Investors should not be afraid to run against the pack in 2018, with recent history demonstrating that taking a contrarian view can pay off.
That was a key takeaway from AXA Investment Managers' head of Framlington Equities - Asia, Mark Tinker, when speaking at this morning's 2018 Financial Standard Chief Economists Forum in Sydney.
Tinker told delegates the momentum in 2018 for longer-term thematic trades has many looking at global growth and wanting to get involved in cyclical trends in search of value - forgetting that contrarian trades worked well in 2017.
"Sometimes the market has gotten there and then gone beyond, so there is some opportunity there to buy something that you like that everybody else hates or to sell some of the things that everybody is loving," Tinker said.
Investors need only look to last year to see what happened when everybody loved the dollar and commodities while turning their nose up at China and emerging markets, he said.
"I'm not saying you should definitely be contrarian, but you must also bear in mind that one of the things that happens in markets is the narrative is always most persuasive when it's at the top," Tinker said.
Tinker also stressed the growing importance of Asia's economy, particularly China, citing 90% of the next billion middle-class consumers will come from Asia.
"If you want to buy into real growth, real earnings and real dividends, you've got to look at where all the real economic activity is going on," he said.
China has transformed itself from a total GDP of less than $1 trillion in 1997 to having added $1.35 trillion to its GDP in 2017 alone - more than Australia's total GDP. It's not just the size that should be considered though, but also the shape of what's going on in China, Tinker said.
Tinker outlined the four key themes for investors to keep an eye on, including the massive growth in consumer spending, Made in China 2025, One Belt One Road and, perhaps most influential, the development of China's financial services infrastructure.
"China already has the biggest banking system in the world, but it's reforming it into a capital market system at its own pace which will have significant consequences for all of us...We have to understand what we're actually looking at and not just view it through a Western lens," he said.
"In 10 years' time, half your portfolio might be some sort of asset-backed security from China that doesn't even exist yet."
With 375 million middle class citizens and real wage growth of 8%, Chinese consumers are set to become crucial to the health of the global economy.
"We need to be focusing on these opportunities now instead of on the wealth of the developed market," Tinker concluded.