Markets are currently not overvalued and are roughly at the average price to earnings levels of the last 25 years.

That is according to Vontobel Wealth Management's CIO Lars Kalbreier, who said in his market outlook that he expects the current level of asset prices to be sustained through 2018.

Looking at how core markets compare (see table below), Kalbreier said the current levels for these respective markets do not refeclt 'extreme' valuations.

Kalbreier also added that this year won't be as strong in terms of returns in comparison to 2017, which was an exceptionally good year for investors.

‘Having said that we still expect some positive returns. In terms of investment positioning we have a preference for equities over fixed income,' he said.

Within equity, two key themes Kalbreier favours are Japan and emerging markets.

Kalbreier sees strong economic growth and improvement of corporate governance in the EMs, while he is positive on structural reforms in Japan having a positive effect on the economy.

The third theme he is backing is Swiss companies with a domestic production focus, as well as those exporting to the eurozone.

'These are the companies that are now benefitting from the current weakness of the Swiss franc or the strength of the euro.’

Beware of risks

With regards to risks, Kalbreier said geopolitics, for example the situation in North Korea and Middle East, will continue to concern markets.

‘I am thinking for instance about the situation with Saudi Arabia and Qatar but also more recent situation in Iran, which could still destabilise for instance oil markets.’

Elsewhere, Kalbreier said he is conscious of the varying central bank policies currently at play.

‘If they start rising rates aggressively it could lead to a strong pick-up in inflation. If that were to happen that would have adverse consequences on the markets.’

Despite this danger Kalbreier expects inflation to stay subdued because of the overall technological progress.

‘You have price transparency that you never had to such an extent before. Hence the pricing power has moved from the producer to the consumer and producers are less likely to increase their prices as much as they used to do in the past.’