Inflation biggest threat

THE spectre of rising inflation is set to haunt global markets this year, with Australia’s ASX 200 likely to see only modest gains.

Pitcher Partners director of wealth management David Lane said volatility was likely to hit markets as investors fretted about inflation and political hot spots like North Korea. The US Federal Reserve is expected to hike interest rates up to three times in 2018.

“Investors have not reacted to such risks in the past year, with markets in South Korea and Japan performing exceptionally well,” Mr Lane said. “But … it may only take something to come from left field to cause a correction.”

He said the ASX 200 should reach 6250 during the year, from its 2017 close of 6065.1, with resource-related and tourism stocks to perform well.

Both the Australian and global economies are expected to grow slightly above their longer-term average in 2018. China, the world’s second-biggest economy, is expected to slow down but still grow enough to ensure continuing demand for Australian resources such as copper and bauxite.

Mr Lane said Queensland stocks such as Senex Energy, Corporate Travel Management and recently-listed Wagners were potential winners over the next year.

IG Markets chief strategist Chris Weston said any gains during the year would be driven by energy and resources stocks. He said the ASX 200 was likely to climb as high as 6205 during the year, well short of the record 6828.70 reached in November 2007.

Australian markets have lagged global indexes such as the Dow Jones Industrial Average and Nasdaq, which have reached record highs, helped by tech giants such as Google and Apple.

Mr Weston said the biggest risk remained inflation and rising asset prices.

“The biggest concern is not North Korea but expectations about inflation,” Mr Weston said. “That is when investors start to panic and worry about the financial impact.”

Bell Potter Securities stock broker Stuart Smith was more bullish, forecasting the ASX 200 would reach 6300 by March and 6700 by the end of 2018.

Mr Smith said while bank stocks remained weak, resources companies such as BHP are expected to perform well. “BHP is quite the standout and may be at this price the standalone buy recommendation,” Mr Smith said.

CommSec chief economist Craig James expected there would be consolidation of recent gains during the first half of 2018 before the market resumes a push higher.

The All Ordinaries Index is expected to end 2018 between 6500 and 6700 points. Total returns on shares, including dividends are tipped to rise by between 10 and 12 per cent.