Top investment trends for the new year

Melissa Jenkins
(Australian Associated Press)

Resource stocks are tipped to be among the best performing Australian investments in the new year, while residential property loses favour.

Exchange-traded funds (ETFs) will continue to be popular, while it's anyone's guess what will happen with cryptocurrencies like bitcoin, a topic that has spread from tech geek land to mainstream barbecue fodder.

Resource companies were the big winners in 2017 on the back of an upswing in prices for commodities iron ore, coal and petroleum.

Global resources giant BHP Billiton posted a full-year profit of $US5.89 billion ($A7.42 billion) in 2017, compared with a $US6.4 billion loss a year earlier, and trebled its final dividend.

Its rival Rio Tinto almost doubled its half-year net profit to $US3.3 billion, and paid shareholders a record interim dividend.

The world's second-biggest iron ore exporter is expected to reveal its full-year results in February.

Citi equity strategist Tony Brennan forecasts the local share market will reach 6,400 points by the end of next year, producing a double-digit return with yield, concentrated in the resources sector.

"Even after earlier upgrades, we continue to estimate that spot commodity prices, if they persist, could lift FY18 market earnings forecasts another five per cent," he said.

"While there could be more slippage elsewhere, the improving economy yet still low labour cost rises should limit downside risks."

CMC Markets chief markets strategist Michael McCarthy also sees investors tilting their portfolios towards more mining and energy stocks.

He says Australian investors still have a heavy bias towards residential property but will likely move away from that area in 2018 in response to tougher lending restrictions.

"We will probably see a trend away from that over the course of 2018 as higher costs imposed by regulation and risks for the market as interest rates rise start to weigh on investors' minds," Mr McCarthy said.

Local investors were also increasingly boosting their international exposure either via direct shares or ETFs and would continue the trend next year, he said.

ETFs are investment funds traded on an exchange, like the Australian Securities Exchange (ASX) and typically track a specified benchmark index, exposing investors to a diversified range of assets at a relatively low cost.

Assets under management in the Australian ETFs market have more than tripled over the past four years to around $25 billion, according to the Reserve Bank of Australia.

Cryptocurrencies have been in the world spotlight this year, with bitcoin's value soaring from around $US800 at the start of 2017 to more than $US17,000.

Reserve Bank of Australia governor Philip Lowe on Wednesday labelled bitcoin a "speculative mania," mostly attractive to criminals and speculators, while US financial regulator, the Securities and Exchange Commission, has urged investors to exercise extreme caution.

Mr McCarthy said price fluctuations in cryptocurrencies means they should only be considered by sophisticated investors with a high tolerance for risk.

"The outlook for cryptocurrencies is binary; they are either going to succeed spectacularly or they are going to fail," he said.

"Nobody knows exactly how that is going to pan out."