Expect the bumpy ride to continue

Investors have been buffeted by a large number of negative headlines in 2018. We remain of the view that tightening global liquidity conditions are likely to exacerbate market volatility.

As we highlighted in our year ahead outlook, Figure 1 is the key chart for the year, describing how investors like us would switch from having $300bn of fresh quantitative easing-funded (QE) capital to deploy in 2017 to having to find $700bn to absorb the net government bond issuance in 2018. As well as this one trillion dollar liquidity shift, we also highlighted risks posed by stretched market valuations.

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