City legend names his top sector for 2018

David Buik, respected market commentator at Panmure Gordon, tells Interactive Investor where he thinks the big gains will be made this year. There's plenty on big themes, too.

A year ago, you correctly called Trump an opportunity for markets. Still feel that way?

Probably not because we've seen the three main indices make huge gains this year based on very little expectation and hope. The tax cuts have only just been delivered and haven't yet been implemented. President Trump has managed to deliver very little else, and I think what's been achieved since he's been President of the United States has been nothing short, in terms of stockmarkets, phenomenal. And as I say, I cannot see, for the life of me, growth in the United States being that frothy or that exciting that we can expect the level of earnings to carry on the way we can.

We played this game for long enough now of share buybacks, and also mergers and acquisitions, but at the end of the day close scrutiny on valuation, I think will say that the opportunities for these US markets to crack on are going to be extremely limited.

Brexit will remain a major theme in 2018. Should investors consider tweaking their portfolios?

Oh definitely. When I say 'definitely', I think on the positive side that if you are a great believer in the European Union, then I think there are very good value in many of the stocks and the DAX and the CAC, particularly we like the banks which have recovered pretty well, but not perhaps as well as some of their US counterparts. So we like them, and also insurance companies are doing well, and also you have to always keep an eye on the drug market because I think it's, you know, with people living longer it's very positive. Earnings look extremely positive.

As the United Kingdom, the FTSE 100, as I say at the valuation, because at the moment it's 21 times earnings, looks fully valued to me, look to the FTSE 250, there are a lot of aspiring companies there that are going to do very well Brexit or no Brexit. You can let Brexit get in the way if you really want to, but it's the fundamentals that you have to look at. Look at companies that have actually got a fantastic business plan, have got a market and are not reliant necessarily on the European Union. And of the smaller brigade, there are plenty of them out there.

You're a well-known Brexiteer. Which companies stand to gain most from leaving the EU?

Those basically who've got international markets, who haven't completely floated their boat in terms of the European Union. And as I say, if you look in the smaller 250s, there are plenty of companies out there doing [very well], but of the larger companies, the one company I think I'd probably keep an eye, that I like really well, is the packaging company, RPC, because it's been sensible enough of not only having a good relationship with the European Union, but it's wholly international as a packager, particularly in plastics and things like that, and is doing incredibly well.

What other themes should investors keep an eye on next year?

I think the biggest driving force in markets next year is going to be politics and relative to that foreign exchange, followed by the bond market. I think the fundamentals we've already discussed, as regards valuation. But what we don't want to see is a real crisis in the bond market. And we are heading towards bubble material because interest rates have been so low and people have to reengage, you know, if the interest rates in the United States are going to go above what is likely to happen this month, early in 2018 and 19, which will necessarily put shields up, which will put a lot of people in what you would call loss areas. If this can be controlled, and providing we don't get any particularly unpleasant issues as regards North Korea, as regards the Middle East and also as regards Brexit, and they are all huge cumulonimbus clouds that are hanging over us.

Any favourite sectors to watch over the next 12 months?

I think probably banks. If I've got to select one sector on a global basis, based on the fact that all the major organisations have upped their grade in terms of world growth, apart from the United Kingdom, I think one of the areas that benefits, particularly if we're going to get slightly higher interest rates, is going to be the banking fraternity.

It's taken a decade to sort them out. It's taken a decade to recapitalise them. They're now in better shape than they've been since the meltdown in 2008/09, and I think if you want me to nail my flag to the mast, it would be the financial sector.

This is the transcript of a video filmed in December. To watch the original video, please click here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.