Global equity markets made further positive progress in Q4 gaining 3.27% in dollar terms or 1.38% against a resurgent sterling. This resulted in the MSCI World Index posting its best annual performance since 2009.

The 'holy trinity' of continuing dollar weakness, higher commodity prices and a positive outlook for the global economy proved to be the catalyst for record-breaking Q4 equity performance across most major markets. Global equities, unsurprisingly, took their lead from Wall Street where the S&P 500 and Nasdaq indices made record highs. Emerging markets, China and Japan also rallied strongly in Q4, being major beneficiaries of a weaker US currency, robust economic growth and healthy corporate earnings.

In the UK, progress with the Brexit divorce negotiations, combined with resilient economic data, led to a rise in the value of sterling during December. The stronger currency, however, limited gains for overseas companies in the FTSE-100; this allowed more domestically oriented medium and smaller company UK stocks to outperform their larger peers.

European stocks continued to lag global equities as investors took stock of a potential retreat by the European Central Bank from its loose monetary policy of the last nine years. As a result, the euro surged against the dollar which acted as a severe headwind for multi- national European companies. The European political outlook added to the cautious mood with investors focused on the outcome of elections in Spain and Italy, as well as uncertainty regarding the budget and Brexit.

Bond markets remained largely unmoved in Q4 with inflation subdued and wage growth modest. Some pick-up in US productivity and wage growth is expected in 2018, which together with a withdrawal of central bank support and US tax cuts could unsettle financial markets; nevertheless, the long-term deflationary pressure of elevated levels of debt, disruptive technology and globalisation should help maintain a supportive economic equilibrium.