As is traditional at this time of year, Crowd for Angels presents its five predictions for what might happen in the financial markets in the coming 12 months.
Bitcoin/Cryptocurrencies
Trying to forecast at what price Bitcoin will end 2018 is a huge challenge given the massive volatility of the cryptocurrency. Anyone who predicted that it would rise from just under $1,000 at the beginning of the year to the current $18,000+ would most likely have been called mad. But following a huge rise in investor interest and speculation that is exactly what has happened. If 2017’s growth is repeated in 2018 that would see Bitcoin end the year at around $325,000!
For some market commentators that might not appear to be a foolish prediction, with cybersecurity pioneer Jim McAfee saying he expects the price to rise to $1 million by 2020. On the other side of the camp, Saxo Bank, in one of its ten “Outrageous Predictions “for 2018, sees the price rising to $60,000 before crashing to $1,000 as the Russian and Chinese authorities prohibit non-sanctioned cryptocurrencies domestically.
Whatever happens to the Bitcoin price next year, what is clear is that cryptocurrencies are becoming more ingrained into our financial system, both as an investment asset and as a potential form of currency, and that they are here to stay. We expect that Initial Coin Offerings (ICOs) will continue to be popular as a form of raising funds, not only for blockchain businesses but also for companies looking at innovative ways of financing new products or further expansion. However, as regulators continue to monitor the evolution of the industry, it is likely that more countries worldwide (following China, South Korea and other) will begin to impose further sanctions on ICO fundraisers.
For more information of Crowd for Angels’ current ICO CLICK HERE
Crowdfunding
Could 2018 be the first year when investors start to see the real benefits of equity crowdfunding come through? The industry really started to kick off around 2013/14 following the launch of a number of new platforms which were looking to take advantage of the big banks cutting back on their provision of finance to small businesses. Therefore, with such businesses looking to achieve an exit or other liquidity event within 3 to 5 years, we expect to see a number of value realisations for equity investors in the coming year.
On the debt side of things, we expect that, after a slow start, the Innovative Finance ISA (IF-ISA) will increase in popularity. This will come as more providers launch their own IF-ISA products, existing investors who are enjoying the benefits allocate more capital to their accounts and as consumers continue to be attracted to the IF-ISA’s higher rates of return. For more information on the Crowd for Angels IF-ISA CLICK HERE.
Interest rates
The Bank of England raised interest rates in November this year after seven of the nine members of the Monetary Policy Committee voted in favour of the first increase in over ten years. Rising inflation, stronger global economic growth and unemployment rates being at a 42 year low were all given as justification for the rise.
Based on forward swap rates the markets are currently expecting the base rate to edge up slowly over the next three years to reach 1% by Q3 2020 as the Bank retains its cautious approach. This echoes comments from Governor Mark Carney who has recently commented that expected GDP growth would require, “about two more interest rate increases over the next three years”.
Into 2018 and we see a high probability of one further rise to 0.75% during the year.
But no more than that. In our view, the Bank is unlikely to adopt a more aggressive approach, with several factors suggesting that rates will be kept on hold until at least the final quarter of the year. With inflation forecast by the Bank to peak around the end of 2017, as the effects of a weak sterling dissipate, prices rises are likely to return nearer towards the government’s 2% target and reduce pressure for the Bank to try to dampen inflation. What’s more, wage growth, at 2.5% in the three months to October, remains below inflation and negative on a real basis, further reducing the need for another rate rise in the short-term.
Whether it’s one rise or no rise in 2018, what is clear is that base rates will remain at near rock bottom levels for some time to come. This of course affects savers and investors who continue to be offered derisory interest rates on saving products by the high street banks. According to finance website Moneyfacts, the average return on Cash ISAs (both fixed and variable) was just 1.07% in mid-December.
Investors looking for higher rates of return might want to look at opening an Innovative Finance ISA (IF-ISA) through Crowd for Angels. Our “crowd bonds” offer interest rates of up to 12%, with payments being tax free when held with the IF-ISA wrapper. Find out more HERE.
UK Stocks
UK stock market investors have had a good time in 2017, with the FTSE 100 rising by 7.6% to a new record high. The index also currently provides a dividend yield of around 3.8%. Small cap investors had it even better, with the FTSE AIM All Share rising by 24.3% and the FTSE Small Cap up by 14.6%.
The FTSE 100 currently trades on a forward price to earnings multiple of around 16 times. This is round about its historic long-term average and in line with the 10 year cyclical adjusted PE measure (CAPE). So in terms of valuation the index neither looks undervalued or, unlike some other assets, in bubble territory.
Assuming no major economic disasters in 2018 then we expect the index to continue growing steadily, in line with earnings growth. However, investors looking for more lucrative opportunities might want to take a look at some of the indexes’ more lowly valued constituents. Lloyds Banking Group (LLOY) for example trades on a forward PE ratio of just 8.5 times and offers a yield of 6.3%. BT Group (BT.A) trades on a PE of just 10.8 times and is yielding 5.8%.
And Finally…
As we have seen in 2017 in the case of blockchain, investors are always looking to take advantage of advancements in technology in order to grow their wealth. We see a number of industries offering the potential for explosive returns in the coming year as technologies begin to be refined and finally commercialised. Amongst others, these include alternative energy, artificial intelligence, driverless cars and life extending medical technologies.
Evidencing humanity’s persistent desire for advancement, Elon Musk of Tesla and SpaceX is planning to launch a Tesla Roadster into space next year to eventually orbit Mars and play Space Oddity by David Bowie on repeat. And with the first commercial space flights looking ever closer, investors may want to look to the stars for their next speculative punt.
