakaran, Portfolio Manager, Ardea Investment Management (Sydney)

Avoid constant gear changes with a generational perspective
We live in times of uncertainty. Forecasting the future can be a daunting exercise. Too much time is spent on thinking about whether it is a ‘risk on’ or ‘risk off‘ environment instead of focusing on factors about which you as an investor stand a decent chance of being correct – over the long term. A case in point is the continued rise of India or the trend towards mega-cities around the world. Whether an investor’s investment horizon is three to five years, 10 years, or even 30 years, they would benefit from taking a generational perspective to enhance returns.
- Bo Knudsen, Managing Director & Portfolio Manager, C Worldwide Asset Management (Copenhagen)
- The next 30 years

Licence To Tilt – DAA can overcome lower returns
Asset allocation is predicated on riding the only “free lunch” in investments (i.e. diversification). Those that believe we are living in a world of extreme uncertainty will favour diversification, while those believing a continuation of the low volatility environment that we have experienced in recent years, will lean towards high conviction exposures. In practice, many investors will find themselves somewhere in the middle of this spectrum, needing to balance conviction with management of downside risk. Today, 10 years on from the global financial crisis, we are seeing a raging “bull market in everything” fuelled by central bank policy. But the macro backdrop that has prevailed over recent decades is shifting gears and impacting future expected returns. Historical asset allocation methods will not generate appropriate returns in the period ahead, driving the need to be more dynamic to increase both absolute and risk-adjusted portfolio returns.
- Kej Somaia, Senior Portfolio Manager, Colonial First State Global Asset Management (Sydney)

Bond yields will rise much more than the Fed is letting on
The world’s major central banks have taken a position that Quantitative Tapering (QT) will have only a very small impact on financial market prices. Philadelphia Fed president Patrick Harker stated that the Fed intends to make shrinking its balance sheet about as boring as “watching paint dry.” Bond yields may rise by up to 90bps a lot faster than the Fed is suggesting. The speedier rate rises, not to mention any impact from rising inflation – would be rather quick drying paint. If you haven’t already, it is time to consider what happens to your portfolio if bond yields change gears.
- Brett Gillespie, Head of Global Macro, Ellerston Capital (Sydney)

Global Bonds - It’s time to shift gears from auto to manual
Data from the larger economies around the world generally support the scenario of a synchronised global expansion. However, just as attempts to use historical precedents to predict the length and durability of the US economic cycle are undermined by the idiosyncratic nature of its recovery since the global financial crisis, much the same argument can be made about the wider global economy. The overall structure and pace of global growth - combined with the disinflationary forces affecting most of the largest economies - has been unparalleled, as indeed have the extraordinary measures taken by central banks over this period. The current global expansion may be halted by a geopolitical crisis or even a significant misjudgement of policy by central banks - both of which are inherently difficult to predict – but, for now, the biggest risk to portfolios is strong growth and investors need to position themselves in anticipation of rising rates.
- John Beck, Director of Fixed Income, Franklin Templeton Investments (London)

Electric vehicles are not game changing
Consensus appears to assume that electric vehicle adoption rates will increase dramatically over the coming years, displacing significant oil demand. This view is misplaced; there are significant raw material and technological hurdles to rapid EV adoption. In terms of oil supply/demand dynamics we are not ‘Changing Gears’ at all; the future will look very much like the past. The impact of this on the oil price and equity market leadership is not something that investors are positioned for.
- Stephen Anness, Fund Manager, Invesco Perpetual (Henley-on-Thames)

Bonds are more important than ever
After many years of supportive policy, central banks have begun to shift gears, moving into a period of gradual rate hikes and the slow reduction of accommodative monetary policy. Keep in mind however, that while central banks have started to tap the brakes on accommodative measures, the structural and demographic headwinds weighing on potential growth remain. These factors limit the extent to which bond yields can accelerate higher and the low yield, low growth environment will persist. As low yields prevail, investors should ensure their portfolios hold an appropriate defensive allocation as the diversification benefits of bonds increases in a low yield market. Furthermore, bonds remain one of the best instruments available to investors looking for liability matching as they approach retirement.
- Dean Stewart, Executive Director & Fixed Income and Currency, Macquarie Investment Management (Sydney)
- The place of bonds in a low yield world

Investors need growth equities as change accelerates.
Conventional finance theory suggests that you cannot start a business in your college dormitory in 2005 and have it become the world’s fifth biggest company at US$500bn in market capitalisation in just 12 years. But it happened and it keeps happening. As interest rates rise and economies normalise ‘Growth Equities’, ‘FANG’ and ‘BATS’ are again under the microscope, but focusing on interest rates and conventional valuation analysis alone underestimates how these companies got to this point in the first place. Structural change and the resulting earnings growth will always outrun interest rates in the long run, which is why as change continues to accelerate, investors need growth equities in their portfolio.
- Nick Griffin, Founding Partner & CIO, Munro Partners (Melbourne)
- Do stocks outperform Treasury bills?

As we approach peak growth, gear down your risk allocation
Bonds have delivered strong real returns over the past decade while still offering diversification benefits against risk assets. The global economy is approaching peak growth and, while the expansion may not come to a rapid end, investors should prepare for increasing left tail risks. As a consequence of overly bullish investor sentiment, equity valuations are at their highs compared to the past. The record-low implied volatility attracts cautious investors to be maximum long risk at this stage of the cycle. With higher rates than 12 months ago, this may be an opportune time to increase allocation to bonds as your portfolio’s insurance policy.
- Rob Mead, Managing Director & Co-Head of Asia-Pacific Portfolio Management, PIMCO (Sydney)

The reflationary regime will persist and propel risk assets
Last year created a remarkable sweet spot for equity markets and for the first time in a decade the global economy experienced synchronized acceleration. The year ahead promises to be disruptive across industries, companies – and consensus views, particularly the market regime/cycle. Most analysts believe we are in a late market cycle. But there are many classic mid-cycle characteristics driving a reflation of confidence and investment that can extend the cycle even further. The regime shift now underway will challenge portfolio construction designed for the previous regime – those who don’t change gears accordingly will have low probability of achieving strong risk-adjusted returns moving forward.
- Hani Redha, CAIA, Managing Director & Portfolio Manager, PineBridge Investments (London/Bahrain)

Europe: It’s a long way to the top
Having been considered “uninvestable” 18 months ago, Europe has enjoyed renewed investor interest and strong equity market performance. Europe is a continent with relative political stability, true reform efforts, competitive companies and a rapidly growing eastern hinterland. It is doubtful that “safe” exposures (think global consumer giants) will earn investors strong returns from this point – shift gears rather to domestic European exposures like banks, plus materials and energy.
- Nik Dvornak, Portfolio Manager of Platinum European Fund, Platinum Asset Management (Sydney)



Don’t write off America
To paraphrase Mark Twain, reports of America’s retreat are greatly exaggerated. Across most of Asia, there remains a well-founded conviction that the US -- even with Donald Trump in the White House -- will remain the predominant power in defence, education, innovation and energy self-sufficiency. Meanwhile, even if China can sort out its long-term demographic problems, other big challenges loom: political, ethnic and environmental.
- Tom Switzer, Executive Director, The Centre for Independent Studies (Sydney)

China’s Belt and Road Initiative is less than meets the eye
China’s Belt and Road Initiative, often compared to the Marshall Plan, is expected to reshape the global economic landscape. Over one trillion US dollars in planned infrastructure investment linking 70 countries across Asia, Europe, and Africa is expected to boost trade, investment, and growth among the countries involved. However, the plan is poorly understood. The Belt and Road initiative is unlikely to generate significant economic benefits for the countries involved, and may in fact mire them in unsustainable debt. The initiative may generate political “returns” but financial returns will be harder to come by, and opportunities for investors will be limited.
- Alex Wolf, Senior Emerging Markets Economist, Aberdeen Standard Investments (Hong Kong)

* Each presenter speaks for 5 minutes, followed by discussion/Q&A

Global markets discomfort requires discernment in Au markets
At some point, the bull run in assets will run out of steam and there could be many triggers for this; the US economy could falter, stronger than expected inflation might force monetary authorities to act more aggressively, or liquidity could implode in corners of the fixed income market. But there appears to be few signs of any such pressures erupting near-term. It may not feel comfortable and this is not a time for complacency - but at this stage, global market conditions leave little choice but to be braver for just a little bit longer. For Australian investors, international markets remain attractive sources of growth relative to a subdued growth forecast for Australia. Australian equities earnings are forecast to trail international peers again in 2018, so aside from the wonderful dividend, on a relative basis, higher returns are expected once again from overseas assets in 2018.
- Alva Devoy, Managing Director, Fidelity International (Sydney)

As global rates rise, sovereign bonds will give protection
Current market pricing across all asset classes suggest late cycle behaviour. Interest rates drive returns across all asset classes affecting indebted consumers and economies alike. Higher interest rates cause decay in instruments with lower credit quality, which is often asymmetric in repricing. Global rate hikes will bite Australian investors as a higher cost of capital triggers credit decay and overwhelms indebted consumers. In this environment, sovereign bonds remain an anchor portfolio allocation for well diversified portfolios.
- Charles Jamieson, Executive Director, Jamieson Coote Bonds (Melbourne)

Corporate disruption is the critical Au equity factor for 2018
Recent performance shows that company and industry level factors have now re-emerged as the key driver of stock returns in the Australian stock market. This is after a long period where the dominant driver has been sensitivity to bond yields. Disruption across industries will continue, creating mis-pricing and over-reaction that will benefit research driven, fundamental active investors. The Australian equity market looks attractive versus others, with limited or no exposure to the richly valued tech and healthcare sectors, benign interest rates and continuing tailwinds for resource stocks.
- Crispin Murray, Head of Equities, BT Investment Management (Sydney)


Cryptocurrencies are a new epoch in monetary history
Blockchain-based digital currencies offer several advantages over fiat currencies, including the ability to make online transactions more quickly and cheaply. The Chinese authorities recognise the potential of blockchain technology and are outpacing the US, in the race to develop an "official" cryptocurrency. If the Chinese experiment succeeds, we may witness the start of a new epoch in monetary policy, in which the US dollar's role as principal international currency is challenged.
- Niall Ferguson, Senior Fellow, Hoover Institution, Stanford University (San Francisco)